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

Representatives in Congress assembled_, That, for the
purpose of refunding the debt of the United States and
reducing the interest thereon, the Secretary of the
Treasury be, and he is hereby, authorized to issue, on the
credit of the United States, coupon or registered bonds,
of such denominations not less than fifty dollars as he
may think proper, to an amount not exceeding $500,000,000,
redeemable in coin, at the pleasure of the Government, at
any time after ten years, and payable in coin at forty
years from date, and bearing interest at the rate of five
per cent. per annum, payable semiannually in coin; and the
bonds thus authorized may be disposed of at the discretion
of the Secretary, under such regulations as he shall
prescribe, either in the United States or elsewhere, at
not less than their par value, for coin; or they may be
exchanged for any of the outstanding bonds, of an equal
aggregate par value, heretofore issued under the Act of
February 25, 1862, and known as the Five-Twenty bonds of
1862, and for no other purpose; and the proceeds of so much
thereof as may be disposed of for coin shall be placed in
the Treasury, to be used for the redemption of such six per
cent. bonds at par as may not be offered in exchange, or to
replace such amount of coin as may have been used for that
purpose.

SEC. 2. _And be it further enacted_, That the Secretary of
the Treasury be, and he is hereby, authorized to issue, on
the credit of the United States, coupon or registered bonds
to the amount of $500,000,000, of such denominations not
less than fifty dollars as he may think proper, redeemable
in coin, at the pleasure of the Government, at any time
after fifteen years, and payable in coin at fifty years
from date, and bearing interest not exceeding four and one
half per cent. per annum, payable semiannually in coin; and
the bonds authorized by this section may be disposed of
under such regulations as the Secretary shall prescribe,
in the United States or elsewhere, at not less than par,
for coin; or they may be exchanged at par for any of the
outstanding obligations of the Government bearing a higher
rate of interest; and the proceeds of such bonds as may be
sold for coin shall be deposited in the Treasury, to be
used for the redemption of such obligations as by the terms
of issue may be or may become redeemable or payable, or to
replace such coin as may have been used for that purpose.

SEC. 3. _And be it further enacted_, That the Secretary of
the Treasury be, and he is hereby, authorized to issue,
on the credit of the United States, from time to time,
coupon or registered bonds, of such denominations not less
than fifty dollars as he may think proper, to the amount
of $500,000,000, redeemable in coin, at the pleasure
of the Government, at any time after twenty years, and
payable in coin at sixty years from date, and bearing
interest at the rate of four per cent. per annum, payable
semiannually in coin; and such bonds may be disposed of
at the discretion of the Secretary, either in the United
States or elsewhere, at not less than their par value, for
coin, or for United States notes, national-bank notes, or
fractional currency; or may be exchanged for any of the
obligations of the United States, of whatever character,
that may be outstanding at the date of the issue of such
bonds. And if in the opinion of the Secretary of the
Treasury it is thought advisable to issue a larger amount
of four per cent. bonds for any of the purposes herein or
hereinafter recited than would be otherwise authorized by
this section of this Act, such further issues are hereby
authorized: _Provided_, That there shall be no increase in
the aggregate debt of the United States in consequence of
any issues authorized by this Act.

SEC. 4. _And be it further enacted_, That the bonds
authorized by this Act shall be exempt from all taxation by
or under national, State, or municipal authority. Nor shall
there be any tax upon, or abatement from, the interest or
income thereof.

SEC. 5. _And be it further enacted_, That the present
limit of $300,000,000 as the aggregate amount of issues
of circulating notes by national banks be, and the same
is hereby, extended, so that the aggregate amount issued
and to be issued may amount to, but shall not exceed,
$500,000,000; and the additional issue hereby authorized
shall be so distributed, if demanded, as to give to each
State and Territory its just proportion of the whole amount
of circulating notes according to population, subject to
all the provisions of law authorizing national banks, in
so far as such provisions are not modified by this Act:
_Provided_, That for each dollar of additional currency
issued under the provisions of this Act there shall be
withdrawn and cancelled one dollar of legal-tender issues.

SEC. 6. _And be it further enacted_, That the Secretary
of the Treasury shall require the national banks, to whom
may be awarded any part or portion of the additional
circulating notes authorized by the fifth section of
this Act, to deposit, before the delivery thereto of any
such notes, with the Treasurer of the United States, as
security for such circulation, registered bonds of the
description authorized by the third section of this Act,
in the proportion of not less than one hundred dollars of
bonds for each and every eighty dollars of notes to be
delivered; and the Secretary of the Treasury shall require
from existing national banks, in substitution of the bonds
already deposited with the Treasurer of the United States
as security for their circulating notes, a deposit of
registered bonds authorized by the third section of this
Act to an amount not less than one hundred dollars of bonds
for every eighty dollars of notes that have been or may
hereafter be delivered to such banks, exclusive of such
amounts as have been cancelled. And if any national bank
shall not furnish to the Treasurer of the United States the
new bonds, as required by this Act, within three months
after having been notified by the Secretary of the Treasury
of his readiness to deliver such bonds, it shall be the
duty of the Treasurer, so long as such delinquency exists,
to retain from the interest, as it may become due and
payable, on the bonds belonging to such delinquent banks
on deposit with him as security for circulating notes, so
much of such interest as shall be in excess of four per
cent. per annum on the amount of such bonds, which excess
shall be placed to the credit of the sinking fund of the
United States; and all claims thereto on the part of such
delinquent banks shall cease and determine from that date;
and the percentage of currency delivered or to be delivered
to any bank shall in no case exceed eighty per cent. of the
face value of the bonds deposited with the Treasurer as
security therefor.

SEC. 7. _And be it further enacted_, That, whenever the
premium on gold shall fall to or within five per cent.,
it shall be the duty of the Secretary of the Treasury to
give public notice that the outstanding United States
notes, or other legal-tender issues of the Government,
will thereafter be received at par for customs duties;
and the interest on the issues known as three per cent.
legal-tender certificates shall cease from and after the
date of such notice; and all such legal-tender obligations,
when so received, shall not again be uttered, but shall
forthwith be cancelled and destroyed. And so much of the
Act of February 25, 1862, and of all subsequent Acts, as
creates or declares any of the issues of the United States,
other than coin, a legal tender, be, and the same is
hereby, repealed; such repeal to take effect on and after
the first day of January, 1871.

SEC. 8. _And be it further enacted_, That all the
provisions of existing laws in relation to forms,
inscriptions, devices, dies, and paper, and the printing,
attestation, sealing, signing, and counterfeiting, as may
be applicable, shall apply to the bonds issued under this
Act; and a sum not exceeding one per cent. of the amount of
bonds issued under this Act is hereby appropriated to pay
the expense of preparing and issuing the same and disposing
thereof.

SEC. 9. _And be it further enacted_, That all Acts or parts
of Acts inconsistent with this Act be, and the same are
hereby, repealed.

Mr. Sumner said:--

MR. PRESIDENT,--I have already during this session introduced a bill providing for the extension of the national banking system and the withdrawal of greenbacks in proportion to the new bank-notes issued,[202] thus preparing the way for specie payments. The more I reflect upon this simple proposition, the more I am satisfied of its value. It promises to be as efficacious as it is unquestionably simple. But it does not pretend to deal with the whole financial problem.

The bill which I now introduce is more comprehensive in character. While embodying the original proposition of substituting bank-notes for greenbacks, it provides for the refunding and consolidation of the national debt in such a way as to make it easy to bear, while it brings the existing currency to a par with coin. In making this attempt I am moved by the desire to do something for the business interests of the country, which suffer inconceivably from the derangement of the currency. Whether at home or abroad, it is the same. At home values are uncertain; abroad commerce is disturbed and out of gear. Political Reconstruction is not enough; there must be Financial Reconstruction also. The peace which we covet must enter into our finances; the reconciliation which we long for must embrace the disordered business of the country.

In any measure having this object there are two things which must not be forgotten: first, the preservation of the national credit; and, secondly, the reduction of existing taxation. Happily, there is a universal prevailing sentiment for the national credit, showing itself in a fixed determination that it shall be maintained at all hazards. Nobody can exaggerate the value of this determination, which is the corner-stone of Financial Reconstruction. On the reduction of taxation there is at present more difference of opinion; but I cannot doubt that here, too, there will be a speedy harmony. The country is uneasy under the heavy burden. Willingly, gladly, patriotically, it submitted to this burden while the Republic was in peril; but now there is a yearning for relief. War taxes should not be peace taxes; and so long as the present system continues, there is a constant and painful memento of war, while business halts in chains and life bends under the load.

The national credit being safe, relief from the pressure of existing taxation is the first practical object in our finances. But so entirely natural and consistent is this object, that it harmonizes with all other proper objects, especially with the refunding of the national debt, and with specie payments. As the people feel easy in their affairs, they will be ready for the work of Reconstruction. Therefore do I say, as an essential stage in what we all desire, _Down with the taxes!_

The proper reduction of taxation involves two other things: first, the reduction of the present annual interest on the national debt, thus affording immense relief; and, secondly, the spread or extension of the national debt over succeeding generations, for whom, as well as for ourselves, it was incurred. The practical value of the first is apparent on the simple statement. The second may be less apparent, as it opens a question of policy, on both sides of which much has been already said.

Nobody doubts the brilliancy of the movement to pay off the national debt,--calling to mind the charge of the six hundred at Balaclava riding into the jaws of Death, so that the beholder exclaimed, in memorable words, “It is magnificent, but it is not war.”[203] In other words, it was a feat of hardihood and immolation, abnormal, eccentric, and beyond even the terrible requirements of battle. In similar spirit might a beholder, witnessing the present sacrifice of our people in the redemption of a debt so large a part of which justly belongs to posterity, exclaim, “It is magnificent, but it is not business.” Unquestionably business requires that we should meet existing obligations according to their letter and spirit; but it does not require payment in advance, nor payment of obligations resting upon others. To do this is magnificent, but beyond the line of business.

President Lincoln, in one of his earliest propositions of Emancipation, before he had determined upon the great Proclamation, contemplated compensation to slave-masters, and, in order to commend this large expenditure, went into an elaborate calculation to show how easy it would be, if proportioned upon the giant shoulders of posterity. Dismissing the idea of payment by the existing generation, he proceeded to exhibit the growing capacity of the country,--how from the beginning there had been a decennial increase in population of 34.60 per cent.,--how during a period of seventy years the ratio had never been two per cent. below or two per cent. above this average, thus attesting the inflexibility of this law of increase. Assuming its continuance, he proceeded to show that in 1870 our population would be 42,323,341,--in 1880 it would be 56,967,216,--in 1890 it would be 76,677,872,--and in 1900 it would be 103,208,415,--while in 1930 it would amount to 251,680,914.[204] Nobody has impeached these estimates. There they stand in that Presidential Message as colossal mile-stones of the Republic.

The increase in material resources is beyond that of population. The most recent calculation, founded on the last census, shows that for the previous decade it was at the rate of eighty per cent.,[205] although other calculations have placed it as high as one hundred and twenty-six per cent.[206] Whether the one or the other, the rate of increase is enormous, and, unless arrested in some way not now foreseen, it must carry our national resources to a fabulous extent. What is a burden now will be scarcely a feather’s weight in the early decades of the next century, when a population counted by hundreds of millions will wield resources counted by thousands of millions. On this head details are superfluous. All must see at once the irresistible conclusion.

It is much in this discussion, when we have ascertained how easy it will be for posterity to bear this responsibility. But the case is strengthened, when it is considered that the war was for the life of the Republic, so that throughout all time, so long as the Republic endures, all who enjoy its transcendent citizenship will share the benefits. Should they not contribute to the unparalleled cost? Recent estimates, deemed to be moderate and reasonable, show an aggregate destruction of wealth or diversion of wealth-producing industry in the United States since 1861 approximating nine thousand millions of dollars, being the cost of the war, or, in other words, the cost of the destruction of Slavery.[207] If from this estimate be dropped the item for expenditures and loss of property in the Rebel States, amounting to $2,700,000,000,[208] we shall have $6,300,000,000 as the sum-total of cost to the loyal people, of which the existing national debt represents less than half. Thus, besides precious blood beyond any calculation of arithmetic, the present generation has already contributed immensely to that result in which succeeding generations have a stake even greater than theirs.

Assuming, then, that there is to be no considerable taxation for the immediate payment of the debt, we have one economy. If to this be added another economy from the reduction of the interest, we shall be able to relieve materially all the business interests of the country. Two such economies will be of infinite value to the people, whose riches will be proportionally increased. In the development of wealth, next to making money is saving money.

* * * * *

Bearing these things in mind, Financial Reconstruction is relieved of its difficulties. It only remains to find the proper machinery or process. And here we encounter the propositions of the Secretary of the Treasury in his Annual Report,[209] which are threefold:--

1. To refund twelve hundred millions of six per cent. Five-Twenty bonds in four and a half per cent. Fifteen-Twenties, Twenty-Twenty-Fives, and Twenty-Five-Thirties.

2. To make our exports equal in value with our imports, and to restore our commercial marine.

3. To regard these as essential conditions of reduced taxation and specie payments.

Considering these propositions with the best attention I could give to them, I have been impressed by their inadequacy as a system at the present moment. I cannot easily consent to the postponement which they imply. They hand over to the future what I wish to see accomplished at once, and what I cannot doubt with a firm will can be accomplished at an early day. But besides this capital defect, apparent on the face, I find in the system proposed no assurance of success. Will it work? I doubt. Here I wish to be understood as expressing myself with proper caution; and I wish further to declare my anxiety to obtain the substituted loans at the smallest rate of interest, and also my conviction that within a short time, at some slight present cost, this may be accomplished.

Looking at this question in the light of business, I am driven to the conclusion that twelve hundred millions of six per cents. cannot be refunded either now or hereafter in four or four and a half per cents. without offering compensation in an additional running period of the bonds which is not found in the Fifteen-Twenties nor in the Twenty-Five-Thirties proposed by the Secretary. With such bonds there would be a practical difficulty in the way of any such refunding to any considerable amount, from the inability to command a sufficient amount of coin under the “option of coin,” which must accompany the offer; nor is there any fund applicable to the purchase of coin in open market, were such a course desirable. Obviously, to induce the voluntary relinquishment of bonds at a high rate of interest for other bonds at a less rate, the holders must be offered something preferable to the coin tendered as an alternative.

The time has passed when holders can be menaced with payment in greenbacks. Whatever we do must be in coin, or in some bond which will be taken rather than coin. The attempt at too low a rate of interest would cause the coin to be taken rather than the bond, if we had the article at command,--and would end in a deluge of coin, sweeping away the premium on gold. A return to specie payments, thus precipitated, would be of doubtful value, if not illusive, without other and sustaining measures.

In the suggestion that our exports must be augmented, and our commercial marine restored, I sympathize cordially; but I do not see how this can be accomplished so long as the present taxation is maintained, exercising such a depressing influence on all industry, making the necessaries of life dearer, adding to the cost of raw material, and generally enhancing the price of our products so as to prevent them from competing in foreign markets with the products of other nations.

The proposition to make the interest on the new bonds payable at various points in Europe, at the option of the holder, seems unnecessary, while it is open to objections. Such agencies would be onerous and cumbersome. At London, Paris, Frankfort, and Berlin, there must be a machinery, with constant complications, continuing through the lifetime of the bonds, to secure the transfers from point to point and the obligatory remittances in gold; nor am I sure that in this way foreign powers might not obtain a certain jurisdiction over our monetary transactions. But I confess that the ruling objection with me is of a different character. New York is our commercial centre, designated by Providence and confirmed by man. Already it has made a great advance, but it is not yet quoted abroad as one of the clearing points of the world. At New York quotations are obtained daily on London and Paris; but in these places no such recognized quotations can be now obtained on New York. That the agencies proposed will tend to postpone this condition is a sufficient objection.

* * * * *

I have made these remarks with hesitation, but in order to prepare the way for the bill which I have introduced. It was my duty to show why the propositions of the Secretary were not sufficient for the occasion, and this I have tried to do simply and frankly. It is long since I avowed my conviction that specie payments should be resumed; and I should now do less than my duty, if I did not at least attempt to show the way which seems to me so natural and easy. While the present system continues, we are poor. The payment of the national debt and the accumulation of coin in the Treasury are the signs of unparalleled national wealth, but our financial condition is not in harmony with these signs. The latest figures from the Treasury are such as no other nation can exhibit. From these it appears that the amount of bonds purchased since March 1, 1869, for the sinking fund was $22,000,000, and the amount purchased subject to Congress $64,000,000, being in all $86,000,000.[210] The same proportion of purchase for January and February would be $23,000,000, making a sum-total of $109,000,000 for one year. And notwithstanding this outlay, we find in the Treasury, January 1, 1870, in coin no less than $109,159,000, and in currency $12,773,000, making a sum-total of $121,932,000. And yet, with these tokens of national resources manifest to the world, our bonds are below par, and our currency is inconvertible paper. This should not be permitted longer. With all these resources there must be a way, even if we were not taught that a will always finds a way.

* * * * *

The refunding of an existing loan implies two distinct and independent transactions: first, the extinction, by payment in some form, of the existing loan; and, secondly, the negotiation of a new loan to an amount equal to that extinguished.

The bill now before the Senate contemplates the prompt extinguishment of the Five-Twenties of 1862. But I would not have this important work entered upon until the Government is fully prepared to say, that, after a certain period of notice, say six months, in order that distant holders in Europe may be advised, interest on the Five-Twenties of 1862 shall cease, and the bonds be forthwith redeemed in coin. There should be no coercion of any kind upon any holder, at home or abroad, to induce the acceptance of a substitute bond. I am happy to believe, that, with the judicious use of five per cent. Ten-Forties, all the coin necessary for such independent action may be assured in advance. Believing that such five per cent. bonds will be regarded by investors as preferable to coin, I would give the holders of the old bonds the first opportunity to subscribe for the new. Those who elect coin will make room for others ready to give coin in exchange for such bonds.

If we look at the practical consequences, we shall be encouraged in this course. The refunding of the sixes of 1862, being upward of five hundred millions, in fives, as authorized by the first section of the bill, contemplates the payment from present funds of little more than fourteen millions, being the excess of Five-Twenties above the five hundred millions provided for. The annual reduction of interest on that loan will be $5,886,296. The substitution of three hundred millions of fours for a like amount of sixes, as provided in the bill, will operate a further saving of $6,000,000, making a sum-total of $11,886,296, or near twelve millions. There will then remain but $129,443,800, subject to redemption, being Five-Twenties of 1864.

During the year 1870 the further sum of $536,326,200, being Five-Twenties of 1865, will fall within the control of the Government, when, as it seems to me, and according to the contemplation of the bill, the credit of the Government will be at such a pitch that five hundred millions can be refunded in four and a half per cents., with the addition of thirty-six millions paid from the Treasury,--thus insuring a further annual reduction of $9,679,572, or a total annual saving of $21,565,868, of which about twelve millions may be saved during the current year.

Here for the present we stop. Our interest-paying debt cannot be further ameliorated before 1872, when three hundred and seventy-nine millions, being Five-Twenties of 1867, will become redeemable, and then in 1873, when forty-two millions, being Five-Twenties of 1868, and constituting the balance of our optional sixes, will become redeemable,--all of which I gladly believe may be refunded in the four per cents. provided by the present bill, to be followed in 1874 by a reduction of the original Ten-Forties into similar bonds.

I would remark here that the bill undertakes to deal with the whole disposable national debt. The amounts which I have given will be found in the Treasury tables of January 1st, and are irrespective of the sinking fund and invested surplus.

From these details I pass to consider the bill in its aims and principles.

* * * * *

The proposition with which I begin is to refund our six per cent. Five-Twenties of 1862, amounting to upward of five hundred millions, in five per cent. Ten-Forties. In taking the term “Ten-Forties,” I adopt the description of a bond well known and popular at home and abroad, whose payment “in coin” is expressly stipulated by the original Act authorizing the issue.[211] The bond begins with a good name, which will commend it. The interest which I propose is larger than I would propose for any late bond. It is important, if not necessary, in order to counteract the suspicion which has been allowed to fall upon our national credit. Even our sixes are now below par in Europe. But they will unquestionably share the elevation of the new fives substituted. Our first attempt should be with the latter. Let these be carried to par, and we shall have par everywhere.

In this process the first stage is the conviction that all our bonds will be paid in the universal money of the world. All bonds, whether fives or sixes, will then advance. I know no way in which this conviction can be created so promptly and easily as by redeeming in gold some one of our six per cent. loans; and that most naturally selected is the first, which is already so noted from the discussion to which it has been subjected. But this can be done only by offering to holders the option of coin or a satisfactory substitute bond. With a new issue of five per cent. Ten-Forties, limited in amount to about the aggregate of the six per cent. Five-Twenties of 1862,--say five hundred millions,--I cannot doubt that every foreign holder of such sixes will accept the fives in lieu of coin; and so much of that loan as is held at home may be paid in coin, if preferred by the holders, from the proceeds of an equal amount of fives placed in Europe at par for coin.

Then will follow the advantage of this positive policy. The national credit will be beyond question. Nobody will doubt it. The public faith will be vindicated. The time will have come, which is the condition-precedent named by the Secretary of the Treasury, when “the want of faith in the Government” will be removed, and the door will be open to cheap loans. This will be of course: it cannot be otherwise, if we only do our duty. Our fives, being limited in amount, after being taken at par in preference to coin, will advance in value, so that the investment will become popular. People will desire more, but there will be no more; so that, without difficulty or delay, we may hope to refund five hundred millions of our subsequent sixes, or so much as may be desirable, at four and a half per cent. in Fifteen-Fifties, if not at four per cent. in Twenty-Sixties.

In this operation the _initial point_ is the national credit. With this starting-point all is easy. Our fives will at once ascend above par, while a market is opened for four and a half or four per cents. The stigma of Repudiation, whether breathed in doubt or hurled in taunt, will be silenced. There are other fields of glory than in war, and such a triumph will be among the most important in the annals of finance. But to this end there must be no hesitation. The offer must be plain,--“Bonds or coin,”--giving the world assurance of our determination. The answer will be as prompt as the offer,--“Bonds, and not coin.”

* * * * *

In the process of Financial Reconstruction we cannot forget the National Banks, which have already done so much. The uniform currency which they supply throughout the country commends them to our care. Accustomed to the facilities this currency supplies, it is difficult to understand how business was conducted under the old system, when every bank had its separate currency, taking its color, like the chameleon, from what was about it, so that there were as many currencies, with as many colors, as there were banks.

Two things must be done for the national banks: first, the bonds deposited by them with the Government must be reduced in interest; and, secondly, the system must be extended, so as to supply much-needed facilities, especially at the West and South.

I doubt if the national banks can expect to receive in the future more than four per cent. from the bonds deposited by them with the Government; and considering the profits attributed to their business, it may be that there would be a reluctant consent even to this allowance. Here it must be observed, that the whole system of national banks is founded upon the bonds of the nation; so that, at the rate of liquidation now adopted for the national debt, the system will be without support in the lapse of twelve or fifteen years. The stability of the banks, which is so vital alike to the national currency and to the pecuniary interests involved in the business, can be assured only by an issue of bonds for a longer term. Of course, the longer the period, the more valuable the bond. To reduce the interest arbitrarily on the existing short bonds of the banks, without offering compensation in some form, would be positively unjust, besides being an infringement of the guaranties surrounding such bonds, and therefore a violation of good faith. A substitute Twenty-Sixty bond will be assurance of stability for this length of time, while the additional life of the bond will be a compensation for the reduction of interest. As it is not proposed to issue such bonds immediately, except for banking purposes, they will not fall below par, and this par will be coin, which, I need not say, the sixes now held by the banks will not command. If, through the failure or winding-up of any bank, an amount of the substituted bonds should be liberated, there will be an instant demand for them at par by new banks arising to secure the relinquished circulation.

The extension of bank-notes from three to five hundred millions, which I propose, will extend the banking system where it is now needed. This alone is much. How long the Senate debated this question at the last session, without any practical result, cannot be forgotten. That debate certifies to the necessity of this extension. The proposition I offer shows how it may be accomplished and made especially beneficent. The requirement from all the banks of new four per cent. bonds, at the rate of one hundred dollars for eighty dollars of notes issued and to be issued, would absorb six hundred and twenty-five millions of the national debt into four per cents., while the withdrawal of one dollar of greenbacks for each additional dollar of notes will go far to extinguish the outstanding greenbacks, thus quietly, and without any appreciable contraction, removing an impediment to specie payments. Naturally, as by a process of gestation, will this birth be accomplished: it will come, and nobody can prevent it.

* * * * *

In presenting this series of measures, I am penetrated by the conviction, that, if adopted, they cannot fail to bring all the national obligations to a par with coin, and then specie payments will be resumed without effort. Our bonds will be among the most popular in the market. No longer below par, they will continue to advance, while the national credit lifts its head unimpeached, unimpeachable. Under this influence the remainder of our outstanding debt may be refunded in Fifteen-Fifties at four and a half per cent., if not in Twenty-Sixties at four per cent. There will then be sixteen hundred and twenty-five millions refunded at an average of less than four and a half per cent., and the whole debt, including the irredeemable sixes of 1881, at an average of less than five per cent., while all will be within our control five years earlier than in the maximum period proposed by the Secretary of the Treasury.

One immediate consequence of these measures would be the relief of the people from eighty to one hundred millions of taxation, while there would remain a surplus revenue of two millions a month applicable to the reduction of the debt, being more than enough to liquidate the whole prior to the maturity of the new obligations, if it were thought advisable to complete the liquidation at so early a day. The country will breathe freer, business will be more elastic, life will be easier, as the assurance goes forth that no heavy taxation shall be continued in order to pay the debt in eleven years, as is now proposed, nor in fifteen years, nor in twenty years. By the present measures, while retaining the privilege of paying the debt within twenty years, we shall secure the alternative of sixty years, and at a largely reduced interest,--leaving the opportunity of paying it at any intermediate time, according to the best advantage of the country. With diminished taxation and resources increasing immeasurably, the national debt will cease to be a burden,--becoming “fine by degrees and beautifully less” until it gradually ceases to exist.

* * * * *

In making this statement, I offer my contribution to the settlement of a great question. If I am wrong, what I have said will soon be forgotten. Meanwhile I ask for it your candid attention, adding one further remark, with which I shall close. I never have doubted, I cannot doubt, the ease with which the transition to specie payments may be accomplished, especially as compared with the ominous fears which this simple proposition seems to excite in certain quarters. We are gravely warned against it as a period of crisis. I do not believe there will be anything to which this term can be reasonably applied. Like every measure of essential justice, it will at once harmonize with the life of the community, and people will be astonished at the long postponement of an act so truly beneficent in all its influences, so important to the national character, and so congenial with the business interests of the country.

The bill was ordered to be printed, and referred to the
Committee on Finance.

* * * * *

January 25th, a bill from the Committee on Finance, “to
provide a national currency of coin notes and to equalize the
distribution of circulating notes,” being under consideration,
Mr. Sumner moved an amendment embracing the provisions of his
bill, with the exception of the first, second, and seventh
sections, as a substitute,--in support of which he the next day
spoke as follows:--

MR. PRESIDENT,--Some things seem to be admitted in this debate as starting-points,--at least if I may judge from the remarks of the Senator from Ohio [Mr. SHERMAN]. One of these is the unequal distribution of the bank-note currency, and another is that to take from the Northern and Eastern banks circulation already awarded to them would disturb trade. I venture to add, that the remedy would be worse than the disease.

The Senator from Wisconsin [Mr. HOWE] and the Senator from Kentucky [Mr. DAVIS] justly claim for the West and South a fair proportion of bank circulation. The Senator from Indiana [Mr. MORTON] demands more. While neither asks for expansion, neither is ready for contraction. The last-named Senator argues, that at this time the currency is not too much for the area of country and the amount of business, which, from the new spaces opened to settlement and the increase of commerce, require facilities beyond those that are adequate in thickly settled and wealthy communities. His premises may be in the main sound; but he might have made a further application of them. If, in the absence of local banks and banking facilities, a larger amount of circulation is needed,--and I do not mean to question this assertion,--would it not follow that the establishment of such local banks and banking facilities, with new bank credits, checks of depositors, and other agencies of exchange, and with the increase of circulation, would more than counterbalance any slight contraction from the withdrawal of greenbacks, and that thus we should be tending toward specie payments?

The Senator from Kentucky said aptly, that, if we wait until all are ready, we shall never resume. If the Senator from Indiana is right in saying that prices have already settled down in the expectation of an early resumption, then to my mind the battle is half won and we have only to proceed always in the right direction.

A simple redistribution of the existing currency cannot be made without serious consequences to the business of the country, while it will do nothing to correct the evils of our present financial condition. It will do nothing for Financial Reconstruction, nor will these consequences be confined to any geographical section. They will affect the South and West as well as the North and East. I need only add that disturbance in New York means disturbance everywhere in our country.

Nor is it easy to see how any redistribution can be made, which, however just to-day, may not be unjust to-morrow. As business develops and population extends there will be new demand, with new inequalities and new disturbances.

The original Banking Act[212] authorized a circulation of $300,000,000, a large part of which went to the Northern and Eastern States. All this was very natural; for at that time there was no demand at the South, and comparatively little at the West. With the supply of capital at the East banks were promptly formed, even before the State banks were permitted to come into the new system. Subsequently the State banks were not only permitted to come into the new system, but their circulation was taxed out of existence. Here, then, was banking capital idle. It was reasonable that the circulation which was not demanded in other parts of the country should be allotted to these banks. This I state in simple justice to these banks. I might remind you also of the patriotic service rendered by the banks of New York, Boston, and Philadelphia, which in 1861 furnished the means by which our forces were organized against the Rebellion. One hundred and fifty millions in gold were furnished by these banks, of which less than fifty millions were subsequently subscribed by the people;[213] and this was at a moment when the national securities had received a terrible shock. Not from the South, not from the West, did financial succor come at that time.

* * * * *

In considering briefly the questions presented by the pending measure I shall take them in their order. They are two: first, to enlarge the national bank currency; and, secondly, to create a system of free banking founded on coin notes. This leaves out of view the question of refunding and consolidating the national debt; nor does it touch the great question of specie payments.

I begin with the proposed enlargement of the currency. The object is excellent, as is admitted by all; but the practical question arises on the way it shall be done.

If you look at the bill now before the Senate, you will see that it authorizes an enlargement to the extent of $45,000,000, and the withdrawal to that amount of what are called three per cent. temporary loan certificates, of which little more than this amount exists. The extinction of this debt will accomplish an annual saving of about $1,366,000. So far, so good. This amount of $45,000,000 is allotted to banks organized in States and Territories having less than their proportion under the general Banking Act. This is right, and it removes to a certain extent objections successfully urged at the last session of Congress against a measure for the redistribution of currency.

But, plainly and obviously, the measure of relief proposed is not sufficient to meet the just demands of the South and West; nor is it sufficient to prevent taking from the North and East a portion of the currency now enjoyed by them. Therefore in one part of the country it will be inadequate, while in another it is unjust. Inadequacy and injustice are bad recommendations.

When a complete remedy is in our power, why propose a partial remedy? When a just remedy is in our power, why propose an unjust remedy? There is another question. I would ask also, Why unnecessarily disturb existing and well-settled channels of trade?--for such must be the effect of a new apportionment, as proposed, under the census of this year. Why not at once provide another source from which to draw the new supplies under the new apportionment? I open this subject with these inquiries, which to my mind answer themselves.

The proposition of the Committee is further embarrassed by the provision for the cancellation each month of the three per cent. certificates to an amount equal to the aggregate of new notes issued during the previous month. In order to judge the expediency of this measure we must understand the origin and character of these certificates.

The Secretary of the Treasury, desiring to avoid the further issue of greenbacks, conceived the idea of a note which could be used in the payment of Government obligations, but in such form as not to enter into and inflate the currency. This resulted in an interest-bearing note payable three years after date, with six per cent. interest compounded every six months and payable at the maturity of the note in its redemption. This anomalous note was made legal-tender for its face value only.[214] It was not doubted that such notes, on the accumulation of interest, would be withdrawn as an investment. Being legal-tender, if they were allowed to be used by the banks as part of their reserves, they would become, contrary to the original purpose, part of the national circulation, while the Government would be paying interest on bank reserves, which no bank could demand. But the _ipse dixit_ of the Secretary could not prevent their use by the banks as part of the reserves. The intervention of Congress was required, which, by the second section of the Loan Act of June 30, 1864, provided as follows:--

“Nor shall any Treasury note bearing interest, issued under
this Act, be a legal tender in payment or redemption of any
notes issued by any bank, banking association, or banker,
calculated or intended to circulate as money.”[215]

From this statement it seems clear that neither the Secretary originating these compound-interest legal-tender notes, nor the Act of Congress authorizing them, nor the banks receiving them, contemplated their employment as part of the bank reserves. How they reached this condition remains to be told.

The whole issue of the compound-interest legal-tender notes amounted to upward of two hundred and seventeen millions.[216] These were funded at or before maturity, except some fifty millions, which as they matured were exchanged for certificates to that amount bearing three per cent. interest, and constituted part of the bank reserves.[217] Here was an innovation as improvident as new, being nothing less than bank reserves on interest. This improvidence was increased by the manner of distribution, which, instead of being ratable, seems to have been according to the rule of “Who speaks first?” Of course the banks within easy access of Washington had peculiar opportunities, by which they were enabled to secure these notes, and thus obtain interest on part of their reserves, while banks at a distance, and especially in the country, were not equal in opportunity. Besides its partiality, this provision operates like a gratuity to the banks having these notes.

Obviously these three per cent. certificates ought to be withdrawn; but I do not like to see their withdrawal conditioned on the extension of banking facilities. Their case is peculiar, and they should be treated accordingly. Nor should their accidental amount be made the measure of banking facilities. They constitute a part of the national debt, and should be considered in the refunding and consolidation of this debt, and not on a bill to provide banking facilities.

I think I do not err, if I conclude that the first part of the pending measure is inadequate, while the cancellation of the three per cent. certificates in the manner proposed is inexpedient. All this is more observable when it is considered that there is another way, ample and natural.

* * * * *

From the first part of the pending measure I pass to the second part, being sections three, four, and five, which, if I am not mistaken, authorize free banking, with coin notes as a declared basis of coin. This is plausible, but to my mind illusory and impracticable. The machine will not work; but if it does work, its first and most obvious operation will be to create a new currency, adding a third to the greenbacks and bank-notes already existing, besides creating a new class of banks. Here I put the practical question, Can any national bank issue and maintain a circulation of coin notes with a reserve of only twenty-five per cent., so long as gold commands a premium? How long would the reserve last? It is easy to see that until specie payments this idea is impracticable. It will not work. In proportion to the premium on gold would be the run on the banks, until their outstanding notes were redeemed or their vaults emptied.

But the measure is not only impracticable,--it is inexpedient, as multiplying, instead of simplifying, the forms of currency. We have now two paper currencies, distinct in form and with different attributes. Everybody feels that this is unfortunate; and yet it is now proposed to add another. Surely it is the dictate of wisdom, instead of creating a third paper currency, to disembarrass the country of one of those now existing and make the other convertible into coin, so that we may hereafter enjoy one uniform currency. I confess my constant desire for measures to withdraw our greenbacks and to make our present bank-notes coin notes. Coin notes should be universal. Under any circumstances the conclusion is irresistible, that the proposed plan, if not utterly impracticable, is a too partial and timid experiment, calculated to exercise very little influence over the great question of specie payments.

* * * * *

If I am right in this review, the bill of the Committee does not deserve our support. But I do not confine myself to criticism. I offer a substitute. Could I have my way, I would treat the whole financial question as a unit, providing at the same time for all the points involved in what I have called Financial Reconstruction. This I have attempted in the bill which I have already introduced. But on the present occasion I content myself with a substitute for the present measure. The amendment of which I have given notice has the twofold object of the pending bill: first, to enlarge the currency; and, secondly, to change the existing banking system, so as to provide practically for free banking and to enlarge banking facilities.

If you will look at my amendment, you will see that it enlarges the limit of bank-notes from $300,000,000 to $500,000,000. This is practically a provision for free banking, at least for some years. Practically it leaves the volume of currency to be regulated by legitimate demand, with a proviso for the withdrawal of legal-tender notes to an amount equal to the new issues. The amendment then proceeds to provide bonds to be deposited with the Government as the basis of the new banks. And here is a just and much-needed economy,--just to the Government, and not unjust to the banks. It is proposed for the future to allow but four per cent. interest on the bonds deposited by the banks. Thus far the banks have enjoyed large benefits, and in part at the expense of the Government. Under the operation of my amendment these profits would be slightly reduced, but not unduly, while the Treasury would receive an annual benefit of not far from six million dollars in coin. In this respect the proposition harmonizes with the idea, which is constantly present to my mind, of diminishing our taxes.

* * * * *

Sir, in the remarks submitted by me on a former occasion I ventured to say that the first great duty of Congress was to mitigate the burdens now pressing upon the energies of the people and upon the business of the country, and, as one means of accomplishing this important result, to extend these burdens, in a diminishing annual ratio, over a large population entering upon the enjoyment of the blessings which the present generation at such enormous cost has assured to the Republic.[218] Upon the assumption that the national revenues and the national expenditures would continue relatively the same as now, a sum extending from eighty to one hundred millions would be the measure of relief that might be accorded at once, without arresting the continuous reduction of the debt at the rate of $2,000,000 a month.

In proposing this large reduction of taxation at this time, with the hope of larger reductions in the near future, it was necessary to keep in view the possibility of increased expenditure or of decreased receipts. To guard against such contingency we must keep strict watch over the expenditures, and, if possible, diminish the positive annual obligations of the nation. And here the mind is naturally and irresistibly attracted to the prodigious item of interest. Cannot this be reduced at an early day by a large amount, and then subsequently, though contingently, by a much larger amount? And should not this result be one of our first endeavors? Is it not the first considerable stage in the reduction of taxation?

The credit of the country is injured by two causes: first, the refusal to redeem past-due obligations, being so much _failed paper_, which condition must necessarily continue so long as we deliberately sanction an inconvertible currency; and, secondly, the menace of Repudiation, with slurs upon the integrity of the people uttered in important quarters. These two causes are impediments to the national credit. How long shall they continue? Loyally and emphatically has Congress declared that all the obligations of the nation shall be paid according to their spirit as well as letter. But this is not enough. More must be done. And here Congress must act, not partially, nor timidly, nor in the interests of the few only, but impartially, comprehensively, firmly, and in the interests of the many. It must help the recognized ability of the nation by removing its disabilities.

Nearly five years have now passed since the Rebellion sheathed its sword. But the national expenditures did not cease at once when the sword no longer plied its bloody work. They still continued, sometimes under existing contracts which could not be broken, sometimes in guarding the transition from war to peace. Meanwhile the national faith was preserved, while the people carried the unexampled burden willingly, if not cheerfully. The large unliquidated debt, the _débris_ of the war, has been paid off or reduced to a form satisfactory to the creditor, and the world has been assured that the people are ready for any sacrifices according to the exigency. Is more necessary? Should these sacrifices be continued when the exigency has ceased?

These sacrifices are twofold, being direct and indirect. The direct are measured by the known amount of taxation. The indirect are also traced to existing taxation, and their witnesses are crippled trade, unsettled values, oppressive prices, and an inconvertible currency, which of itself is a constant sacrifice. Therefore do I say again, _Down with the taxes!_