Chapter 7

All these difficulties might be avoided if, consistently with the good faith of Nicaragua, the use of this transit could be thrown open to general competition, providing at the same time for the payment of a reasonable rate to the Nicaraguan Government on passengers and freight. In August, 1852, the Accessory Transit Company made its first interoceanic trip over the Nicaraguan route, and continued in successful operation, with great advantage to the public, until the 18th February, 1856, when it was closed and the grant to this company as well as its charter were summarily and arbitrarily revoked by the Government of President Rivas. Previous to this date, however, in 1854, serious disputes concerning the settlement of their accounts had arisen between the company and the Government, threatening the interruption of the route at any moment. These the United States in vain endeavored to compose. It would be useless to narrate the various proceedings which took place between the parties up till the time when the transit was discontinued. Suffice it to say that since February, 1856, it has remained closed, greatly to the prejudice of citizens of the United States. Since that time the competition has ceased between the rival routes of Panama and Nicaragua, and in consequence thereof an unjust and unreasonable amount has been exacted from our citizens for their passage to and from California.

A treaty was signed on the 16th day of November, 1857, by the Secretary of State and minister of Nicaragua, under the stipulations of which the use and protection of the transit route would have been secured, not only to the United States, but equally to all other nations. How and on what pretext this treaty has failed to receive the ratification of the Nicaraguan Government will appear by the papers herewith communicated from the State Department. The principal objection seems to have been to the provision authorizing the United States to employ force to keep the route open in case Nicaragua should fail to perform her duty in this respect. From the feebleness of that Republic, its frequent changes of government, and its constant internal dissensions, this had become a most important stipulation, and one essentially necessary, not only for the security of the route, but for the safety of American citizens passing and repassing to and from our Pacific possessions. Were such a stipulation embraced in a treaty between the United States and Nicaragua, the knowledge of this fact would of itself most probably prevent hostile parties from committing aggressions on the route, and render our actual interference for its protection unnecessary.

The executive government of this country in its intercourse with foreign nations is limited to the employment of diplomacy alone. When this fails it can proceed no further. It can not legitimately resort to force without the direct authority of Congress, except in resisting and repelling hostile attacks. It would have no authority to enter the territories of Nicaragua even to prevent the destruction of the transit and protect the lives and property of our own citizens on their passage. It is true that on a sudden emergency of this character the President would direct any armed force in the vicinity to march to their relief, but in doing this he would act upon his own responsibility.

Under these circumstances I earnestly recommend to Congress the passage of an act authorizing the president, under such restrictions as they may deem proper, to employ the land and naval forces of the United States in preventing the transit from being obstructed or closed by lawless violence, and in protecting the lives and property of American citizens traveling thereupon, requiring at the same time that these forces shall be withdrawn the moment the danger shall have passed away. Without such a provision our citizens will be constantly exposed to interruption in their progress and to lawless violence.

A similar necessity exists for the passage of such an act for the protection of the Panama and Tehuantepec routes. In reference to the Panama route, the United States, by their existing treaty with New Granada, expressly guarantee the neutrality of the Isthmus, "with the view that the free transit from the one to the other sea may not be interrupted or embarrassed in any future time while this treaty exists."

In regard to the Tehuantepec route, which has been recently opened under the most favorable auspices, our treaty with Mexico of the 30th December, 1853, secures to the citizens of the United States a right of transit over it for their persons and merchandise and stipulates that neither Government shall "interpose any obstacle" thereto. It also concedes to the United States the "right to transport across the Isthmus, in closed bags, the mails of the United States not intended for distribution along the line of the communication; also the effects of the United States Government and its citizens which may be intended for transit and not for distribution on the Isthmus, free of custom-house or other charges by the Mexican Government."

These treaty stipulations with New Granada and Mexico, in addition to the considerations applicable to the Nicaragua route, seem to require legislation for the purpose of carrying them into effect.

The injuries which have been inflicted upon our citizens in Costa Rica and Nicaragua during the last two or three years have received the prompt attention of this Government. Some of these injuries were of the most aggravated character. The transaction at Virgin Bay in April, 1856, when a company of unarmed Americans, who were in no way connected with any belligerent conduct or party, were fired upon by the troops of Costa Rica and numbers of them killed and wounded, was brought to the knowledge of Congress by my predecessor soon after its occurrence, and was also presented to the Government of Costa Rica for that immediate investigation and redress which the nature of the case demanded. A similar course was pursued with reference to other outrages in these countries, some of which were hardly less aggravated in their character than the transaction at Virgin Bay. At the time, however, when our present minister to Nicaragua was appointed, in December, 1857, no redress had been obtained for any of these wrongs and no reply even had been received to the demands which had been made by this Government upon that of Costa Rica more than a year before. Our minister was instructed, therefore, to lose no time in expressing to those Governments the deep regret with which the President had witnessed this inattention to the just claims of the United States and in demanding their prompt and satisfactory adjustment. Unless this demand shall be complied with at an early day it will only remain for this Government to adopt such other measures as may be necessary in order to obtain for itself that justice which it has in vain attempted to secure by peaceful means from the Governments of Nicaragua and Costa Rica. While it has shown, and will continue to show, the most sincere regard for the rights and honor of these Republics, it can not permit this regard to be met by an utter neglect on their part of what is due to the Government and citizens of the United States.

Against New Granada we have long-standing causes of complaint, arising out of the unsatisfied claims of our citizens upon that Republic, and to these have been more recently added the outrages committed upon our citizens at Panama in April, 1856. A treaty for the adjustment of these difficulties was concluded by the Secretary of State and the minister of New Granada in September, 1857, which contained just and acceptable provisions for that purpose. This treaty was transmitted to Bogota and was ratified by the Government of New Granada, but with certain amendments. It was not, however, returned to this city until after the close of the last session of the Senate. It will be immediately transmitted to that body for their advice and consent, and should this be obtained it will remove all our existing causes of complaint against New Granada on the subject of claims.

Questions have arisen between the two Governments as to the right of New Granada to levy a tonnage duty upon the vessels of the United States in its ports of the Isthmus and to levy a passenger tax upon our citizens arriving in that country, whether with a design to remain there or to pass from ocean to ocean by the transit route; and also a tax upon the mail of the United States transported over the Panama Railroad. The Government of New Granada has been informed that the United States would consider the collection of either of these taxes as an act in violation of the treaty between the two countries, and as such would be resisted by the United States. At the same time, we are prepared to discuss these questions in a spirit of amity and justice and with a sincere desire to adjust them in a satisfactory manner. A negotiation for that purpose has already been commenced. No effort has recently been made to collect these taxes nor is any anticipated under present circumstances.

With the Empire of Brazil our relations are of the most friendly character. The productions of the two countries, and especially those of an agricultural nature, are such as to invite extensive mutual exchanges. A large quantity of American flour is consumed in Brazil, whilst more than treble the amount in value of Brazilian coffee is consumed in the United States. Whilst this is the case, a heavy duty has been levied until very recently upon the importation of American flour into Brazil. I am gratified, however, to be able to inform you that in September last this has been reduced from $1.32 to about 49 cents per barrel, and the duties on other articles of our production have been diminished in nearly the same proportion.

I regret to state that the Government of Brazil still continues to levy an export duty of about 11 per cent on coffee, notwithstanding this article is admitted free from duty in the United States. This is a heavy charge upon the consumers of coffee in our country, as we purchase half of the entire surplus crop of that article raised in Brazil. Our minister, under instructions, will reiterate his efforts to have this export duty removed, and it is hoped that the enlightened Government of the Emperor will adopt this wise, just, and equal policy. In that event, there is good reason to believe that the commerce between the two countries will greatly increase, much to the advantage of both. The claims of our citizens against the Government of Brazil are not in the aggregate of very large amount; but some of these rest upon plain principles of justice and their settlement ought not to be longer delayed. A renewed and earnest, and I trust a successful, effort will be made by our minister to procure their final adjustment.

On the 2d of June last Congress passed a joint resolution authorizing the President "to adopt such measures and use such force as in his judgment may be necessary and advisable" "for the purpose of the differences between the United States and the Republic of Paraguay, in connection with the attack on the United States steamer Water Witch and with other measures referred to" in his annual message, and on the 12th of July following they made an appropriation to defray the expenses and compensation of a commissioner to that Republic should the President deem it proper to make such all appointment.

In compliance with these enactments, I have appointed a commissioner, who has proceeded to Paraguay with full powers and instructions to settle these differences in an amicable and peaceful manner if this be practicable. His experience and discretion justify the hope that he may prove successful in convincing the Paraguayan Government that it is due both to honor and justice that they should voluntarily and promptly make atonement for the wrongs which they have committed against the United States and indemnify our injured citizens whom they have forcibly despoiled of their property.

Should our commissioner prove unsuccessful after a sincere and earnest effort to accomplish the object of his mission, then no alternative will remain but the employment of force to obtain "just satisfaction" from Paraguay. In view of this contingency, the Secretary of the Navy, under my direction, has fitted out and dispatched a naval force to rendezvous near Buenos Ayres, which, it is believed, will prove sufficient for the occasion. It is my earnest desire, however, that it may not be found necessary to resort to this last alternative.

When Congress met in December last the business of the country had just been crushed by one of those periodical revulsions which are the inevitable consequence of our unsound and extravagant system of bank credits and inflated currency. With all the elements of national wealth in abundance, our manufactures were suspended, our useful public and private enterprises were arrested, and thousands of laborers were deprived of employment and reduced to want. Universal distress prevailed among the commercial, manufacturing, and mechanical classes. This revulsion was felt the more severely in the United States because similar causes had produced the like deplorable effects throughout the commercial nations of Europe. All were experiencing sad reverses at the same moment. Our manufacturers everywhere suffered severely, not because of the recent reduction in the tariff of duties on imports, but because there was no demand at any price for their productions. The people were obliged to restrict themselves in their purchases to articles of prime necessity. In the general prostration of business the iron manufacturers in different States probably suffered more than any other class, and much destitution was the inevitable consequence among the great number of workmen who had been employed in this useful branch of industry. There could be no supply where there was no demand. To present an example, there could be no demand for railroad iron after our magnificent system of railroads, extending its benefits to every portion of the Union, had been brought to a dead pause. The same consequences have resulted from similar causes to many other branches of useful manufactures. It is self-evident that where there is no ability to purchase manufactured articles these can not be sold, and consequently must cease to be produced.

No government, and especially a government of such limited powers as that of the United States, could have prevented the late revulsion. The whole commercial world seemed for years to have been rushing to this catastrophe. The same ruinous consequences would have followed in the United States whether the duties upon foreign imports had remained as they were under the tariff of 1846 or had been raised to a much higher standard. The tariff of 1857 had no agency in the result. The general causes existing throughout the world could not have been controlled by the legislation of any particular country.

The periodical revulsions which have existed in our past history must continue to return at intervals so long as our present unbounded system of bank credits shall prevail. They will, however, probably be the less severe in future, because it is not to be expected, at least for many years to come, that the commercial nations of Europe, with whose interests our own are so materially involved, will expose themselves to similar calamities. But this subject was treated so much at large in my last annual message that I shall not now pursue it further. Still, I respectfully renew the recommendation in favor of the passage of a uniform bankrupt law applicable to banking institutions. This is all the direct power over the subject which I believe the Federal Government possesses. Such a law would mitigate, though it might not prevent, the evil. The instinct of self-preservation might produce a wholesome restraint upon their banking business if they knew in advance that a suspension of specie payments would inevitably produce their civil death.

But the effects of the revulsion are now slowly but surely passing away. The energy and enterprise of our citizens, with our unbounded resources, will within the period of another year restore a state of wholesome industry and trade. Capital has again accumulated in our large cities. The rate of interest is there very low. Confidence is gradually reviving, and so soon as it is discovered that this capital can be profitably employed in commercial and manufacturing enterprises and in the construction of railroads and other works of public and private improvement prosperity will again smile throughout the land. It is vain, however, to disguise the fact from ourselves that a speculative inflation of our currency without a corresponding inflation in other countries whose manufactures come into competition with our own must ever produce disastrous results to our domestic manufactures. No tariff short of absolute prohibition can prevent these evil consequences. In connection with this subject it is proper to refer to our financial condition. The same causes which have produced pecuniary distress throughout the country have so reduced the amount of imports from foreign countries that the revenue has proved inadequate to meet the necessary expenses of the Government. To supply the deficiency, Congress, by the act of December 23, 1857, authorized the issue of $20,000,000 of Treasury notes; and this proving inadequate, they authorized, by the act of June 14, 1858, a loan of $20,000,000, to be applied to the payment of appropriations made by law."

No statesman would advise that we should go on increasing the national debt to meet the ordinary expenses of the Government. This would be a most ruinous policy. In case of war our credit must be our chief resource, at least for the first year, and this would be greatly impaired by having contracted a large debt in time of peace. It is our true policy to increase our revenue so as to equal our expenditures. It would be ruinous to continue to borrow. Besides, it may be proper to observe that the incidental protection thus afforded by a revenue tariff would at the present moment to some extent increase the confidence of the manufacturing interests and give a fresh impulse to our reviving business. To this surely no person will object.

In regard to the mode of assessing and collecting duties under a strictly revenue tariff, I have long entertained and often expressed the opinion that sound policy requires this should be done by specific duties in cases to which these can be properly applied. They are well adapted to commodities which are usually sold by weight or by measure, and which from their nature are of equal or of nearly equal value. Such, for example, are the articles of iron of different classes, raw sugar, and foreign wines and spirits.

In my deliberate judgment specific duties are the best, if not the only, means of securing the revenue against false and fraudulent invoices, and such has been the practice adopted for this purpose by other commercial nations. Besides, specific duties would afford to the American manufacturer the incidental advantages to which he is fairly entitled under a revenue tariff. The present system is a sliding scale to his disadvantage. Under it, when prices are high and business prosperous, the duties rise in amount when he least requires their aid. On the contrary, when prices fall and he is struggling against adversity, the duties are diminished in the same proportion, greatly to his injury. Neither would there be danger that a higher rate of duty than that intended by Congress could be levied in the form of specific duties. It would be easy to ascertain the average value of any imported article for a series of years, and, instead of subjecting it to an ad valorem duty at a certain rate per centum, to substitute in its place an equivalent specific duty.

By such an arrangement the consumer would not be injured. It is true he might have to pay a little more duty on a given article in one year, but, if so, he would pay a little less in another, and in a series of years these would counterbalance each other and amount to the same thing so far as his interest is concerned. This inconvenience would be trifling when contrasted with the additional security thus afforded against frauds upon the revenue, in which every consumer is directly interested.

I have thrown out these suggestions as the fruit of my own observation, to which Congress, in their better judgment, will give such weight as they may justly deserve.

The report of the Secretary of the Treasury will explain in detail the operations of that Department of the Government. The receipts into the Treasury from all sources during the fiscal year ending June 30, 1858, including the Treasury notes authorized by the act of December 23, 1857, were $70,273,869.59, which amount, with the balance of $17,710,114.27 remaining in the Treasury at the commencement of the year, made an aggregate for the service of the year of $87,983,983.86.

The public expenditures during the fiscal year ending June 30, 1858, amounted to $81,585,667.76, of which $9,684,537.99 were applied to the payment of the public debt and the redemption of Treasury notes with the interest thereon, leaving in the Treasury on July 1, 1858, being the commencement of the present fiscal year, $6,398,316.10.

The receipts into the Treasury during the first quarter of the present fiscal year, commencing the 1st of July, 1858, including one-half of the loan of $20,000,000, with the premium upon it, authorized by the act of June 14, 1858, were $25,230,879.46, and the estimated receipts for the remaining three quarters to the 30th of June, 1859, from ordinary sources are $38,500,000, making, with the balance before stated, an aggregate of $70,129,195.56.

The expenditures during the first quarter of the present fiscal year were $21,708,198.51, of which $1,010,142.37 were applied to the payment of the public debt and the redemption of Treasury notes and the interest thereon. The estimated expenditures during the remaining three quarters to June 30, 1859, are $52,357,698.48, making an aggregate of $74,065,896.99, being an excess of expenditure beyond the estimated receipts into the Treasury from ordinary sources during the fiscal year to the 30th of June, 1859, of $3,936,701.43. Extraordinary means are placed by law within the command of the Secretary of the Treasury, by the reissue of Treasury notes redeemed and by negotiating the balance of the loan authorized by the act of June 14, 1858, to the extent of $11,000,000, which, if realized during the present fiscal year, will leave a balance in the Treasury on the 1st day of July, 1859, of $7,063,298.57.

The estimated receipts during the next fiscal year, ending June 30, 1860, are $62,000,000, which, with the above-estimated balance of $7,063,298.57 make an aggregate for the service of the next fiscal year of $69,063,298.57. The estimated expenditures during the next fiscal year, ending June 30, 1860, are $73,139,147.46, which leaves a deficit of estimated means, compared with the estimated expenditures, for that year, commencing on July 1, 1859, of $4,075,848.89.