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!_
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.
Sir, I approach this question, therefore, with the conviction that the
whole matter is open to our discretion. Nobody can say safely that what
is now proposed is not within the power of Congress. Congress may do
it, if the occasion justifies, if in its discretion it thinks best to
do it. It may do it, if it thinks that the financial policy of this
country will be thereby promoted. The banks are all parties to that
policy. May not the country turn around and ask the banks to do their
part in this great work of renovation? To a certain extent the banks
are in partnership with the Government. May not the Government insist
that they shall do their part on this great occasion? Shall this effort
of ours to readjust our finances and to save this large interest to our
country be thwarted by a pretension on the part of the banks that we
have not the power to interfere?
But we are reminded that there is a difference between power and right.
How often, Sir, on other occasions, have I so insisted in this Chamber!
A great, broad, vital distinction there always is between power and
right. A nation or an individual may have a power without right. Now
is there not here a right as well as a power? I cannot doubt it. I
cannot doubt that Congress may rightfully exercise what I cannot doubt
is an existing power. Why should it not? It could exercise it--who can
doubt?--with reference to the public interests, to promote the national
credit. It will not exercise it in any spirit of wantonness, in any
spirit of injustice,--but to promote the national credit. Is not that
a rightful object? No one will say the contrary. Why, then, shall we
hesitate?
We are reminded that these banks have secured certain privileges, and
it is said often that those are vested, and the old phrase “vested
rights” has been repeated. But how can they have vested rights under
a statute which contains the provision just read to us, securing to
Congress full power to change it in every respect? What, then, is the
simple aspect of this question? It is that certain securities have
been lodged with the Government by these banks on which they transact
their business, and now in readjusting the national debt it is deemed
advisable and for the public interests that the securities should be at
a lower rate of interest than when they were originally deposited. Is
it not right for Congress to require that? I cannot see the wrong in
it. I cannot see any doubt on the question. To my mind it is clear; it
is absolutely within the province of Congress, in the exercise of the
discretion which it originally retained over this whole subject.
I hope, therefore, that in this debate we shall not be pressed too much
with the suggestion that we cannot coerce these banks. If the occasion
requires, and if the term be applicable, then do I say we may coerce
these banks to the extent of obliging them to take these securities
at a reduced rate of interest. I find no Repudiation in that. I find
nothing wrong in that. I find nothing in it but a simple measure in
harmony with this great process of Financial Reconstruction in which we
are now engaged. I call it Financial Reconstruction; and in this work
ought not the banks to take their place and perform their part?
* * * * *
Now, Sir, I have a criticism on this section. It does not go far
enough. The Committee propose that the banks shall take one third of
the three different kinds of bonds, the five, the four and a half, and
the four per cents. I think they ought to be required to take all in
fours, and I propose to give the Senate an opportunity of expressing
its judgment on that proposition. I may be voted down; perhaps I shall
be; but I shall make a motion, in the honest endeavor to render this
bill a practical measure, which can best succeed. I wish to mature
it; I wish to put it in the best shape possible; and for the sake of
the banks, and in the interest of the banks, I wish such a measure
as shall have a reasonable chance of stability in the future. If you
allow the banks gains that are too large, there will necessarily be a
constant opposition, growing and developing as their gains become more
conspicuous. Why expose the system to any such criticism? Let us now
revise it carefully, place it on sure, but moderate foundations, so
that it will have in itself the elements of future stability.
To my mind that is the more politic course, and I am sure it is not
unjust. You and I, Mr. President, remember very well what was done on
another occasion. The State banks were taxed out of existence. It was
the cry, “Tax them out of existence! do not let them live! drive them
from competition with these new children of ours, the national banks!”
It was done. Was not that coercion? If the phrase is to be employed,
there was an occasion for it. But I am not aware that it was argued,
certainly it was with no great confidence argued, that to do that was
unjust. It was a measure of policy wisely adopted at the time, and
which we all now see has answered well. But if we could tax the State
banks out of existence, can we not, under the very specific terms of
the Act of Congress to which these national banks owe their existence,
apply a rule not unlike to them? We do not propose to tax them out of
existence, but we propose to require that they shall lodge with the
Government securities at a lower rate of interest.
Something has been said, perhaps much, in this debate, with regard
to the burden that this will impose upon the banks. The Senator from
Ohio [Mr. SHERMAN] has already answered that objection, and I do not
know that I can add to his answer; and yet I am not aware that he
reminded the Senate that in this very bill there is a new and important
provision in favor of the banks, or in favor of all bondholders,--being
an exemption from all taxation, not only State and municipal, but
national.
There is but one other remark I will make, and that is, we all know,
unless I am much deceived, that the banks have during these last years
made great profits. I am told that the profits of the national banks
are two or three times greater than those of the old State banks, which
we did not hesitate to tax out of existence. Now is not that a fact
in this case? Is it not an essential element? Should it not be taken
into consideration on this occasion? If these national banks are the
recipients of such large profits, should we not exercise all the power
that belongs to us to compel them to their full contribution to this
great measure of Financial Reconstruction? I cannot hesitate in my
conclusion.
March 11th, Mr. Sumner moved the addition of a section
providing for the resumption of specie payments,--being the
seventh section of the original bill,--remarking:--
MR. PRESIDENT,--Interested as I am in this bill, desirous of its
passage hardly less than the Senator from Ohio, I am bound to say,
that, in my judgment, the passage of this single section would be
worth more than the whole bill. It would do more for the credit of the
country; it would do more for its business. It would help us all to the
completion of Financial Reconstruction. How often have I insisted that
all our efforts to fund and refund are to a certain extent vain and
impotent, unless we begin by specie payments! That, Sir, is the Alpha
of this whole subject; and until Congress is ready to begin with that,
I fear that all the rest will be of little avail. It is in the light of
expedient rather than of remedy. There is the remedy.
The proposition was negatived,--Congress not being yet ready
for this step.