Chapter 63

I BEGIN MY DUTIES AS SECRETARY OF THE TREASURY. Legislative Training of Great Advantage to Me in My New Position-- Loan Contract in Force When I Took the Portfolio--Appointment of Charles F. Conant as Funding Agent of the Treasury Department in London--Redeeming Called Bonds--Sale of Four Per Cent. Bonds Instead of Four and a Half Per Cents.--Popularity of the New Loan--Great Saving in Interest--On a Tour of Inspection Along the Northern Atlantic Coast--Value of Information Received on This Trip--Effect of the Baltimore and Pittsburg Railroad Strikes in 1877 Upon Our Public Credit.

When I assumed the office of Secretary of the Treasury I had the advantage of some of my predecessors in that I was acquainted with the organization and duties of the treasury department. Ever since 1859 my connection with the committee of ways and means in the House and with the committee on Finance in the Senate had brought me into official relations with the head of that department. This legislative training gave me a full knowledge of the several laws that were to be executed in relation to public revenue, to all forms of taxation, to coinage and currency, and to the public debt. The entire system of national finance then existing grew out of the Civil War, and I had participated in the passage of all the laws relating to this subject. My intimate association with Secretaries Chase, Fessenden and McCulloch, and my friendly relations with Secretaries Boutwell and Richardson, led me, as chairman of the Senate committee on finance, to have free and confidential intercourse with them as to legislation affecting the treasury. Secretary Bristow had not had the benefit of experience either in Congress or the department. He was a good lawyer and an able man. He doubted whether resumption would be effective without a gradual retirement of United States notes, a measure that Congress would not agree to. Congress repealed even the limited retirement of such notes provided for by the resumption act. Secretary Morrill, of Maine, my immediate predecessor, was in hearty sympathy with the policy of Congress, of which he had been a useful Senator, and but for his failing health would have been an efficient secretary. Upon my assuming the duties of secretary, and for some time before, he had been confined by illness to his lodgings in Washington. The treasury department was then well organized. Most of the principal officers had been long in the service. But few changes were made by President Hayes or by myself, and only as vacancies occurred or as incompetency was demonstrated. The following loan contract was in force at the beginning of my administration of the treasury department:

"This agreement, entered into this 24th day of August, in the year of our Lord, 1876, between the Secretary of the Treasury of the United States of America, of the first part, and Messrs. August Belmont & Co., of New York, in behalf of Messrs. N. M. Rothschild & Sons, of London, England, and associates, and Messrs. J. & W. Seligman & Co., of New York, for themselves and associates, and Messrs. Drexel, Morgan & Co., on behalf of Messrs. J. S. Morgan & Co., of London, England, and Messrs. Morton, Bliss & Co., of New York, representing the First National Bank of the city of New York, the American Exchange National Bank of New York, the Merchants' National Bank of New York, the Third National Bank of New York, Messrs. Kuhn, Loeb & Co., of New York, the Bank of New York National Banking Association, and Messrs. Morton, Rose & Co., of London, and themselves, of the second part:

"Witnesseth, That the said Messrs. August Belmont & Co. of New York, on behalf of Messrs. N. M. Rothschild & Sons and associates, hereby agrees to purchase from the Secretary of the Treasury sixteen million five hundred thousand dollars ($16,500,000) of the United States bonds known as the four and a half per cent. funded loan of 1891, issued under the acts of July 14, 1870, and January 20, 1871; and that Messrs. J. & W. Seligman & Co., for themselves and their associates, hereby agree to purchase from the Secretary of the Treasury six million seven hundred and fifty thousand dollars ($6,750,000) of the bonds hereinbefore described; and that Messrs. Drexel, Morgan & Co., on behalf of Messrs. J. S. Morgan & Co., of London, England, hereby agree to purchase from the Secretary of the Treasury six million seven hundred and fifty thousand dollars ($6,750,000) of the bonds hereinbefore described; and that Messrs. Morton, Bliss & Co., of New York, representing the First National Bank of the city of New York, to the extent of four million dollars ($4,000,000); the American Exchange National Bank of New York, to the extent of one million and fifty thousand dollars ($1,050,000); the Merchants' National Bank of New York, to the extent of six hundred thousand dollars ($600,000); the Third National Bank of the city of New York, to the extent of seven hundred and fifty thousand dollars ($750,000); Messrs. Kuhn, Loeb & Co., of New York, to the extent of one million and fifty thousand dollars ($1,050,000); the Bank of New York National Banking Association, to the extent of three hundred thousand dollars ($300,000); Messrs. Morton, Rose & Co., of London, to the extent of one million one hundred and twenty-five thousand dollars ($1,125,000), and Messrs. Morton, Bliss & Co., of New York, to the extent of one million one hundred and twenty-five thousand dollars ($1,125,000), hereby agree, to the extent severally for each as above stated, to purchase from the Secretary of the Treasury ten million dollars ($10,000,000) in the aggregate of the bonds hereinbefore described, making a total aggregate of forty million dollars ($40,000,000), upon the terms and conditions following, to-wit:

"First. Of the said aggregate amount, not less than ten million dollars ($10,000,000) are hereby subscribed for, the subscription to take effect on the 1st day of September, 1876, and the remaining amount, namely, thirty million dollars ($30,000,000), may be divided at the pleasure of the parties of the second part into several successive subscriptions of not less than five million dollars ($5,000,000) each, to be made prior to the 4th day of March, 1877.

"Second. The parties of the second part shall have the exclusive right to subscribe, in the same proportion to each of the subscribers, for the remainder, namely, two hundred and sixty million dollars ($260,000,000), or any portion of said loan authorized to be issued by the acts of Congress aforesaid, by giving notice thereof to the Secretary of the Treasury on or before the 30th day of June, 1877; but the party of the first part reserves the right to terminate this contract at any time after March 4, 1877, by giving ten days' notice thereof to the parties of the second part.

"Third. That the Secretary of the Treasury shall, when subscriptions are made by the said parties of the second part, issue calls with even date with said subscriptions for the redemption of an equivalent amount of six per cent. 5-20 bonds of the United States, as provided by said act of July 14, 1870.

"Fourth. The parties of the second part agree to pay for said four and a half per cent. bonds par and interest accrued to the date of application for delivery of said bonds, in gold coin, matured United States gold coin coupons, or any of the six per cent. 5-20 bonds called for redemption, or in United States gold certificates of deposit issued under the act of March 3, 1863, with the understanding that payment to the extent of the amount of any call shall be made within the time during which such call shall mature: _Provided_, That, if the parties of the second part shall elect so to do, they may have the privilege of making any of said subscriptions payable specifically in uncalled six per cent 5-20 bonds of the United States, in which case the Secretary of the Treasury may, to the extent of such payments, omit the calls mentioned in condition No. 3.

"Fifth. The parties of the second part shall receive in coin a commission of one-half of one per cent. on all bonds taken by them, as allowed by the act of July 14, 1870, and shall assume and defray all expenses which may be incurred in sending bonds to London upon their request, or by transmitting bonds, coupons, or coin from there to the treasury department at Washington, including all cost of making exchange of bonds, and shall also be charged with the preparation and issuing of the bonds.

"Sixth. No bonds shall be delivered to the parties of the second part, or either of them, until payment shall have been made in full therefor in accordance with the terms of this contract.

"Seventh. During the continuance of this contract any sales of bonds ordered by the Secretary of the Treasury, by authority of law, except those that it may become necessary to sell to pay judgments of the Court of Commissioners of Alabama Claims, shall be made through the parties of the second part, who shall be allowed thereon a commission of one per cent. in gold coin. And it is provided that the amount of bonds so ordered shall not exceed in the aggregate $25,000,000, unless by mutual agreement of the parties.

"Lot M. Morrill, Secretary of the Treasury. "Aug. Belmont & Co., On behalf of N. M. Rothschild & Sons, London. "J. & W. Seligman & Co., On behalf of Seligman Brothers. "Drexel, Morgan & Co., On behalf of J. S. Morgan & Co., of London. "Morton, Bliss & Co., For themselves and associates, as named above."

By its terms the contract provided for the sale of $40,000,000, four and a half per cent. bonds of the United States at par in gold coin. The contractors had the exclusive right to subscribe for all or any portion of the remainder of the four and a half per cent. bonds, amounting to $260,000,000. The right to terminate this contract at any time after March 4, 1877, after ten days' notice, was reserved by the United States. The proceeds of the bonds sold were to be applied solely to the payment of the six per cent. 5-20 bonds of the United States. No provision was made in this contract for the accumulation of coin for the redemption of United States notes. The process of refunding under it progressed slowly.

I felt it to be important that I should have some personal representative in London, to protect the interests of the United States in the execution of this contract, and, therefore, on the 31st of March, 1877, I appointed Charles F. Conant, as the funding agent of the treasury department, and directed him to assume the general management and supervision of all business in London, arising from the funding of bonds. A letter of instructions prescribing his duties was given him. He was directed to pursue the same general plan under which former negotiations had been conducted, except as modified by these instructions, which were based upon the contract before mentioned. All bonds, money, or coupons received by him were to be securely kept in safes, furnished by the department for that purpose, to be deposited in the vaults of the Messrs. Rothschild. Combination locks were provided for each safe, and no safe could be unlocked except by three persons on distinct combinations, each person using a combination unknown to the others. He was to keep me fully advised as to the course of the market, of the price not only of American securities, but of foreign securities, and was to receive the new bonds and deliver them to the Rothschilds in exchange for the bonds redeemed. He proved to be a very competent and faithful agent, and furnished me important financial information, which aided me greatly in refunding operations. His compensation and allowances, as well as those of all persons sent to London in connection with the refunding of the public debt, were paid by the syndicate, so that no expense whatever was incurred by the treasury on this account.

I gave the following notice to the parties to this contract that I would, on the part of the United States, terminate it.

"Treasury Department, } "Washington, D. C., April 6, 1877.} "Gentlemen:--I received your friendly cable message of the 10th ultimo, and return my thanks and hearty good wishes.

"I am very solicitous to promote the funding of our six per cent. bonds as rapidly as practicable, and feel indebted to you for the aid you have given in placing the four and a half per cent. bonds.

"I propose no change at present; but it is my desire, if practicable, to withdraw the four and a half per cent. bonds from the market and substitute in their place the four per cent. bonds authorized by the funding act.

"These bonds, as you know, are a very desirable investment, running thirty years from the date of issue, with every guard and security that has been given to any bond of the United States, and we think as safe and desirable as the securities of any other nation. It is probably the bond into which all the debt of the United States will in time be converted. I hope you and your associates will be able to engage with me to place this bond on the market when $200,000,000 of the four and a half per cent. bonds have been sold.

"The public policy of the United States to resume specie payments on or before the 1st of January, 1879, is fully established by the law and by public opinion. It may be that the surplus revenue will be sufficient to enable me to carry out this policy without the sale of bonds. I am authorized by the resumption act to sell five, four and a half, or four per cent. bonds to prepare for resumption, and it may be desirable to sell through the syndicate, under that act, a limited amount of bonds, not exceeding, I hope, $30,000,000 a year. I do not wish in the execution of this duty to disturb the exchanges between Europe and this country. For this purpose I desire to sell only the four per cent. bonds and must sell at par in coin, but could receive in payment coin coupons maturing within a limited time. I invite from you and your associates such suggestions and offers as you may think proper to make for the purchase of such bonds.

"The operations of the syndicate have become so important that I have deemed it proper to ask Mr. Charles F. Conant, late Assistant Secretary of the Treasury, to take charge of the business in London in connection with the gentlemen already there. He is well informed as to our laws, and I trust his services may be of advantage to the government and agreeable to you.

"I will give my personal attention to this business, and will receive with pleasure any suggestions from you that will promote our common object.

"Very truly, "John Sherman, Secretary. "Messrs. N. M. Rothschild & Sons, London, England."

I received the following letter:

"New York, April 12, 1877. "Hon. John Sherman, Secretary of the Treasury, Washington.

"My Dear Sir:--I had an interview with Messrs. Drexel, Morgan & Co., and conveyed to them your wishes respecting limiting the sale of the four and a half and taking the four per cent. bond in hand with the co-operation of the Messrs. Rothschild.

"I told Mr. Drexel that you would be happy to see him and Mr. L. P. Morton in Washington, whenever convenient for them to go, and that on receipt by you of favorable advices from Mr. Conant after his arrival in London, you desired that Drexel, Morton and I should repair to Washington, in company with other leading members of the syndicate, with a view of entering into a contract with the government, in conformity with your views as expressed to me, or perhaps with some slight modifications, which, if suggested by the London people, through Mr. Conant, you may deem proper to adopt.

"I shall see Mr. Morton in the course of this day, and have no doubt but that he, as well as Drexel and myself, will be happy to aid you in raising the credit of our common country, and assist the President and you in this patriotic work. I remain, dear Mr. secretary, yours, very faithfully.

"Jos. Seligman."

A month later I wrote to Mr. Conant as follows:

"Treasury Department, } "Washington, May 14, 1877.} "Dear Mr. Conant:-- . . . On Friday last I concluded a modification of the present syndicate contract, which provides for the sale of five million four and a half per cent. bonds at par in coin for resumption purposes. A further negotiation is pending as to the renewal and modification of the contract, of which I will give you due notice when completed. In the meantime I wish to keep steadily in view the sale of the balance of two hundred million four and a half per cent. bonds, and, if possible, I wish to make the necessary calls during this month and next.

"You can assure Messrs. Rothschild of every disposition on the part of the government to meet their views, and to extend the contract with the necessary modifications. Their efforts in maintaining the credit of the bonds and securing this result will be highly appreciated.

"I would like to have you write me at least twice a week as fully as practicable.

"Very truly, "John Sherman. "Mr. C. F. Conant, London."

As the process of redeeming called bonds required a notice of ninety days, I postponed the termination of the existing contract until after that period. My purpose in terminating the contract was to substitute for sale the four per cent. bonds of the United States instead of the four and a half per cent. bonds. I believed that the advancing credit of the United States would justify this reduction of the rate of interest. Another reason for this step was that, in addition to refunding at a lower rate of interest, I wished to commence preparation for the resumption of specie payments on January 1, 1879, according to law. This could only be done by the sale of bonds for gold coin. I reserved the remainder of the four and a half bonds, amounting to $100,000,000, authorized by the refunding act, for resumption purposes in case the four per cent. bonds could not be sold at par in coin.

Another reason for a change in the existing contract was that it gave to the syndicate a monopoly in the sale of bonds while I wished to sell the bonds directly to the people. The new contract was as follows:

"This agreement, entered into this 9th day of June, 1877, between the Secretary of the Treasury of the United States, of the first part, and Messrs. August Belmont & Co., of New York, on behalf of Messrs. N. M. Rothschild & Sons, of London, England, and associates and themselves; Messrs. Drexel, Morgan & Co., of New York, on behalf of Messrs. J. S. Morgan & Co., of London, and themselves; Messrs. J. & W. Seligman & Co., of New York, on behalf of Messrs. Seligman Brothers, of London, and themselves; Messrs. Morton, Bliss & Co., of New York, on behalf of Messrs. Morton, Rose & Co., of London, and themselves; and the First National Bank of the city of New York--

"Witnesseth: That the said Messrs. August Belmont & Co., on behalf of Messrs. N. M. Rothschild & Sons, and associates and themselves, hereby agree to purchase from the Secretary of the Treasury $10,312,500 of the bonds known as the four per cent. consols of the United States, issued under the acts of July 14, 1870, January 20, 1871, and January 14, 1875, and that Messrs. Drexel, Morgan & Co., on behalf of Messrs. J. S. Morgan & Co., and themselves, agree to purchase $4,062,500 of said bonds, and that Messrs. J. & W. Seligman & Co., on behalf of Messrs. Seligman Brothers, and themselves, agree to purchase $4,062,500 of said bonds, and that the First National Bank of the city of New York agree to purchase $2,500,000 of said bonds, making a total aggregate of $25,000,000 of said bonds, on the terms and conditions following:

"First. Of the said aggregate amount not more than $5,000,000 shall be sold for resumption purposes, the remaining $20,000,000 to be sold for funding purposes, and subscribed for by the parties of the second part during the months of July and August, 1877.

"Second. The parties of the second part shall have the exclusive right to subscribe in the same proportion to each of the subscribers, for the remainder of the four per cent. consols of the United States, or any portion of said consols authorized to be issued by the acts of Congress aforesaid, by giving notice thereof to the Secretary of the Treasury on or before the 30th day of June, 1878; but the party of the first part reserves the right to terminate this contract at any time after the 31st day of December, 1877, by giving ten days' notice thereof to the parties of the second part.

"Third. That the Secretary of the Treasury shall not sell for resumption purposes exceeding five millions per month during the continuance of this contract, except by mutual agreement of the parties hereto. When subscriptions are made for other than resumption purposes by the parties of the second part, the party of the first part shall issue calls of even date with said subscriptions for the redemption of an equal amount of six per cent. 5-20 bonds of the United States, as provided for in said act of July 13, 1870.

"Fourth. The parties of the second part agree to pay for said four per cent. bonds par and interest accrued to the date of application for delivery of said bonds in gold coin, matured United States gold coin coupons, or any of the six per cent. 5-20 bonds called for redemption, or in United States gold certificates of deposit issued under the act of March 3, 1863, with the understanding that payment to the extent of the amount of any call shall be made within the time during which call shall mature: _Provided_, That if the parties of the second part shall elect so to do, they may have the privilege of making any of said subscriptions payable specifically in uncalled six per cent. 5-20 bonds of the United States, in which case the Secretary of the Treasury may, to the extent of such payments, omit the calls mentioned in condition No. 3.

"Fifth. The parties of the second part shall receive in coin a commission of one-half of one per cent. on all bonds taken by them, as allowed by the act of July 14, 1870, and shall assume and defray all expenses which may be incurred in sending bonds to London or elsewhere upon their request, or by transmitting bonds, coupons, or coin to the treasury department at Washington, including all cost of making the exchange of bonds, and shall also be charged with the cost of the preparation and issuing of the bonds.

"Sixth. No bonds shall be delivered to the parties of the second part, or either of them, until payment shall have been made in full therefor in accordance with the terms of this contract.

"Seventh. During the continuance of this contract any sales of bonds ordered by the Secretary of the Treasury, by authority of law, shall be made through the parties of the second part, who shall be allowed thereon a commission similar in amount and subject to the same deductions as prescribed in the fifth clause of this contract.

"Eighth. It is also agreed that the parties of the second part shall offer to the people of the United States, at par and accrued interest in coin, the four per cent. registered consols and four per cent. coupon consols of the denominations of fifty dollars and one hundred dollars, embraced in this contract, for a period of thirty days from the public notice of such subscriptions, and in such cities and upon such notice as the Secretary of the Treasury may prescribe prior to the opening of the lists, and further, to offer to the subscribers the option of paying in installments, extending through three months.

"John Sherman, Secretary of the Treasury. "August Belmont & Co., On behalf of N. M. Rothschild & Sons, of London, And associates and themselves. "Drexel, Morgan & Co., On behalf of J. S. Morgan & Co., of London, And themselves. "J. & W. Seligman & Co., On behalf of Seligman Brothers and themselves. "Morton, Bliss & Co., On behalf of Morton, Rose & Co., of London, And themselves. "The First National Bank of the city of New York, by H. C. Fahnestock. "Witnesses as to all:

"R. C. McCormick. "E. J. Babcock."

By this contract the syndicate was to take $25,000,000 of the four per cent. bonds at par, or in exchange of six per cent 5-20 bonds. Of this sum $5,000,000 in gold coin was to be paid to the treasury for resumption purposes. The eighth section was a new provision, and required the syndicate to offer to the people of the United States, at par and accrued interest in coin, the four per cent. bonds, for a period of thirty days, in such cities and upon such notice as the Secretary of the Treasury might prescribe.

The result of this contract was not only to save one-half of one per cent. on the annual interest of the bonds redeemed, but to so popularize the loan that within a brief period I was able to terminate the contract according to its terms, and to sell the four per cent. bonds directly to the people at par, without a commission, or the aid of a syndicate.

I wrote to Mr. Conant as follows:

"Treasury Department, } "Washington, May 31, 1877.} "Dear Mr. Conant:--Your letter of the 19th is received. Since its date matters here have changed greatly for the better, and I have made two calls for ten millions each.

"There is a strong, steady demand for our bonds, and I have now no fear but the two hundred millions four and a halfs will be exhausted before the 1st of July, when they will be withdrawn. The prospect of placing the four per cent. bonds, commencing July 1, is very good. I have submitted to the syndicate a proposition in substance requiring them to take twenty-five millions four per cents., during July and August, of which five millions will be for resumption purposes, with a stipulation that if they take fifty millions additional in September and October the contract will be extended to January 1, 1878, five millions a month to be applied for resumption purposes. I do not propose to vary essentially from the proposition. I have another offer almost as good from other parties, but I hope to combine these two offers into a modified syndicate, and, if possible, reserve the right to sell bonds at par, in coin or 5-20 bonds, to persons who apply directly to me for exchange, giving, however, the syndicate the half per cent. commission. We will considerably reduce the cost of the bonds, I think, to one-tenth of one per cent., so that the contracting parties will have a reasonably fair commission. I am already assured of many sales of the bonds whenever offered, without the aid of the syndicate, so that I consider myself strong enough to undertake the placing the bonds even without their aid, if they will not agree to reasonable terms. If I can secure the active, hearty co-operation of all the parties who wish to engage in selling the bonds, and they will be content with a reasonable profit, the operation of funding can go on so rapidly that they ought to be satisfied with the profit they will make.

"I have not overlooked the possibility that some movement of coin will be made to meet called bonds in Europe in excess of bonds sold there, but hope to perfect arrangements by which I will secure American bullion to meet this demand, without stopping accumulations of coin in the treasury.

"The prospects here are favorable for a good crop in all the states of the Mississippi valley, but there will probably be a bad crop in California.

"What we must do is push the loan so that it will be an established success before the meeting of Congress. If you can succeed in inspiring the Rothschilds to aid this purpose I am sure of success. My proposition has been sent to them, and I was advised would be answered by telegram about this time; but by the 15th I hope to have the arrangements completed.

"If upon receipt of this letter there is anything of striking interest affecting the loan you may cable me.

"All well in the department. Matters are going along quietly and steadily.

"Very truly yours, "John Sherman. "Hon. Chas. F. Conant, London."

This letter he received about the time the new contract was executed. I subsequently sent him the following cable telegram:

"Washington, June 9, 1877. "Conant, London:

"Contract of August 24, 1876, closed new four and a half per cent. bonds of $200,000,000. New contract twenty-five millions four per cent. bonds taken firm. Particulars by mail.

"Sherman."

Two days later I received a reply, as follows:

"London, June 11, 1877. "Sherman, Washington:

"Congratulations. Rothschilds request me to say that it is important for this market that the public subscriptions in America for four per cents. should be a success, and this will make the market for London. N. M. Rothschild & Sons hope Secretary of the Treasury will advise that banks subscribe immediately. J. S. Morgan & Co., N. M. Rothschild & Sons, think subscription should be opened soon, in view of preparing London market.

"Conant."

This new agreement gave at once a great impetus to the new loan in all parts of the United States, as well as in London. The following letters received indicate this:

"Merchants' National Bank, } "Cleveland, O., June 11, 1877.} "Hon. John Sherman, Secretary Treasury United States.

"Dear Sir:--We learn that you propose to offer the public a certain portion of the new four per cent. loan for a limited time, the amount subscribed to be paid in gold at the par value of the bonds.

"This bank, being a public depositary of the government of the United States, shall be glad to further your plans, and act as agent for the sale of such portion of the loan as you may suggest, and endeavor to give it such publicity as would secure the sale of a portion of these bonds in this part of Ohio.

"Wishing you success in the effort, I remain, very respectfully and truly,

"T. P. Handy, President.

"Treasury Department, June 12, 1877. "John P. Hunt, Esq., Philadelphia, Pa.

"Sir:--Your note is received. The department will be happy to receive your subscription in a short time. The bonds are not prepared, and the treasury regulations for the popular subscription cannot be issued for a few days, when a copy will be sent you.

"It is the purpose to give you, and all other citizens of the United States, an opportunity to subscribe at some convenient place in the city of your residence, to be designated in due time, requiring only a small deposit at the time of subscription, and allowing the privilege of paying at any time within ninety days thereafter.

"The bonds will bear date the 1st of July, and will be sold at par in coin and accruing interest to date of payment.

"Very respectfully, "John Sherman, Secretary."

Contemporaneous with this contract for selling the four per cent. bonds for gold coin, there appeared in the New York "Times" a suggestion that these bonds could be paid in silver. Henry F. French, Assistant Secretary of the Treasury, in a published letter of the date of June 11, asserted his opinion that the bonds issued under the act of July 14, 1870, for refunding, were redeemable in coin of the standard value at that date, and that "as it cannot be known what bonds have been transferred since the act of 1873, all bonds under the act of 1870 must be paid in gold coin of the standard value named in the act of 1873."

I received a letter from Messrs. Seligman & Co., inclosing an extract from the New York "Times," as follows:

"New York, June 12, 1877. "Hon. John Sherman, Secretary of the Treasury, Washington.

"Dear Mr. Secretary:--We beg to inclose a short editorial article which appeared in to-day's New York 'Times,' which, coming from a Republican paper, may frighten investors in our country and abroad. Intelligent people know that you, sir, as well as President Hayes, are sound on the silver question, and yet it may appear to you proper, and highly advantageous to the prompt marketing of the four per cent. bonds, to disabuse those who have been led to believe that the President and you favor the remonetizing of silver, with a view of paying our national debt in a metal so fluctuating as silver has become since the principal nations of Europe have demonetized it. We remain, dear Mr. secretary, your obedient servants,

"J. & W. Seligman & Co."

The article in the New York "Times," of June 12, 1877, said:

"In a dispatch received by the Secretary of the Treasury yesterday from Mr. Conant, the syndicate agent in London, it was stated that the contract touching the four per cent. bonds is well received in London, and the new bond bids fair to be the most popular of American securities. There is no doubt that the bond has many advantages both for home and foreign investors. It has only one point of weakness, and that is, if the silver ring should succeed in getting an unlimited issue of legal tender silver dollars, this bond would be payable, principal and interest, in that coin. Shrewd men, who know what silver has done and is liable to do in the way of ups and downs, will take this fact into consideration, and the government will ultimately be compelled to do the same. At present the strength of the silver movement is estimated to be small, but if this estimate should prove to be mistaken, the new four per cents. would suffer."

Mr. August Belmont wrote me a letter upon this subject of the date of June 14th, in which he said:

"Permit me to add a few words to the letter of my house of this day, in order to urge upon you the _vital_ importance of an official expression of yours _over you own signature_, in the sense of the letter of Assistant Secretary French, published in this morning's papers.

* * * * *

"You are placed at this moment, by a large portion of your political friends, in a somewhat similar position as the late Mr. Chase was by the attempt of Thad. Stevens to have Congress pass a law to declare the principal of the 5-20 bonds payable in currency.

"Mr. Chase took the bull by the horns by declaring, over his own signature, that the principal as well as the interest of the 5-20 bonds were payable in gold, the faith of the United States being pledged to this by the tacit understanding of the government and its creditors.

"Nothing has reflected more credit and renown upon that great statesman--then as prominent and favored a son of the noble State of Ohio as you are to-day--and nothing more effectually paved the way to the great work of reducing the burden of our people by lowering our interest one-third than that expression, sanctioned and confirmed by subsequent enactment of Congress in 1869.

* * * * *

"You will, in my opinion, insure the success of your financial measures, and add greatly to your high and prominent political position, if you will unequivocally declare that the funded debt of the government can only be redeemed, principal and interest, in gold coin, and that until otherwise agreed upon by the mutual consent of the great commercial nations of the United States, England, France, and Germany, the silver dollar can only be accepted as an auxiliary standard for the payment of fractional indebtedness."

To this I replied as follows:

"Treasury Department, } "Washington, June 16, 1877.} "Dear Sir:--Your private note, the letter of your firm, and one from Messrs. Seligman & Co., asking me to make a public statement over my own signature, similar to that of Mr. French, are received. I have given to this important suggestion the most serious consideration, and have come to the firm conclusion that such an act on my part would be inexpedient, and defeat the very object you have in view. As a purely executive officer, I have no power to pass upon the question mooted. My attempt to do so would at once unite all those who are seized with this mania, and those who oppose executive encroachment upon legislative power. It would create excitement, personal and political animosities would mingle with it, and it would tend more than anything else to defeat the success of the law. I am quite sure this would be the result.

"As to whether Congress or the people would ever undertake to pay either principal or interest of the bonded debt, and especially the bonds sold since 1873, in silver, I have a firm conviction that the question will never seriously be raised. These bonds will be paid, principal and interest, in gold coin. The people of the United States have always been extremely sensitive as to the public credit. They never have, for the sake of an apparent profit, yielded any question involving the public honor.

"The great satisfaction that will arise from the funding of the loan at a low rate of interest, together with their strong sense of public honor and public faith, will always secure the payment of these bonds, principal and interest, in coin.

"Parties or factions may, for a time, raise and contest questions, but they are but bubbles, and will pass away, and, like all other questions involving the public credit, will be rightfully settled, in due time, by Congress and the people.

"Nothing would so tend to disturb this result as unauthorized 'theses,' or dogmas, by an executive officer, upon a question purely legislative or judicial. Indeed, it may be that too much has already been said about this matter by both the President and myself, and I assure you that you will have no occasion to be disturbed by anything truthfully reported of either of us hereafter. The better way is to move right along, making your own statements, and if, at any time, I see a proper occasion for a strong expression of my opinion, I will give it.

"Please show this to Mr. Seligman, and such of your associates as you deem proper, as an answer to all.

"Very truly yours, "John Sherman. "Hon. August Belmont, New York."

The new loan was promptly placed on the market on the 14th of June by the following circular letter signed by the members of the syndicate:

"Under the authority of a contract with the Secretary of the Treasury, the undersigned hereby give notice that from this date until July 16, at 3 p. m., they will receive subscriptions for the four per cent. funded loan of the United States in denominations as stated below, at par and accrued interest in gold coin.

"The bonds are redeemable after thirty years from July 1, 1877, and carry interest from that date, payable quarterly, and are exempt from the payment of taxes or duties to the United States, as well as from taxation in any form, by or under state, municipal, or local authority.

"The interest on the registered stock will be paid by check, issued by the treasurer of the United States to the order of the holder, and mailed to his address. The check is payable on presentation, properly indorsed, at the offices of the treasurer and assistant treasurers of the United States.

"The subscriptions will be for coupon bonds of $50 and $100, and registered stock in denominations of $50, $100, $500, $1,000, $5,000, and $10,000.

"The bonds, both coupon and registered, will be ready for delivery July 2, 1877.

"Forms of application will be furnished by the treasurer at Washington, the assistant treasurers at Baltimore, Boston, Chicago, Cincinnati, New Orleans, New York, Philadelphia, St. Louis, and San Francisco, and by the national banks and bankers generally. The applications must specify the amount and denominations required, and for registered stock the full name and post office address of the person to whom the bonds shall be made payable.

"Two per cent. of the purchase money must accompany the subscription. The remainder may be paid, at the pleasure of the purchaser, either at the time of the subscription or at any time prior to October 16, 1877, with interest added at four per cent. to date of payment.

"The payments may be made in gold coin to the treasurer of the United States at Washington, or assistant treasurers at Baltimore, Boston, Chicago, Cincinnati, New Orleans, and St. Louis, and to the assistant treasurer at San Francisco, with exchange on New York, or to either of the undersigned.

"To promote the convenience of subscribers, the undersigned will also receive, in lieu of coin, United States notes or drafts on New York, at their coin value on the day of receipt in the city of New York.

"August Belmont & Co., New York. "Drexel, Morgan & Co., New York. "J. & W. Seligman & Co., New York. "Morton, Bliss & Co., New York. "First National Bank, New York. "Drexel & Co., Philadelphia. "June 16, 1877."

A few days later I wrote the following letter:

"Treasury Department, } "Washington, D. C., June 19, 1877.} "Sir:--Your letter of the 18th instant, in which you inquire whether the four per cent. bonds now being sold by the government are payable, principal and interest, in gold coin, is received. The subject, from its great importance, has demanded and received careful consideration.

"Under laws now in force, there is no coin issued or issuable in which the principal of the four per cent. bonds is redeemable, or the interest payable, except the gold coins of the United States of the standard value fixed by laws in force on the 14th of July, 1870, when the bonds were authorized.

"The government exacts, in exchange for these bonds, payment at par in such gold coin, and it is not to be anticipated that any future legislation of Congress, or any action of any department of the government, would sanction or tolerate the redemption of the principal of these bonds, or the payment of the interest thereon, in coin, of less value than the coin authorized by law at the time of the issue of the bonds, being the coin exacted by the government in exchange for the same.

"The essential element of _good faith_, in preserving the equality in value between the coinage in which the government receives and that in which it pays these bonds, will be sacredly observed by the government and the people of the United States, whatever may be the system of coinage which the general policy of the nation may at any time adopt.

"This principle is impressed upon the text of the law of July 14, 1870, under which the four per cent. bonds are issued, and requires, in the opinion of the executive department of the government, the redemption of these bonds and the payment of their interest in coin of equal value with that which the government receives from its issue.

"Very respectfully, "John Sherman, Secretary. "Francis O. French, Esq., 94 Broadway, New York."

The subscriptions were taken in every part of the United States, and within thirty days $67,600,000 were taken in this country and $10,200,000 in Europe, making $77,800,000 sold. This sum, when applied to the payment of the six per cent. bonds, made an annual saving to the people of the United States of $1,556,000. Since the 1st of March, 1877, there had been sold under the refunding act $135,000,000 four and a half per cent. bonds and that amount of six per cent. bonds was paid off and canceled, thus saving to the people of the United States $2,025,000 in coin each year. The aggregate reduction of interest by both classes of bonds from the 1st of March to the close of the popular loan, was $3,581,000 a year in coin. This was regarded as a great success.

Early in July I set out on the revenue cutter "U. S. Grant" on a visit of inspection along the north Atlantic coast, accompanied by the chief of the coast survey, the secretary of the lighthouse board, the superintendent of the life-saving service, and the chief of the revenue marine service, and also by Webb Hayes, the son of the President. We visited the life-saving stations along the New Jersey coast. I was deeply interested in this service, which I regard as the most deserving humanitarian branch of the public service. We also visited some of the leading lighthouses along the coast and the principal customhouses between the Chesapeake Bay and Eastport, Maine. We were everywhere received with great kindness and many social courtesies were extended to us, especially in New York, Boston and Portland. This outing was a great relief from the close confinement I had undergone since the 4th of March. The information I gathered as to these branches of the service, with which I had not previously had much acquaintance, was of great value to me. Such trips are sometimes treated by the press as "junketing" at the public expense. This is a great error. Each of us paid his share of the expenses and the vessel only pursued its usual course of duty. I was brought into close association with these subordinate officers of the department and became informed of their duties, and their fitness for them, and was enabled to act with intelligence on their recommendations.

The only unpleasant incident that occurred on the trip was the running of the cutter upon a rock upon the coast of Maine. This happened in the afternoon of a beautiful day. All the gentlemen with me and the officers of the vessel were on deck. The various buoys were being pointed out and a map of the channel was lying before us. Some mention was made of a buoy that ought to be near the place where we were to mark the location of a rock, but none was found, and suddenly we heard the scraping of the vessel upon the rock. The cutter trembled and careened over. The captain was somewhat alarmed and turned the vessel toward the beach, where it was speedily examined and found to be somewhat injured. We ascertained afterwards that the buoy had been displaced by a storm and that a vessel was then on its way to replace it. The sinking of the revenue cutter "U. S. Grant" was reported in the morning dispatches and created some excitement; but the vessel did not sustain any substantial injury. We thought it best to leave it for a time to be thoroughly examined and repaired and took another vessel to complete our journey to Eastport, the northeastern port of the United States. From thence Webb Hayes and myself returned to Portland and crossed over the Burlington, Vermont, on Lake Champlain, and from thence went to Saratoga, where we remained a few days, and then returned to Washington on the 22nd of July. We passed through Baltimore on the day the riots occurred in that city, and soon after heard of the much more dangerous outbreak in Pittsburg.

On the 6th of August I wrote to Mr. Conant as follows:

"Your letter of the 26th ultimo is received. You can safely say to the Messrs. Rothschild that the strikes have been totally disconnected with the government, but grow purely out of a contract between the managers of the leading lines of railway and their employees as to rates of pay.

"The railroad companies have, for several years, competed with each other in a very improvident and reckless way, and are now, and have been for some time, carrying freight for less than cost. This has caused a large reduction of the net income of roads, has led to the loss of dividends, and now to the reduction of wages of employees to rates scarcely sufficient to support life. Hence the strikes.

"The government has been appealed to by both railroads and strikers, by states and by cities, for relief, and has promptly extended it in every proper case, and, without shedding blood, has, in every case, suppressed the riot, and maintained the peace, so that the government is really stronger by reason of these unfortunate events than before. I do not observe that any change has been made by them, either in the price of bonds or in the price of gold, nor in the payment of subscriptions to four per cent. bonds.

"No effort is made to sell the bonds now, nor do I care to press the home market, until enough bonds are sold abroad to provide for called bonds abroad.

"The month of August must necessarily be a languid one, and I do not advise any unusual efforts to force sales.

"Your supplemental cipher was received after your telegram, but was soon found and dispatch made out."

I no doubt was mistaken in the effect of the strikes upon our public credit. From that time forward for many months there was scarcely any sale of government bonds at any price. The contracting parties informed me that no bonds were then selling in the market and that in New York they were a trifle below par. Practically, for the remainder of the year, government securities were greatly affected in price and value.