Chapter X: Section 1: Be it enacted by the Senate and House of (2)

Bills relating to taxation do not originate in the Senate; but Senators are not shut out from expressing themselves freely on the proper policy which is demanded at this time. On the finances and the banks the Senate has the same powers as the other House. Here it may take the initiative, as is shown by the present bill. But what it does should be equal to the occasion; it should be large, and not petty,--far-reaching, and not restricted in its sphere. The present bill, I fear, has none of these qualities which we desire at this time. It is a patch or plaster only, when we need a comprehensive cure.

To my mind it is easy to see what must be done. The country must be relieved from its heavy burdens. Taxation must be made lighter,--also less complex and inquisitorial. Simplification will be a form of relief. Our banking system is ready to adapt itself to the wants of the country, if you will only say the word. Speak, Sir, and it will do what you desire. But instead of this we are asked by the Committee to begin by making the system more complex, without adding to its efficiency; we are asked to construct a third currency, which so long as it continues must be a stumbling-block; we are asked to establish discord instead of concord.

Now, Sir, in order to bring the Senate to a precise vote on what I regard as the fundamental proposition of my amendment, I shall withdraw the amendment as a whole, and move to strike out the first two sections of the Committee’s bill, and to insert as a substitute what I send to the Chair.

The proposed substitute, being Section 5 of Mr. Sumner’s bill,
having been read, he continued:--

On that proposition I have one word to say. It is brief: that you will admit. It is simple: that you will admit. It enlarges the existing national bank circulation by $200,000,000: that is ample, as I believe you will admit. Practically it is a system of free banking: that is, it is such until the enlarged circulation is absorbed,--that is, for some time to come. But free banking is what, as I understand, Senators desire.

Then, again, it has in it no element of injustice. There is no injustice to the North or to the East. All parts of the country are equally accommodated and equally protected. But this cannot be said of the pending measure.

Then, again, it is elastic, adapting itself everywhere to the exigencies of the place. If banking facilities are needed, and the capital is ready, under that amendment they can be enjoyed. Unlike the proposition of the Committee, it is not of cast-iron, but is so as to adapt itself to all the conditions of business in every part of the country.

Then, again, in the final provision, that for every bank-note issued a greenback shall be withdrawn, you find the great highway to specie payments. All your greenbacks will speedily be withdrawn. You will have then only the bank-notes, making one paper currency; and then speedily, within a brief period, you will have specie payments. The banks must have their reserves; there will be no greenbacks for them; they must find them in specie. The banks, then, and every stockholder, will find a motive to press for specie payments, and you will have that great result quietly accomplished, absolutely without shock, while the business interests of the country will rejoice.

February 1st, in further advocacy of this amendment, Mr. Sumner
said:--

MR. PRESIDENT,--As it is understood that the Senate is to vote to-day on the bill and all pending propositions, I seize this moment to say a last word for the proposition which I have had the honor of moving, and which is now pending. But before I proceed with the discussion, allow me to say, that, while sitting at my desk here, I have received expressions of opinion from different parts of the country, one or two of which I will read. For instance, here is a telegraphic dispatch from a leading financial gentleman in Chicago:--

“Your views on Currency Question much approved here. Authorize
new bank circulation to extent named, retiring greenbacks _pari
passu_.”

This is the very rule which I seek to establish.

At the same time I received a communication from Circleville, Ohio, dated January 25th, the first sentences of which I will read:--

“Please pardon me for this intrusion. I desire to ask, if you
are willing to indicate, what will likely be the result of your
financial bill. I think I only utter the sentiment of three
fourths of all the commercial men through our great and growing
West, when I say it should become a law, and thereby secure to
us our equal share of the national banking capital, which we
now need so much.”

This, again, is what I seek to accomplish.

* * * * *

At this stage, I hope I may have the indulgence of the Senate, if I ask one moment’s attention to the bill of the Committee. On a former occasion I ventured to say that it was inadequate.[219] The more I reflect upon it, the longer this debate is continued, the more I am impressed with its inadequacy. It does not do what should be done by the first measure of legislation on our finances adopted by the present Congress. It is incomplete. I wish I could stop there; but I am obliged to go further, and say that it is not only incomplete, but it is, in certainly one of its features, to which I shall call attention, mischievous. I take advantage of this moment to present this point, because it has not been mentioned before, and because at a later stage I may not have the opportunity of doing so. It is this provision at the end of the first section:--

“But a new apportionment shall be made as soon as practicable,
based upon the census of 1870.”

At the proper time I shall move to strike out these words, and I will now very briefly assign my reasons.

The proposition is objectionable, first, because it is mischievous,--and, secondly, because it is difficult, if not impracticable, in its operation; and if I can have the attention of the Senate, unless figures deceive me, and unless facts are at fault, I think that the Senate must agree in my conclusion.

We are told by the Comptroller of the Currency that $45,000,000 is a large allowance of currency at this moment for the South and West; indeed, I believe he puts the limit at $40,000,000. Now suppose only $40,000,000 are taken up during the coming year,--that is, till the completion of the census; that would leave $5,000,000 still outstanding, which might be employed for the benefit of the South and West. That circumstance indicates to a certain extent the financial condition of those parts of the country. Do they need larger facilities, and, if so, to what extent? Can you determine in advance? I doubt it. But, Sir, in the face of this uncertainty, this bill steps in and declares positively that “a new apportionment shall be made as soon as practicable, based upon the census of 1870.” What will be the effect of such a new apportionment? Even according to the census of 1860, such new apportionment would transfer some sixty million dollars from banks that enjoy it to other parts of the country; it would take away from those banks what they want, and transfer it where it is not wanted. The language is imperative. But, Sir, it is not to be under the census of 1860, but under the census of 1870; and unless figures deceive, by that census the empire of the great West will be more than ever manifest. And if the transfer is made accordingly, it will take some ninety or one hundred million dollars from where it now is, and is needed, and carry it to other places where certainly it will not be needed in the same degree. What will be the effect of such a transfer?

Mark, Sir, the statute is mandatory and unconditional. There is no chance for discretion; it is to be done; the transfer is to be made. And now what must be the consequence? A derangement of business which it is difficult to imagine, a contraction of currency instantaneous and spasmodic to the amount of these large sums that I have indicated.

I do not shrink from contraction. I am ready to say to the people of Massachusetts, “If the Senate will adopt any policy of contraction that is healthy, well-considered, and with proper conditions, I would recommend its acceptance.” But a contraction like that proposed by this bill, which arbitrarily takes from North and East this vast amount, and transfers it to another part of the country, where it may not be needed, such a contraction I oppose as mischievous. I see no good in it. I see a disturbance of all the channels of business; and I see a contraction which must be itself infinitely detrimental to the financial interests of the Republic.

But then, Sir, have you considered whether you can do it? Is it practicable? I have shown that it is mischievous: is it practicable? Can you take this large amount of currency from one part of the country and transfer it to another? Have you ever reflected upon the history of the bank-note after it has commenced its travels, when it has once left the maternal bank? It goes you know not where. I have been informed by bank-officers, and by those most familiar with such things, that a bank-note, when once issued, very rarely returns home. I have been assured that it is hardly ever seen again. The banks, indeed, may go into liquidation, but their notes are still current. The maternal bank may be mouldering in the earth; but these its children are moving about, performing the work of circulation. Why? The credit of the nation is behind them; and everybody knows, when he takes one of them, that he is safe. Therefore, I ask, how can the proposed requirement be carried into execution? how can you bring back these runaways, when once in circulation on their perpetual travels?

There is but one way, and that is by the return to specie payments. Hold up before them coin, and they will all come running back to the original bank; but until then they will continue abroad. The proposed requirement seems to go on the idea that bank-notes, like cows, return from pasture at night; whereas we all know, that, until specie payments, they are more like the wild cattle of the prairies and the pampas; you cannot find them; they are everywhere. Surely I am not wrong, when I suggest that the proposed requirement is impracticable as well as mischievous; and at the proper time I shall move to strike it out.

* * * * *

The amendment which I have moved has been under discussion for several days. It has had the valuable support of the Senator from Michigan [Mr. CHANDLER], who brings to financial questions practical experience. It has been opposed by other Senators, and with considerable ardor by my excellent friend from Indiana [Mr. MORTON].

On Thursday last, the Senator from Indiana, addressing himself to me, and inviting a reply, which I was then prevented from making, took issue with me directly upon the position I have assumed, that the withdrawal of legal-tender notes would materially assist the effort for specie payments; and he further declared that the two currencies of bank-notes and United States notes were kept together because one was redeemable with the other. I do not quote his precise words, but I give the substance.[220]

Under the policy we are now pursuing, it seems to me, that, with $356,000,000 of legal-tender notes in circulation, the Government will not for many years, if ever again, pay specie. With that amount of United States notes, under the actual policy, the bank currency will forever remain inconvertible. And the correctness of these positions I will endeavor briefly to demonstrate.

A convertible currency is nothing more nor less than the servant of coin. If there is no coin, it can neither be servant nor representative, though it may attempt to perform the functions of coin. Presenting itself under false pretences, it but partially succeeds in this attempt; and the discredit attaching to it compels it to pay more for any property than would be the price of such property in coin, or the acknowledged representative of coin,--just as doubtful people must submit to ten, fifteen, or twenty per cent. discount, when what is known as “gilt-edged” commercial paper is discounted at five, six, or seven per cent. Thus far we have had no coin in the Treasury appropriated to the stability of the United States notes,--and under our present policy, dictated by the restrictive laws that hedge the Secretary of the Treasury and confine his liberty of action, we never shall have, until the whole bonded debt of the country is extinguished,--while at the same time the banks are excused under the law from all attempts to fortify their notes with coin.

And what is it that successfully discourages us from direct steps toward specie payments?

In the first place, it is the mistrust of the people in our ability to resume, and to maintain resumption. In the next place, the monthly publication of the Treasury discloses precisely our weakness as well as our strength; and the great element of our weakness is the volume of our past-due and demand obligations. In ordinary times,--that is, when the people have confidence in the ability of the banks to redeem their demand obligations in coin,--a reserve of twenty to twenty-five per cent. in coin is more than sufficient to meet any probable demand that may be made. Let mistrust arise in relation to the solvency of any bank or of the system of banks, and the reserve of twenty-five per cent. will vanish as the dew before the sun, and the individual bank or all the banks must close their doors to all demands for specie.

In our present legislation we encounter this mistrust wide-spread among the people; and so long as we ourselves exhibit so great timidity in our attempts at legislation upon this subject, just so long do we minister to and strengthen this mistrust.

The amount of demand obligations which the Treasury must be prepared to meet upon a moment’s notice, including three per cent. certificates and fractional currency, is more than four hundred and forty million dollars. With the existing mistrust, measured by the premium on gold, a reserve of twenty-five per cent. of coin in the Treasury appropriated to these demands would be totally insufficient. This reserve must bear a proportion to the aggregate of liabilities so large as to remove mistrust, and this can be accomplished only by presenting as in the vaults of the Treasury an amount of coin nearly equal to the sum of liabilities.

If during the last three years we had retained the surplus of coin that has reached the Treasury, we should now have enough; but, as a consequence of such accumulation, speculation would have run riot,--and I fear, if we should now by legislative enactment decree that course for the future, we should aggravate the situation.

What, then, is left for us to do? What but to lessen our liabilities?--which, as the laws now stand, must remain the same to-morrow as to-day, and one, two, or five years hence immutably as now.

Difficulties beset the contraction of those liabilities, as there are difficulties that impede the accumulation of coin in sufficient amount to meet our purpose; but the former may be neutralized, if not removed, by judicious compensations that will not in any serious degree retard the object for which I would legislate.

Sound financial authorities unite in declaring, that, if the Government resumes specie payments, the banks of New York can resume; and when the banks of New York resume, the whole country can resume. Evidently, then, our care is the Government.

And what is the first step? To my mind we must lessen the demand obligations of the Government, while the Secretary of the Treasury at the same time strengthens the reserves in the national vaults. Neither should be done suddenly or violently, but gradually, judiciously, and wisely. As the statutes now stand, the obligations cannot be reduced. With the present volume of obligations, the laws of trade prevent the Secretary of the Treasury from sufficiently strengthening his reserves. It therefore devolves upon the National Legislature to take the initiative in the effort to resume specie payments.

The difficulties that impede the reduction of the national liabilities lie in the fact that such obligations are a part, and a large part, of the currency of the country. To withdraw that currency without giving a substitute is to create stringency, burden trade, and invite chaos: at least, so it seems. These obligations, so far as they relate to the currency, are larger in amount than those of the national banks combined; and furthermore, they are the head and front of all. They are so large as to be beyond the point of manageability, and I would therefore reduce them within control. It is their volume that puts them beyond control, and it is our want of control that causes them to be depreciated. Thus, Sir, I would offer inducements to fund them, or part of them, in bonds that would be sought after because of their valuable uses beyond a mere investment, and to neutralize the evils of contraction of Treasury liabilities by authorizing their assumption, with the consent of the people, by various parties in different sections of the country, each one of whom would be fully equal to the task thus voluntarily assumed. I would issue a bank-note for every dollar of Treasury obligation cancelled; but I would issue no bank-note that did not absorb an equal obligation of the Treasury. By this distribution of a portion of the demand obligations you restore to the Government the full ability to meet the remainder; and at the same time the people know, that, so far as the currency goes,--and it is of this only we are treating,--every promise of any bank has its ultimate recourse in the Treasury of the United States.

The absorption of one hundred and fifty or two hundred millions cannot fail to enhance the remaining legal-tender nearly, if not quite, to par with gold. The volume of currency in the channels of trade and in the hands of the people will be about the same as now. The aggregate of United States notes and national bank-notes outstanding will be precisely the same. Therefore the indirect contraction so much dwelt upon will scarcely be felt. The volume of greenbacks will be ample for the reserves of the banks, and their growing scarcity will cause them to become more and more valuable; and as they approach the standard of gold, so will they sustain with golden support the bank-notes into which they are convertible.

The demand by the people for legal-tender will not be appreciably increased, as the bank-note is receivable by the Government for all dues except customs, and those demands are necessarily localized. While the growing scarcity of greenbacks, because of their replacement by bank-notes fulfilling all the requirements of general trade, will not be noticed by the people, the banks will take heed lest they fall, and at an early day begin to strengthen themselves. Legal-tender reserves they must have, and, with the honest eyes of our Secretary of the Treasury to detect any deficiency, they will begin their strengthening policy at once. Instead of putting gold received as interest forthwith on the market for sale, they will put it snugly away in their vaults. The gold which comes to them in the course of banking operations will be added thereto; and almost imperceptibly the country banks will arrive at the condition of the city banks, whose reserves in coin and legal-tender notes are now far beyond the requirements of law. In the mean time, and without derangement of business, the Treasury may strengthen its reserve,--while, on the other hand, the quiet reduction of its liabilities advances the percentage of the reserve to the whole amount of liabilities in almost a compound ratio. With this strengthening of the condition of the Treasury, made manifest to all the world by its monthly publications, the mistrust of the people will be gradually, but surely, dissipated, and as surely be replaced by confidence that all demand obligations will be redeemed at an early day,--a confidence as wide-spread and deep-seated as is that now prevailing in relation to our bonded debt, that it will be paid according to the spirit as well as the letter of the law.

It will thus be seen that just in proportion to the strengthening of the legal-tender do we strengthen the bank-note. Strike out of existence in a single day the legal-tender notes, and I fear that the bank-note would for a time fall in comparative value: so would everything else. But I advocate no such violent measure.

The Senator from Indiana in his remarks appeared to forget that we have in the country two or three hundred millions of another legal-tender,--being coin, now displaced, of which no legitimate use is made in connection with the currency,--that should resume its proper position in the paper circulation of the country. Here are two or three hundred millions of money, now by force of law demonetized, which I would have relieved of its disabilities. I would change the relation of master it now occupies to that of servant, where it properly belongs; and I would inflate the currency with it to the extent that we possess it. Inflation by coin is simply specie payment, or very near it.

* * * * *

I have endeavored, Mr. President, thus briefly to respond to the questions propounded to me. I do not know that I have entered sufficiently into detail to explain clearly my convictions as to the necessity for reducing the volume of legal-tender obligations, and to prove, as I desire to prove, that their gradual withdrawal will enhance not only the value of the remainder, but also the value of the bank-note. Both will ascend in the scale. This enhancement of the whole paper currency will tend to draw the coin of the country from its seclusion. As in the early period of the war, before the present currency was created, we were astonished at the positive, but hidden, money resources of the people, so will the outflow of hidden coin confound the calculations of those who suppose that its volume is to be measured by the amount in the Treasury and in the New York banks.

Mr. President, I am not alone in asking for the reformation of our currency as the first stage of our financial efforts. I read from the “Commercial and Financial Chronicle”[221] of New York, an authoritative paper on this subject, as follows:--

“In any practical scheme to improve the Government finances and
credit, or to restore prosperous activities, or both at once,
the first thing to be done _must be_ the restoration of a sound
currency. That done or provided for, all the rest will be easy;
the best credit and the lowest rates of interest will follow.”

To this end our greenbacks must be absorbed or paid, and my proposition provides a way. As the greenbacks are withdrawn, coin will reappear to take their place in the banks and the business of the country. This will be specie payments.

* * * * *

Here I wish to remark that I fail to see the asserted dependence of our demand notes on our bonds. The bonds may be at par without bringing the notes to par, and so the notes may be at par without bringing the bonds to par. According to the experience of other countries, bonds and notes do not materially affect each other. The two travel on parallel lines without touching. Each must be provided for; and my present purpose is to provide for the demand notes.

There is strong reason why this is the very moment for this effort. According to statistical tables now before me, our exports are tending to an equality with our imports. During the five months of July, August, September, October, and November, 1869, there has been a nominal balance in our favor of $1,752,416; whereas during the same months of last year there was an adverse balance of $32,163,339. The movement of specie is equally advantageous. During the five months above mentioned there has been an import in specie of $10,056,316 against $5,273,116 during the same months last year, and an export in specie of $19,031,875 against $21,599,758 during the same months last year.[222] According to these indubitable figures, the tide of specie as well as of business is beginning to turn. It remains for us by wise legislation to take advantage of the propitious moment. Take the proper steps and you will have specie payments,--having which, all the rest will follow. Because I desire to secure this great boon for my country I now make this effort.

The amendment was rejected.

* * * * *

March 2d, Mr. Sumner’s bill having been reported back from
the Committee on Finance with an amendment in the nature of a
substitute, he spoke in review of their respective provisions
as follows:--

MR. PRESIDENT,--The measure now before the Senate concerns interests vast in amount and influence. I doubt if ever before any nation has attempted to deal at once with so large a mass of financial obligations, being nothing less than the whole national debt of the United States. But beyond the proper disposition of this mass is the question of taxation, and also of the extent to which the payment of the national debt shall be assumed by the present generation, and beyond all is the question of specie payments. On all these heads my own conclusions are fixed. The mass of financial obligations should be promptly adjusted in some new form at smaller interest; taxes must be reduced; the payment of the national debt must be left in part to posterity; specie payments must be provided for.

The immediate question before the Senate is on a substitute reported by the Committee for the bill which I had the honor of introducing some weeks ago. Considering my connection with this measure, I hope that I shall not intrude too much, if I recur to the original bill and explain its provisions.

There are certain general objects which must not be forgotten in our present endeavor. I have already said that the taxes must be reduced. Here I am happy to observe that the popular branch of Congress, in the exercise of its constitutional prerogative, has taken the initiative and is perfecting measures to this end. I trust that they will proceed prudently, but boldly.

In harmony with this effort the expenditures of the Government should be revised and cut down to the lowest point consistent with efficiency. Economy will be an important ally. Even in small affairs it will be the witness to our purposes. Through these agencies our currency will be improved, and we shall be brought to specie payments, while the national credit will be established. Not at once can all this be accomplished, but I am sure that we may now do much.

As often as I return to this subject I am impressed by the damage the country has already suffered through menacing propositions affecting the national credit. I cannot doubt that in this way the national burdens have been sensibly increased. By counter-propositions in the name of Congress we have attempted to counteract these injurious influences. We have met words with words. But this is not enough.

There is another remark which I wish to make, although I do little more than repeat what I said on another occasion.[223] It is that a national debt, when once funded, does not seem to affect largely the condition of the currency. The value of the former is maintained or depressed by circumstances independent of the currency. But, on the other hand, the condition of the currency bears directly upon all efforts for increased loans; and this is of practical importance on the present occasion. The rules of business are the same for the nation as for an individual; nor can a nation, when it becomes a borrower, hope to escape the scrutiny which is applied to an individual under similar circumstances. Applying this scrutiny to our case, it appears that on our existing bonded debt we have thus far performed all existing obligations,--not without discussion, I regret to add, that has left in some quarters a lingering doubt with regard to the future, and not without an opposition still alive, if not formidable. But the case is worse with regard to that other branch of the national debt known as legal-tenders, where we daily fail to perform existing obligations, so that these notes are nothing more than so much _failed paper_. With regard to this branch of the national debt there is an open confession of insolvency, and each day renews the confession. Now, by the immutable laws of credit, which all legislative enactments are impotent to counteract or expunge, the nation must suffer when it enters the market as a borrower. Failing to pay these obligations already due, it must pay more for what it borrows. Nor can we hope for more than partial success, until this dishonor is removed.

With these preliminary remarks, which are rather hints than arguments, I come directly to the measure before the Senate; and here I begin with the first section.

* * * * *

I wish the Senate would note the difference between this section in my bill and in the substitute of the Committee. I proposed to authorize the issue of $500,000,000 of Ten-Forty five per cents., and prescribe the use to which the proceeds of such bonds should be applied. The Committee propose $400,000,000 of Ten-Twenty five per cents., and leave the application of the proceeds the subject of discretion. Between the two propositions there are several differences: first, in the amount; secondly, in the length of the bond; and, thirdly, in the application of the proceeds.

Here I beg to observe that the original sum of $500,000,000 was not inserted by accident, or because it was a round and euphonious sum. Nothing of the kind. It was the result of a careful examination of the national debt in its details, especially in the light of the national credit. It was adopted because it was the very sum required by the nature of the case. At least so it seemed to me. A brief explanation will show if I was not right.

The year 1862, which marks the date of our legal-tenders, marks also the date of a new system in regard to our loans. Senators are hardly aware of this change. Previously our standard for sixes was an immutable loan for twenty years. By the new system this immutability was continued as to the right of demand by the bondholder, but the right of payment was reserved to the nation at any time after five years. This change, as we now see, gave positive advantages to the nation. Its disadvantages to the bondholder were so apparent that it encountered resistance, which was overcome only after undaunted perseverance and final appeal to the people. Now, by recurring to the schedule of the national debt, you will find that the first loan within the sphere of this discretionary system is the Five-Twenties of 1862, which, on the 1st of February last, after deducting the purchased bonds, were $500,000,000. This, therefore, is the first loan falling within our discretion, the first loan we are privileged to pay before maturity, and the first loan presenting itself for payment. In these incidents the loan of 1862 has precedence,--it stands first.

But there is a reason, which to my mind is of peculiar force, why this first loan should be paid in coin at the earliest possible day. It seems to me that I do not deceive myself, when I consider it conclusive on this question. The loan of 1862 is the specific loan which has been made the objective point of all the movements under the banner of Repudiation. It is the loan to which this idea first attached itself. It is the loan first menaced. Therefore, to my mind, it is the loan which should be first provided for. I know no way, short of universal specie payments, by which the national credit can be so effectually advanced.

Why in the amendment of the Committee the amount of the proposed issue is placed at $400,000,000 I am at a loss to conceive. Here is no equivalent of any one loan, nor of two or more loans. It is an accidental sum, and might have been more or less for the same reason that it is what it is. The term Ten-Twenties seems also accidental, as it is unquestionably new. Of course it is assumed that the amount proposed of Ten-Twenties at five per cent. will absorb an equal amount of Five-Twenties at six per cent., irrespective of any particular loan; but I am at a loss to see on what grounds the holders of the sixes can be induced to make the exchange. Will the substitute bonds be considered of equal value? I affirm not. But assuming that they are acceptable, how shall they be acceptably distributed? Shall the first comer be first served? If all were at the same starting-point, the palm might be justly bestowed upon the most swift. In the latitude allowed, stretching over all the Five-Twenties, there would be opportunity for favoritism; and with this opportunity there would be temptation and suspicion.

The change from a Ten-Forty bond to a Ten-Twenty bond, as proposed by the Committee, is a change, so far as I can perceive, made up of disadvantages. To the nation there is the same rate of interest, and there is the same fixed period during which this interest must be paid; while, on the other hand, the period of optional payment is reduced from thirty years to ten years. If there be advantage in this reduction, I do not perceive it. If at the expiration of ten years we are in a condition to pay, we may do so as readily under a Ten-Forty as under the Ten-Twenty proposed. If during the subsequent ten years of option our advancing credit enables us to command a lower rate of interest, surely we may do so just as favorably under one as under the other. There is no benefit within the bounds of imagination, so far at least as I can discern, which will not redound to the nation from Ten-Forties as much as from Ten-Twenties. On the other hand, it is within possibilities, from disturbance in the money markets of the world, or from other unforeseen circumstances, that it may not be convenient during the short optional period of the Committee to obtain the necessary coin without a sacrifice. The greater latitude of payment leaves the nation master of the situation, to pay or not to pay, as is most for the national advantage.

Furthermore, the loan proposed by the Committee has not, to my mind, the elements of success promised by the other loan. It is assumed in both cases that the coin for the redemption of the existing obligations shall be obtained in Europe. Then we must look to the European market in determining the form of the new loan. Now I have reason to believe that a coin loan to the amount of $500,000,000 may be obtained in Europe on Ten-Forties at par, provided the new bonds are of the same form and purport as the Ten-Forties which are already so popular, and provided further that the proceeds of the loan are applied to the payment in coin at par of the Five-Twenties of 1862. The reasons are obvious. The Ten-Forties have a good name, which is much to start with. It is like the credit or good-will of an established mercantile house, which stands often instead of capital; and then the fact that the proceeds are to be absorbed in the redemption of the first Five-Twenties, so often assailed, will most signally attest the determination of the country to maintain its credit. These advantages cost nothing, and it is difficult to see why they should be renounced.

We must not make an effort and fail. Our course must be guided by such prudence that success will be at least reasonably certain. For the nation to offer a loan and be refused in the market will not do. Here, as elsewhere, we must organize victory. Now it is to my mind doubtful, according to the information within my reach, if the loan proposed by the Committee can be negotiated successfully at par. Bankers there may be who would gladly see themselves announced as financial agents of the great Republic; but it remains to be seen if there are any competent to handle a loan of $500,000,000 who would undertake it on the terms of the Committee. I am clear that it is not prudent to make the experiment, when it is easy to offer another loan with positive advantages sufficient to turn the scale. Washington, in his Farewell Address, said, “Why forego the advantages of so peculiar a situation? Why quit our own to stand upon foreign ground?” In the same spirit I would say, Why forego the advantages of a well-known and peculiar security? Why quit our Ten-Forties to stand upon a security which is unknown, and practically foreign, whether at home or abroad?

In the loan proposed by the original bill we find assurance of success, with the promise of reduced taxation, Repudiation silenced, and the coin reserves in the banks strengthened by sales in Europe, it may be, $150,000,000. Should the amendment of the Committee prevail, I see small chance of any near accomplishment of these objects, and meanwhile our financial question is handed over to prolonged uncertainty.

I pass now to the substitute of the Committee for the second and third sections of the original bill. Here again the amount is changed from $500,000,000 to $400,000,000. I am not aware of any reason for this change; nor is there, indeed, any peculiar reason, as in the case of the Five-Twenties of 1862, for the amount of $500,000,000. The question between the two amounts may properly be determined by considerations of expediency, among which will be that of uniformity with outstanding loans. A more important change is in the time the bonds are to run, which is Fifteen-Thirty years for the bonds at four and a half per cent., and Twenty-Forty years for the bonds at four per cent. Here occurs again the argument with regard to the inferiority of Ten-Twenties, as compared with Ten-Forties. By the same reason the Fifteen-Thirties will be inferior to the Fifteen-Fifties, and the Twenty-Forties will be inferior to the Twenty-Sixties, of the original bill.

The prolongation of the bond is in the nature of compensation for the reduction of interest. Already we have established the ratio of compensation for such reduction,--already for a loan at six per cent. we have offered Five-Twenties, but for a loan at five per cent. we have offered Ten-Forties,--and I see no reason why by a tentative process we should so materially change this standard as is now proposed. The experiment can do no good, while it may do harm. It is in the nature of a restriction on our discretion, and a limitation of the duration of the bond, which, I apprehend, must interfere essentially with its marketable character. While the prolongation of time enlarges the option of the nation, it increases the value of the bond in the market. That which is most favorable to the nation is most favorable to the market value of the bond; and that which is unfavorable to the nation is unfavorable also to the market value of the bond, rendering its negotiation and sale more difficult and protracted. Thus at every turn are we brought back to the original proposition.

Against this conclusion is the argument founded on the idea of English consols. It is sometimes said, If the short term of Five-Twenty years is the standard for a six per cent. bond with a graduation to Twenty-Sixty for a four per cent. bond, why may we not go further, and establish consols at three per cent., running, if you please, to eternity?--The technical term “consols” is an abbreviation for the consolidated debt of Great Britain, and in the eyes of a British subject has its own signification. It means a debt never to be paid, or at least it is an inscribed debt carrying no promise of payment. I would not have any debt of the United States assume either the form or name of consols. I would rigidly adhere to definite periods of payment. This is the American system, in contradistinction to the British system. I would not only avoid the idea that our debt is permanent, but I would adhere to the form of positive payment at some fixed period, and keep this idea always present in the minds of the people. Without the requirement of law, I doubt if the debt would be paid. Political parties would court popularity by a reduction of taxation. The Treasury of the United States, like the British Treasury, would always be without a surplus, and the national debt would be recognized as a burden to be endured forever. Therefore do I say, _No consols_.

There is another consideration, having a wide influence, but especially important at the West and South, which should induce us to press for a reduction of the interest on our bonds; and here I present an argument which, if not advanced before, is none the less applicable.

Do Senators consider to what extent the Government determines the rates of interest in the money centres of the country? Not only for itself does it determine, but for others also. Government bonds enjoy preëminence as an investment,--and if the interest is high, they attract the disposable money of the country. Government sixes are worth more than a six per cent. bond of any private corporation or individual, no matter how well secured. Therefore, it is easy to see, so long as we retain our standard at six per cent., so long as we have sixes, will the capital of the country seek these bonds for investment, permanent or temporary, to the detriment of numerous enterprises important to the national development, which are driven to be the stipendiaries of foreign capital. Railroads, especially at the West and South, are sufferers, being sometimes delayed by the difficulty of borrowing money, and sometimes becoming bankrupt from ruinous rates of interest, always in competition with the Government. But what is true of railroads is also true of other enterprises, which are pinched, and even killed, by these exactions in which the Government plays such a part. All are familiar with the recurring appeals for money on bonds even at eight per cent., which is more than can be paid permanently without loss; and even at such a ruinous rate there is difficulty in obtaining the required amount.

Doubtless the excessive interest now demanded is partly due to our fictitious currency, where _failed_ paper is forced upon the market; but beyond this influence is that of our sixes, absorbing disposable capital. I venture to assert, that, if we could at an early day reduce these sixes to fives, there are millions which would be released to seek investment in other securities at six per cent., especially to the relief of the West and South. The reduction of interest to four and a half per cent. and four per cent. would release further millions. A recent incident in the financial history of Massachusetts illustrates the disturbing influence of our sixes. An attempt to obtain a loan in Europe at five per cent. was unsuccessful, chiefly because the National Government offered six per cent.

Therefore, for the sake of public enterprise in its manifold forms, for the sake of that prosperity which depends on human industry, for the sake of manufactures, for the sake of commerce, and especially for the sake of railroads, by which all these are quickened, we must do what we can to reduce the general rate of interest, which is now such a curb on enterprise; and here we must begin with our own bonds. Without any adverse intention, the National Government is a victorious competitor, and the defeated parties are those very enterprises whose success is so important to the country. A competition so destructive should cease. Keeping this before us in the new loan, we shall adopt that form of bond by which the interest will most surely be reduced. Thus, while refunding the national debt, we shall open the way to improvements of all kinds.

* * * * *

This is what I have to say for the present on the refunding propositions of the Committee. Their object is the same as mine. If I differ from them in details, it is because after careful consideration it seems to me that in some particulars their system may be improved.

* * * * *

Proceeding from these pivotal propositions, I find other things where I must again differ. When I first addressed the Senate on this subject, I took occasion to declare my objection to the idea of agencies or offices in the commercial centres of Europe, where interest should be paid. I am not ready to withdraw that objection,--though, if I could be tempted, it would be by the Senator from Ohio [Mr. SHERMAN], when he held up the prospect of a common money among nations. This is one of the desires of my heart, as it is one of the necessities of civilization; but I fail to see how this aspiration will be promoted by the system proposed,--which must be judged on its own merits, without any such recommendation. It is easy to see that such a system, besides being the beginning of a new policy on the part of the Government, may entail serious embarrassments. Sub-treasuries must be created in foreign capitals, which must be continued so long as the bonds last. Remittances of coin must be semiannual; and should such remittances fail at any time, there must be advances at no little cost to the Government. I cannot imagine any advantage from this new system sufficient to induce us to encounter the possible embarrassments or entanglements which it may cause.

* * * * *

I would not take too much of the time of the Senate, and therefore I pass at once to the proposition of the Committee, being section seven, providing for the very early payment of the national debt.

Mr. President, the payment of the national debt is an American idea, and I would say nothing to weaken it among the people. Whatever we owe must be paid; but it is the part of prudence to make the payment in such way as, while consistent with our obligations, shall promote the national prosperity. In this spirit I approach the proposition of the Committee, in which there is so much of good, only to examine and measure it, in order to ascertain its probable influence, especially on the question of Taxation.

Here it must be borne in mind, that the present measure in all its parts, so far as applicable, and especially with its guaranties and pledges, must be taken as the basis of our new engagements. The provision that so much of the debt shall be paid annually will become in a certain sense a part of the contract, although not so expressed in the bond. Not less than $150,000,000 are set apart annually to be applied “to the payment of the interest and to the reduction of the principal of the public debt.” This is a large sum, and we should consider carefully if such a guaranty or pledge has in it the promise of financial stability. Promising too much is sometimes as bad as promising too little. Our promise must be according to our means prudently employed.

If we assume obligations so large as to bear heavily upon the business of the country and to compel unreasonable taxation, there will be little chance of financial stability. They will become the object of attack, and will enter into the conflict of parties,--and if repealed, the national faith may be called in question. I need not say that business must suffer. A less ambitious effort on our part will be less obnoxious to attack,--thus leaving the bonds to their natural position in the money market, and strengthening all the movements of commerce.

In order to determine the operation of this provision we must look into details. I have the estimates before me, showing our present and prospective liabilities for interest; but I content myself with presenting compendiously the result, in order to determine the question of taxation. Suffice it to say, that under the operation of the present measure there will be in 1871, after the payment of all liabilities for interest, a surplus of $43,000,000 to be applied to the payment of the national debt. With each succeeding year the reduction of interest will rapidly increase this surplus; and when we bring into operation other provisions of the bill, and convert $500,000,000 of sixes into a like amount of four and a half per cents., effecting a further saving of interest, equal to $7,500,000 annually, the surplus revenue, as compared with necessary expenditures, will in a brief period approach $100,000,000 annually.

Here the question arises, Is not this unnecessarily large? Is it not beyond the bounds of prudence and wise economy? Shall we declare in this fundamental measure a determination to redeem the whole national debt within a period of twenty-five years? Can the industries of the country sustain such taxation? I put the question. You shall answer it. The future has its great claims upon us; so also has the present. I submit that the pending measure sacrifices the present. I conclude, therefore, as I began, with another appeal for reduced taxation. At the proper time I shall move an amendment, in order to aid this result.

In the course of the proceedings which followed, the bill of
the Committee underwent important amendments, in accordance
with the views expressed by Mr. Sumner,--for the Ten-Twenties
and Fifteen-Thirties therein proposed, a prolongation to
Ten-Forties and Fifteen-Forties being effected,--and the
provision for the payment of interest at the money-centres
and in the moneys of Europe stricken out. Some of its more
objectionable features being thus removed, he gave it a
qualified support.

* * * * *

March 10th, the question being on striking out a provision
in the bill of the Committee requiring the national banks to
exchange the bonds of the United States deposited by them as
security for their circulation for those bearing a lower rate
of interest, Mr. Sumner said:--

MR. PRESIDENT,--There is a word which has been introduced into this debate with which we were all very familiar in another relation some years ago. It is the word _Coercion_. A President of the United States announced in most formal phrase that we could not coerce a State; and now, borrowing a phrase from Mr. Buchanan, we are told we cannot coerce a national bank. Well, Sir, is the phrase applicable? If it be applicable, then I insist that we can coerce a national bank; but I do not admit its applicability. What I insist on has already been so ably and clearly stated by the Chairman of the Committee [Mr. SHERMAN] that perhaps I need not add another word. I do not like to occupy your time; yet I cannot forbear reminding you, Sir, of the plenary power which Congress has reserved over the banking system in that very Act by which it was established.[224]

The Senator from California [Mr. CASSERLY] has read to you the clause. We have been reminded to-day by a Senator on this floor that these are formal words, words that often appear in statutes. But are they not significant words? Have they not a meaning? Why are they there? Because they have a meaning; because they reserve to Congress what I call plenary power over the whole system. That system may be readjusted, modified, shaped anew, and the banks cannot complain. They began their existence under that law; they knew the conditions of their being; and they cannot now murmur, if Congress chooses to exercise the prerogative which it reserved at the very inception of the whole system.