The financial experience of the Government of the United States in the
years following the war is without precedent among nations. When
Congress first met after the close of hostilities (December, 1865), it
was as a ship sailing into dangerous and unknown seas without chart
of possible channels. The Reconstruction problem before the country
seemed at the time to be less difficult than the financial problem.
Other nations had incurred great expenditures for war purposes, but had
always left them in chief part as a heritage for the future. Great
Britain will probably never pay the total principal of her public debt.
France will be burdened perhaps as long as her nationality endures by
the debts heaped upon her through the ambition of her sovereigns, and
in her own struggles to enlarge the liberty of her people. But in this
country the purpose was early formed, not simply to provide for the
interest upon the debt incurred in the war for the Union, but to begin
its payment at once, and to arrange for its rapid liquidation. In view
of the magnitude of the sum involved this was a new undertaking in the
administration of Government finances.
The difficulties of the situation were undoubtedly aggravated and
complicated by the questions which arose from the condition of the
Southern States. Could Congress expect at once that the populations in
those States would begin to contribute to the revenue, would cease to
require large expenditures for the maintenance of the National
authority, would again add to the volume of our exports, to our
commerce, and our general prosperity? Serious re-action had in other
lands followed the financial expansion created by great wars, even
without complications similar to those which the disturbed condition
of the South seemed to render unavoidable. Ought Congress to accept
such a re-action as the necessary condition of the restoration of our
currency, of return to a normal situation, of adjustment of expenditure
to revenue on a peace footing? Could the possibility be entertained of
such a return and such an adjustment, without panic, without paralysis
of industry, without temporary interruption and prostration of
commerce? Grave apprehensions were felt as to the possible effect upon
production and trade of the legislation required to maintain the
National credit. These apprehensions derived force and peculiar
seriousness from the growing conflict between President Johnson and
Congress upon measures of Reconstruction and upon removals from office.
In spite however of all suggested fears and doubts, a feeling of
confidence pervaded the country, and was fully shared by Congress, that
the power which had saved the Union could re-establish its credit
without panic and without dangerous and prolonged depression. Faith
in the resources which had equipped and supported the National armies,
now embraced the plainer and less exciting duties of funding and paying
the debt and of protecting the notes of the United States. The loans
had been placed, the money borrowed, under the excitement of
war,--sometimes under the pressure of defeat, sometimes in the
exaltation of victory. Without this pressure, without this exaltation,
could money be secured at a rate adequate to build up a National credit
worthy to be compared with that of the older and richer nations beyond
the Atlantic?
The intrepidity with which Congress met its task will always compel the
admiration of the student of American history. While the war lasted,
the contributions by taxes and by loans had been on a munificent scale.
The measures adopted at the close of the Thirty-eighth Congress, after
four years of desperate struggle and on the very eve on National
victory, showed as great readiness to make sacrifices, as little
disposition to count the cost of saving the Union, as had marked
previous legislation. Less than six weeks before the surrender of Lee
the internal taxes were increased, the duties on imports were
adjusted to that increase, and a new Loan Bill was enacted. The bill
provided for borrowing, in addition to the authority given by previous
Acts, any sum not exceeding $600,000,000 in bonds, or treasury notes
convertible into bonds, at six per cent interest in coin or seven and
three-tenths per cent interest in currency. This provision was found
to be so comprehensive that it not only provided a strong
instrumentality for meeting the immense demands incident to the
disbanding of the armies and the final settlement of claims connected
with that momentous change in our affairs, but also laid the foundation
for the policy of funding the debt at a reduced rate of interest.
These results testify to the magnificent proportions of the financial
legislation during the period of hostilities.
When the Thirty-ninth Congress met in December, 1865, gold stood at
147-7/8 @ 148½. A month later, on the 1st of January, 1866, the
legal-tender notes and fractional currency amounted to $452,231,810;
notes bearing 7-3/10 per cent interest, to $830,549,041; compound-interest
notes payable three years from date (a considerable proportion
of which time had elapsed), to $188,549,041; certificates of
indebtedness, payable at various dates within the current year, to
$50,667,000; and the temporary loan, practically payable on demand,
had reached the large sum of $97,257,194. These might all be called
floating and pressing obligations, and their grand aggregate was
$1,618,705,045. At the same time the amount represented by bonds
(6's of 1861, 5-20's, and 10-40's) was $1,120,786,700,--showing a
total National debt on New-Year's Day, 1866, of $2,739,491,745. If
the National credit was to be maintained these sixteen hundred millions
of floating obligations must be promptly placed on a basis that would
give time to the Government to provide means for their ultimate
redemption. President Johnson, in his message at the opening of the
session, spoke of the debt not as a public blessing, but as a heavy
burden on the industry of the country, to be discharged without
unnecessary delay. This was the popular sentiment in all sections of
the country, although in financial circles arguments were frequently
heard in favor of creating interminable obligations and of adjusting
the debt on a basis of permanency, after the European fashion. The
reduction had indeed already begun, since the maximum of debt had
been attained in the preceding August.
The Secretary of the Treasury, Mr. Hugh McCulloch, estimated that for
the fiscal year ending with June, 1867 (for which Congress was about
to provide), the revenue would exceed the expenditures by $111,682,818,
and that the whole of our vast debt could be liquidated by annual
payments within thirty years. Mr. McCulloch's plans were to take from
the compound-interest notes their legal-tender quality, from the date
of their maturity, and to sell six per cent bonds, redeemable at the
pleasure of the Government, for the purpose of retiring both the
compound-interest notes and the plain legal-tenders. He believed that
the entire debt might be funded at five per cent, while the average of
the annual interest now stood at 6-62/100 per cent. He pointed to
harmony between the different parts of the Union and to the settlement
of the relations of labor in the Southern States, as essential
conditions to the best management of the National obligations.
The leading feature of Mr. McCulloch's financial policy was the
immediate and persistent contraction of the currency. His argument in
support of the policy, as given in his annual report, was not accepted
by the country or by Congress without serious reservation; but his
belief in the theory was strong and determined, and so far as the laws
permitted he went on reducing the volume of paper in circulation until
on the 12th of April, 1866, the sum of legal-tenders was brought down
to $421,907,103. Financiers of the Eastern cities favored the policy
of contraction, although the logical plea was urged against them that
the country would grow up to the volume of currency if not harried and
disturbed by new legislation. Manufacturers and the holders of their
products, and many who had incurred pecuniary obligations in the
expanded currency, took alarm at the rapidity with which the Treasury
notes were withdrawn. The argument was urged that the heavy taxes
could not be met if the withdrawal were so rapid, and that industry
and trade would in consequence be paralyzed by the enforced fall in
prices.
These opinions and apprehensions were developed in the debate which led
to the passage of the Act of April 12, 1866. The subject was first
introduced by Mr. Alley of Massachusetts. On the 18th of December
(1865) he offered a resolution concurring in the views of the
Secretary of the Treasury, in relation to the necessity for a
contraction of the currency, with a view to as early a resumption of
specie payment as the business interests of the country would permit.
Under a suspension of the rules, without debate, 144 voted for the
resolution, 6 against it, and 32 were not recorded. Two months later,
on the 21st of February, 1866, Mr. Morrill, from the Committee on Ways
and Means, reported a bill which, as he explained, would expand the
authority provided by the Act of March 3, 1865, for funding
interest-bearing obligations, so as to include non-interest-bearing
obligations. The measure authorized the Secretary to exchange the bonds
prescribed by the Act for notes or certificates, and power was given to
negotiate them and make them payable either in the United States or
elsewhere, but if beyond the sea at not over five per cent interest.
--Mr. Thaddeus Stevens declared that the bill put over _sixteen hundred
millions_ of Government paper under the absolute and uncontrolled
discretion of the Secretary of the Treasury. "This is a tremendous
bill," said he. "It proposes to confer more power upon Mr. McCulloch
than was ever before conferred upon any one man in a government
claiming to have a constitution."
--Mr. Hooper of Massachusetts magnified the financial achievements of
the Government, urged the policy embodied in the bill, and insisted
on the importance of restoring the currency to a sound condition at
the earliest practicable moment. He controverted the suggestion which
had been made to increase United-States notes to $1,000,000,000, on the
ground that the value of that dollar would be constantly fluctuating.
A minority of the commissioners appointed by the preceding Congress to
inquire into the state of trade and commerce had presented a specious
argument in favor of debasing the coinage, but Mr. Hooper dismissed
the proposition summarily and argued strongly for a contraction of
legal-tender notes.
--Mr. Hulburd of New York maintained that taxation could not be
increased to meet the existing and maturing obligations of the
Government. He held that under the Acts of June, 1864, and March,
1865, the Secretary had power to sell at home or abroad six per cent
coin bonds in any amount to meet short obligations of the Government.
"Under the proposed measure," he said, "authority is specifically
asked to withdraw the fractional currency and legal-tender notes, in
whole or in part, and to substitute bonds for them. The like power
was never asked for Neckar or for Pitt. As a principle the proposition
is dangerous." He protested vigorously against making any part of
the public debt payable in foreign countries.
--Mr. John Wentworth of Illinois argued in favor of contraction,
maintaining that the purpose of the pending bill was to make the
Secretary of the Treasury master of the situation. "If we expect him
to compete successfully with the most desperate body of men in the
world we must confer upon him the necessary powers. The real question
is, Shall our Government pay its pensions and all its employees and
creditors in depreciated paper, when by borrowing a little money at
six per cent it can bring its paper to par?" He charged that an
immense lobby against the bill had thronged the hall, and was surprised
to find importers among them. "But the importers have found," said he,
"that a bloated currency bloats the fashions." He earnestly indorsed
Mr. McCulloch as a cautious man, who would not be precipitate, no
matter what power might be conferred upon him: "If we adopt his policy
we shall wake up some morning and find the paper of our country at par."
--Mr. Pike of Maine doubted the necessity of enforced contraction; but
if contraction was necessary, he was for taxing the circulation of
national banks out of existence, and afterwards retiring greenbacks.
"Once upon a specie basis," said he, "let the business of the country
regulate itself." He proposed also to allow the States to tax the
bonds of the United States.
--Mr. Price of Iowa asked: "Would any prudent and sensible business
man who had given his note payable at his own option, without interest,
be likely to give for it another note for the same amount payable at
a certain time, with interest at six per cent semi-annually, in gold
coin?"
--Mr. Scofield of Pennsylvania asked if the legal-tender notes were
not, upon their face, payable on demand.
--Mr. Allison of Iowa insisted that "the Secretary of the Treasury does
not propose to return to specie payments immediately, but he expresses
the opinion that the reduction of greenbacks by the sum of one hundred
million dollars will secure that result."
--Mr. Boutwell of Massachusetts was content to try the experiment of
converting the interest-bearing obligations into long bonds, but was
unwilling to go farther.
--Mr. Sloan of Wisconsin proposed an amendment to make "bonds and all
other obligations of the United States hereafter issued payable in
lawful money," but the suggestion met with no favor.
--Mr. Roscoe Conkling maintained that "in the first place, the
Secretary of the Treasury has now the power, under the Act of March
3, 1865, to exchange any securities of the Government which bear
interest for any other securities which bear interest. In the second
place, he has the power to call in, to cancel, to annihilate, so that
it shall never go out again, every particle of currency issued prior
to June 30,1864; and the truth is, that substantially if not literally
the whole of the currency was issued previous to that time." . . .
"Only one power," said Mr. Conkling, "remains to be conferred upon him;
and that is, the power to put his bonds upon the market when he
pleases, where he pleases, as he pleases, sell them for money, and with
that money purchase the outstanding obligations of the Government."
--Mr. Garfield argued that "under existing law, the Secretary can
issue compound-interest notes and 7-30 bonds to meet current
indebtedness; but these are the most expensive forms of government
obligations, and therefore he ought not to use the power." He thought
the proposed bill was necessary in the interest of the Government. He
would "trust the Secretary to proceed cautiously in the path required
by honor, to place our currency on a sound basis. . . . We have
travelled one-third of the way since Congress met. Gold was then 148.
It is now 130. Defeat this bill, and there will be a jubilee on
Wall Street."
--Mr. Lawrence of Ohio opposed the bill, and presented a letter from
Mr. Freeman Clarke, then Comptroller of the Currency, saying, "We have
full power to fund every dollar of the floating debt without any
legislation, and with no occasion for making any loan whatever."
--Mr. Morrill closed debate on the 16th of March; and the bill coming
to a vote, was defeated,--_ayes_ 65; _noes_ 70. But on a motion to
reconsider, it was again brought before the House on the 19th of March,
and after brief debate was recommitted. When it re-appeared, four
days later, it contained a _proviso_ "that the Secretary of the
Treasury shall not retire more than ten million dollars of legal-tender
notes in the first six months after the passage of the Act, and not
more than four million dollars a month afterwards; and shall make a
report to Congress of his action under this provision." Mr. Morrill
submitted a letter from Mr. McCulloch, expressing the opinion that "it
will be a national calamity if Congress shall fail to grant additional
powers to the Secretary." He added, that "the apprehension which
exists, that if power is given to the Secretary to retire legal-tender
notes the circulation will be ruinously contracted, is without any
special foundation." The effect of the discussion was to strengthen
the bill in the House where it was passed by _ayes_ 83; _noes_ 53.
The bill was favorably reported to the Senate from the Finance
Committee, and came up for consideration on the 9th of April, under
the charge of Mr. Fessenden.
--Mr. Sherman re-affirmed the objections made in the House, that the
power conferred was greater than had ever been granted to any Secretary
of the Treasury since the foundation of the Government. "The power,"
said he, "is absolute. The Secretary may sell securities of any form
at any time and fund the whole debt. No present necessity exists for
such grant of authority. The _proviso_ for restricting contraction
is not adequate for that purpose. By retaining a large balance in the
Treasury, the Secretary can contract the currency without violating the
_proviso_." He deemed it unwise "to place in the hands of any mortal
man this absolute and extreme control over the currency."
--Mr. Fessenden said the true principle of this bill was, "that as
soon as it can be done with safety, Congress means that we shall get
back to the old system of specie payments. That is about all there
is of it. The effect of rejecting the measure will be to say to
everybody that the Government intends to keep depreciated paper in the
financial market."
--Mr. Chandler of Michigan believed the measure "to be evil, and evil
only; containing dangerous powers which should not be conferred, and
which no man should be willing to accept." Mr. Howe of Wisconsin
agreed with him.
--Mr. Guthrie of Kentucky (Secretary of the Treasury under President
Pierce) pronounced it "necessary and proper to give this power to the
Secretary." And Mr. Morgan of New York, agreeing with him, declared
that he desired the bill "just as it is."
--An amendment to strike out the words authorizing the sale of the
bonds elsewhere than in the United States was overwhelmingly defeated,
_ayes_ 7, _noes_ 35. The bill was then passed by _ayes_ 32, _noes_ 7,
and by the President's signature became a law on the 12th of April,
1866.
The discussion of this important financial measure illustrates the
various phases of opinion prevailing both in Congress and in the
country. The desire to return to a specie basis was general, and yet
not a few clung to the legal-tender notes as a permanent and standard
currency. While the argument in favor of contraction was prosecuted
with great force, the possibility of going too fast, even in the right
direction, was conceded by the wisest financiers. The natural
disinclination of the American people to entrust unrestricted power to
any officer was frequently and forcibly expressed. The policy of
funding the obligations bearing interest was admitted on all hands, and
for this purpose the sale as well as the direct exchange of bonds was
approved. But the repugnance to accepting less than par, or allowing
the possibility of such a rate, had its origin and support in the
patriotic instincts and in the sound judgment of the people. The
requirement of a report from the Secretary and the limitation of the
extent of contraction, were the essential changes which made the
measure acceptable.
The enactment of this bill presents in an instructive light the
character of our financial legislation and the methods by which it is
accomplished. As originally presented the bill had the approval of the
Secretary of the Treasury and came before the House with the favorable
report of the Committee on Ways and Means. Yet it had no such standing
as in the British Parliament is given to a financial project of the
Government. There, such a proposition would be definitely framed at
the Treasury, and its details would be elaborated when first presented.
The Chancellor of the Exchequer would state the full character of the
measure and the reasons for asking its adoption. Opposition or
question would be expected only from the benches of the rival party.
Here, on the other hand, after the House, using its own judgment, had
modified the bill, criticism and hostility came from the Treasury that
had originally proposed it. Several prominent members of the dominant
party were pronounced in opposition. Saved by parliamentary strategy
when once defeated, the bill was started into new life by the adoption
of restrictions upon the power and the action of the Secretary of the
Treasury. These restrictions were shown to be necessary in the
progress of the debate. Individual judgment asserted itself and the
Act became the harmonious resultant of the conflicting opinions of the
entire House.
Congress therefore did not enact anybody's theory. It put into the
statute the prudent, cautious sense of the people. Recognizing the
principle of funding the floating obligations, and of contraction as
a means to resumption, Congress only responded to the common sense of
its great constituency, in forbidding reckless haste, and in defining
the rate of speed. The purpose of keeping in Congress the control of
the rate of contraction was only a part of the general determination
that the representatives of the people and of the States shall
prescribe the methods of conduct as well as the principles and broad
measures of administration. Every Government finds by practice the
system of legislation and administration best adapted to its own wants.
While ministerial power and a trained following, such as obtain in
England, may possess advantages under the circumstances existing in
the British Empire, it is the settled judgment of this country that
a perfectly free discussion, enlightened but not restrained by
departmental recommendation or by dictation of committees, is best
adapted to the varied and conflicting wants of the whole people. And
this was never better illustrated than in the financial bill whose
important provisions have been under consideration.
The revenue laws received careful attention during this session. The
chief measure was the Act of July 13, 1866. It came before the House
with the assurance from the Ways and Means Committee that it would
steadily and materially reduce internal taxes. The system of internal
revenue which had been so elaborately and intelligently constructed
for war purposes, yielded $310,906,984 for the fiscal year ending June
30, 1866. Reduction were now made in the taxes on several hundred
articles of manufacture, on savings banks, on the gross receipts of
certain corporations; and the income tax was in some degree mitigated.
The total reductions were estimated at $75,684,000, but an increase
was proposed on raw cotton amounting to nearly one-third of this sum.
Prolonged discussion arose over this tax and resulted in a disagreement
between the two Houses. The bill was finally perfected in a conference
committee and ended by reducing the total internal revenue to
$265,920,474 per annum--with all allowance made for the growth of the
country and the elasticity of Government receipts.
Not satisfied with the large reduction of taxes made at the first
session after the close of the war, Congress resumed the subject at
the second session. Early in February, 1867, Mr. Morrill, from the
Committee of Ways and Means, reported a bill for the further reduction
of taxes, which became a law on the 2d of March. The taxes removed
were returning a yearly revenue of more than $36,000,000 to the
National Treasury. The principal reductions were $19,500,000 from the
income tax; $4,000,000 from clothing; $3,500,000 from woolens;
$3,250,000 from leather; $1,000,000 from engines; $600,000 from
sugar-refiners; $600,000 from tinware; $500,000 from castings; $500,000
from doors, sashes and blinds; with many others yielding less sums.
All these formed a part of what were termed war taxes, and the steady
purpose of Congress was to remove them as rapidly as the obligations
of the Treasury would permit. As matter of fact they were removed long
before such action was expected by the people, and before the special
interests subjected to the burden had time to petition for relief or
even to complain of hardship.
During the winter of 1866-67 there was a prolonged discussion in
Congress over an Act finally passed March 2, 1867, authorizing the
Secretary of the Treasury to exchange three per cent certificates of
indebtedness for compound-interest notes, and allowing these
certificates to be counted as a part of the reserve of National Banks.
The first proposition was to allow interest at 3-65/100 per cent. The
exchange of notes not bearing interest for those bearing compound
interest was proposed by Mr. Stevens, and at first supported by a
majority, but on reconsideration it was defeated. Objections was made
to the bill that it was a scheme for giving to the banks interest on
their reserves, which they could not otherwise receive when the
compound-interest notes should be retired. Of these notes the banks
held $90,000,000 and the limit proposed for the certificates was
$100,000,000. Congress finally limited the amount of certificates to
$50,000,000 at three per cent, and allowed them to stand for two-fifths
of the reserve of any bank.
While this arrangement was an obvious advantage to the National banks,
no such motive inspired Congress in passing the bill. Quite another
object was aimed at in its enactment. The influence of contraction,
which had gone into operation by the Act of the preceding summer, was
already felt in the business of the country. The real significance
of the Act just passed was that to a certain degree it checked and
even neutralized the operation of the statute which ordered
contraction. The compound-interest notes served the National banks as
a part of their reserve, and as rapidly as they were cancelled,
legal-tender notes were to be held in their stead. Their withdrawal
from circulation for this purpose led therefore to a direct and forcible
contraction of the actual currency of the country. By substituting the
certificates of indebtedness as available for reserve this contraction
was prevented, and by the concession of interest, even at three per
cent, the banks were induced to surrender the securities which cost the
Government a higher rate. The limit of these certificates was
subsequently raised to $75,000,000,--a limit which in fact was often
reached,--but as legal-tenders were needed the certificates were
surrendered to the Treasury.
This is substantially the history of contraction, or of attempts at
contraction made by the Thirty-ninth Congress. The successful effort
to parry its effect, as already described, shows how unwelcome it had
proved to the business community, and how Congress, without resorting
at once to an absolute repeal of the act, sought an indirect mode of
neutralizing its effect. Mr. McCulloch, in trying to enforce the
policy of contraction, represented an apparently consistent theory in
finance; but the great host of debtors who did not wish their
obligation to be made more onerous, and the great host of creditors who
did not desire that their debtors should be embarrassed and possibly
rendered unable to liquidate, united on the practical side of the
question and aroused public opinion against the course of the Treasury
Department. An individual, by an effort of will, can bring himself
to endure present inconvenience and even suffering, for a great good
that lies beyond, but it was difficult for forty millions of people
to adopt this resolve. Nor were the cases quite similar in motive
and influence, for although it might be admitted that the entire
nation would be benefitted by the ultimate result, the people knew that
the process would bring embarrassment to vast numbers and would reduce
not a few to bankruptcy and ruin. It was easy to see, therefore, that
as each month the degree of contraction was made public, the people
more and more attributed their financial troubles to its operation.
Perhaps, in large degree, this was the result of imagination, and of
that common desire in human nature to ascribe one's faults and
misfortunes to some superior power. The effect nevertheless was
serious and lasting. In the end, outside of banking and financial
centres, there was a strong and persistent demand for the repeal of
the Contraction Act.
The process of funding and paying the National debt, and of contracting
the currency, went on with vigor and persistency during the summer and
autumn of 1867. The Treasury statements for the year showed that up
to November 1, 1867, the long obligations of the Government had been
increased to $1,781,462,050; while the short obligations, other than
currency, had been reduced to $441,655,120.63, and the currency in
greenbacks, fractional notes and certificates of deposit for gold, to
$402,385,677.39. The Treasury held $133,998,398.02; so that the
National debt, less this cash, stood at $2,491,504,450. It thus
exhibited an average reduction of the debt from its maximum, August
31, 1865, to November 1, 1867, of more than $10,000,000 per month.
Gold was lower than it had been, but great disappointment was felt
because the premium, which had ranged in January, 1867, at 32-1/8 @
37-7/8, was in November 37½ @ 48-5/8, and the latter figure was
higher than the quotation at the beginning of the first session of
the Thirty-ninth Congress. The charge was current, and was believed
by many, that the premium had been advanced by speculators to compel
Congress to enforce the policy of contraction. On the other hand, it
was declared to be demonstrably true that the reduction of the volume
of paper did not lower the premium on gold. It only depressed
production and placed the markets of every kind under the control of
reckless operators. Surely, it was argued, the contraction had been
severe enough to satisfy the advocates of the most stringent
Procrustean policy. The short obligations had been cut down
nearly one-half since January, 1866. If account were taken of
compound-interest notes the reduction in currency ought to be reckoned
at $100,000,000, and even at twice that sum, since the cash held by
the Treasury had been taken from the circulation of the country.
The Secretary of the Treasury still adhered to the policy of contraction,
and yet was charged with putting into circulation legal-tender notes
that had been once withdrawn, in order to affect the market. Thus in
August, 1866, between the 8th and the 23d inclusive, he had withdrawn
and destroyed $12,530,111, and of the 31st of that month he issued
$12,500,000. He had again in October, 1866, cancelled $500,000
on the 24th, and issued anew the same sum on the 25th. On the
31st of January, 1867, he had issued anew $4,000,000, May 31
$2,500,000, and during December, 1867, $1,842,400. In answer to
remonstrance against this practice the Secretary maintained that the
authority to contract and to cancel the legal-tender notes did not
require him to do it, but left it within his discretion. This was
unquestionably the law of the case.
Mr. McCulloch in his official report insisted on the funding or payment
of the balance of interest-bearing notes, and upon a continued
contraction of the currency, as the first measure for promoting the
National prosperity; and he presented a strong argument in favor of
permanent specie payment. He reported that he had not always retired
notes in each month to the extent permitted, but he declared that
the effect of the policy as carried out had been salutary and that its
continuation would be obviously wise. Yet he feared that financial
views were inculcated, which if not corrected might lead to its
abandonment. The truth was that the Secretary's policy was counter to
the popular wish, and evidence was accumulating that Congress would not
sustain him in its continued enforcement. The Secretary had
confidently relied upon the bankers and commercial men of the country;
but the serious fact was now developed, that many of the most prudent
financiers had concluded that the changes in the volume of the currency
were causing mischief, and that the process of contraction had been
carried as far as was desirable.
The Secretary argued bravely and wisely in his report, in favor of
paying the principal and interest of the Government bonds in coin.
His argument was designed to meet heresies which had found favor in
unexpected quarters. The plea was urged by the new and short-lived
school of finance that the notes of the National banks should be
withdrawn and greenbacks substituted for them, that all payments by the
Government on the principal of the bonds should be in its own paper.
It was admitted by these novel theorists that the bonds on their face
promised coin for interest; but they maintained that the bonds had
been issued in large part when gold was at a heavy premium for paper,
and could rightfully be liquidated in paper at its advanced value.
Propositions were frequently presented to stop the issue of bonds and
to pay out notes for any obligations of the Government offered at the
Treasury on becoming due in any form. The pressure of rapid
contraction secured a hearing for every extravagant proposition.
Prejudice against speculators in gold, who during the war had grown
rich on the disasters of the Union, was added to the discussion,
especially while the premium was maintained and the National credit
charged with odium on its account.
At the opening of the second session of the Fortieth Congress
(December, 1867) numerous resolutions and bills demanding the stoppage
of contraction were referred to the Committee on Ways and Means.
Five days afterwards Mr. Schenck reported a bill of four lines, by
which the "further reduction of the currency by retiring and cancelling
United-States notes is prohibited." It had the unanimous approval of
the Committee on Ways and Means, and was passed by the House,--_ayes_
127, _noes_ 32. The minority included a goodly number of leading
Republicans. In the Senate Mr. Sherman, in supporting the bill, stated
the amount of contraction since August 1, 1866, at $140,122,168. He
argued from these figures that "contraction should go no farther while
industry is in a measure paralyzed, and that Congress ought to resume
control of the currency, which should not be delegated to any single
officer." He declared that the measure was entirely preliminary to
other legislation, "which must include the banking system, the time
and manner of resuming specie payments, the payment of the debt and
the kind of money in which it may be paid, and the reduction of
expenditures and taxes." Debate was somewhat prolonged, and a
conference committee gave final form to the measure, which failed to
receive the President's signature, but became a law without it. It
is known as the "Act of February 4, 1868, prohibiting any further
reduction of the currency, and authorizing the replacing of mutilated
notes." By this Act the minimum limit of legal-tender notes was
fixed at $356,000,00,--the volume then afloat after Mr. McCulloch's
policy of contraction had done its work.
The actual legislation of the second session of the Fortieth Congress
included also the repeal of the tax on raw cotton, and the further
reduction of internal revenue, by the Acts of March 31 and July 20
(1868). Great relief was given to manufactures by the abolition of
the five per cent tax on a variety of products. The surrender of
revenue was estimated at $23,000,000 on cotton at $45,000,000 on
manufactures. These concessions were much needed, for the producers
of cotton were crippled by the condition of their States, and
manufacturers found that prices did not justify the payment of these
war charges.
In his annual message to Congress in December, 1868, President Johnson
argued "that the holders of our securities have already received upon
their bonds a larger amount than their original investments, measured
by the gold standard. Upon this statement of fact it would seem but
just and equitable that the six per cent interest now paid by the
Government should be applied to the reduction of the principal, in
semi-annual installments, which in sixteen years and eight months would
liquidate the entire National debt." This bold and shameless advocacy
of repudiation was less mischievous than it would have been if Mr.
Johnson had held a longer lease of power, and if the people had not in
the Presidential election pronounced so clear and positive a verdict
in favor of the maintenance of the National credit. The Senate deemed
it worth while to put on record a resolution condemning this part of
Mr. Johnson's message. Mr. Hendricks of Indiana moved a substitute
indorsing the statement in the message, and closing with the words of
the Democratic National Convention in favor of paying the bonds in
_lawful_ money. Only seven senators supported his substitute, while
forty-five opposed it; and President Johnson's proposal for repudiation
was, by the action of the Senate, "utterly disapproved and condemned,"
--_ayes_ 43, _noes_ 6. In the House of Representatives a similar
resolution was passed by a vote of 155 _ayes_ to 6 _noes_, 60 not
voting. No Democratic member in that body seemed willing to assume
the objectionable position taken by Mr. Hendricks in the Senate, and a
declaration "that all forms of repudiation are odious to the American
people" was adopted without a division.
The financial achievement of the National Government herein reviewed,
for the four years following the war, may be briefly summarized. The
National debt was reduced by the sum of nearly $300,000,000, while at
the same time the Government reduced its revenue to the amount of
$140,000,000 per annum by the repeal of a long series of internal
taxes. During this period more than $35,000,000 had been paid from the
Treasury towards the construction of the Union and Central Pacific
Railroads, and $7,200,000 was paid to the Russian Government on account
of the purchase of the Territory of Alaska. It is also to be noted
that within this period were embraced all the expenses incident to the
disbandment of the Union army, and also a very large addition to the
pension-list. Notwithstanding all these enormous expenditures the
business interests of the country continued prosperous, and the fact
that so large a reduction had been made in internal taxes gave promise
that within a comparatively short period the Government would be able
to remove all levies that were in any degree oppressive or even
vexatious to private interests.
By reason of his official and personal connection with the President,
Mr. McCulloch had failed to secure cordial support from Congress, and
had moreover given offense by his obvious sympathy with the free-traders,
who were already beginning to assault the protective tariff
which the necessities of war had led the country to adopt. The
Secretary had also gone far beyond the popular wish and the best
business judgment of the country in regard to the rapid contraction of
the currency. But while his politics and his policies were not
acceptable to Congress or to the people, he is entitled to high
credit for his direct, honest, intelligent administration of the
Treasury Department. In the peculiar embarrassments to the
administration of the Government, caused by the course of President
Johnson, it was a matter of sincere congratulation that a Secretary
of the Treasury, so competent and trustworthy as Mr. McCulloch had
approved himself, was firmly in place before the serious political
disturbances began--a congratulation in which his most ardent
Republican opponents were ready to join, knowing how fatal it might
prove if President Johnson had the opportunity to nominate his
successor.
Throughout the more difficult period of his administration of the
department, Mr. McCulloch was aided by two most intelligent and
efficient officers. Mr. William E. Chandler, though only twenty-nine
years of age, was appointed First Assistant Secretary in March, 1865,
and exhibited great aptitude, discrimination, and ability in his
position. He developed an admirable talent for details, a quick
insight into the most difficult problems that came before the
Department, and at all times an honorable devotion to public duty. The
Bureau of Internal Revenue, the most important of the Treasury
Department, was under the direction of another citizen of New
Hampshire, Edward Ashton Rollins. The Bureau for a time collected more
than half the revenue of the United States, and required in its
Commissioner integrity, administrative talent, and singular skill in
providing against every form of fraud. No department of the Government
had to contend against so many corrupt combinations to rob the
Government, and the slightest relaxation of vigilance on the part of
the Commissioner might involve at any time a loss of millions to the
National Treasury. In the complex and difficult duties of this
station, Mr. Rollins proved himself equal to every requirement.
The purchase of Alaska was completed by the Act of July 27, 1868, which
appropriated the amount agreed upon in the treaty of March 30, 1867,--
negotiated by Mr. Seward on behalf of the United States, and by Baron
Stoeckl representing the Emperor of all the Russias. The Russian
Government had initiated the matter, and desired to sell much more
earnestly than the United States desired to buy. There is little doubt
that a like offer from any other European government would have been
rejected. The pressure of our financial troubles, the fact that gold
was still at a high premium, suggested the absolute necessity of
economy in every form in which it could be exercised; and in the
general judgment of the people the last thing we needed was additional
territory. There was, however, a feeling of marked kindliness towards
Russia; and this, no doubt, had great weight with Mr. Seward when he
assented to the obvious wishes of that government. But while there was
no special difficulty in securing the ratification of the treaty by the
Senate, a more serious question arose when the House was asked to
appropriate the necessary amount to fulfill the obligation. Seven
million two hundred thousand dollars in gold represented at that time
more than ten million dollars in the currency of the Government; and
many Republicans felt, on the eve, or rather in the midst, of a
Presidential canvass, that it was a hazardous political step (deeply
in debt as the Government was, and with its paper still at a heavy
discount) to embark in the speculation of acquiring a vast area of
"rocks and ice," as Alaska was termed in the popular and derisive
description of Mr. Seward's purchase.
When the bill came before the House, General Banks, as Chairman of the
Committee on Foreign Affairs, urged the appropriation with great
earnestness, not merely because of the obligation imposed upon the
Government by the treaty, which he ably presented; not merely by reason
of the intrinsic value of the territory, which he abundantly
demonstrated; but especially on account of the fact that Russia was
the other party to the treaty, and had for nearly a century shown a
most cordial disposition towards the United States. General Banks
maintained that at every step of our history, from 1786 to the moment
when he was speaking, Russia had been our friend. "In the darkest hour
of our peril," said he, "during the Rebellion, when we were enacting
a history which no man yet thoroughly comprehends, when France and
England were contemplating the recognition of the Confederacy, the
whole world was thrilled by the appearance in San Francisco of a fleet
of Russian war vessels, and nearly at the same time, whether by
accident or design, a second Russian fleet appeared in the harbor of
New York. Who knew how many more there were on their voyage here?
From that hour France, on the one hand, and England on the other,
receded, and the American Government regained its position and its
power. . . . Now, shall we flout the Russian Government in every court
in Europe for her friendship? Whoever of the representatives of the
American people in this House, on this question, turns his back, not
only upon his duty, but upon the friends of his country, upon the
Constitution of his Government, and the honor of his generation,
cannot long remain in power."
Mr. Cadwalader C. Washburn answered the speech of General Banks on the
succeeding day (July 1, 1868). He assumed the leadership of the
opposition to the treaty. He proposed to demonstrate to the
satisfaction of the House five distinct propositions: "_First_, that
at the time the treaty for Alaska was negotiated, not a soul in the
whole United States asked for it; _second_, that it was secretly
negotiated, and in a manner to prevent the representatives of the
people from being heard; _third_, that by existing treaties we possess
every right that is of any value to us, without the responsibility and
never-ending expense of governing a nation of savages; _fourth_, that
the country ceded is absolutely without value; _fifth_, that it is the
right and duty of the House to inquire into the treaty, and to vote or
not vote the money, according to its best judgment." Mr. Washburn made
an able speech in support of his radical propositions.
General Butler sustained Mr. Washburn's position in a characteristic
speech, especially answering General Banks's argument that we should
pay this amount from a spirit of friendship for Russia. "If," said
General Butler, "we are to pay this price as usury on the friendship
of Russia, we are paying for it very dear indeed. If we are to pay
for her friendship, I desire to give her the seven million two hundred
thousand dollars in cash, and let her keep Alaska, because I think it
may be a small sum to give for the friendship if we could only get
rid of the land, or rather the ice, which we are to get by paying for
it." He maintained that it was in evidence before the House
officially, "that for ten years the entire product of the whole country
of Alaska did not exceed three million dollars."
--Mr. Peters of Maine pronounced the territory "intrinsically
valueless; the conclusive proof of which is found in the fact that
Russia is willing to sell it." He criticised the action of the Senate
in negotiating the treaty. "If the treaty-making power can buy, they
can sell. If they can buy land with money, they can buy money with
land. If they can buy a part of a country, they can buy the whole of
a country. If they can sell a part of our country, they can sell the
whole of it!"
--Mr. Spalding of Ohio, on the other hand, maintained that
"notwithstanding all the sneers that have been cast on Alaska, if it
could be sold again, individuals would take it off our hand and pay us
two or three millions for the bargain."
--General Schenck thought the purchase in itself highly objectionable,
but was "willing to vote the money because the treaty has been made
with a friendly power; one of those that stood by us,--almost the only
one that stood by us when all the rest of the powers of the world
seemed to be turning away from us in our recent troubles."
--Mr. Stevens supported the measure on the ground that it was a
valuable acquisition to the wealth and power of the country. He
argued also in favor of the right of the Senate to make the treaty.
--Mr. Leonard Myers was sure that if we did not acquire Alaska it
would be transferred to Great Britain. "The nation," said he, "which
struggled so hard for Vancouver and her present Pacific boundary,
and which still insists on having the little island of San Juan, will
never let such an opportunity slip. Canada, as matters now stand,
would become ours some day could her people learn to be Americans;
but never, if England secures Alaska."
--Mr. Higby of California answered the objections relating to climate.
"I do not know," said he, "whether the people of the East yet believe
what has been so often declared, that our winters on the Pacific are
nearly as mild as our summers, and yet such is the fact. In my own
little village, situated over fourteen hundred feet above the level
of the ocean, I have seen a plant growing in the earth green through
all the months from October to April."
--Mr. Shellabarger opposed the purchase. He said those nation which
had been compact and solid had been the most enduring, while those
which had the most extended territory lasted the least space of time.
--Mr. Price of Iowa thought that it was "far better to expend the
$7,200,000 in improving the Mississippi River, in order that
bread-stuffs may be transported cheaply from the West to the seaboard."
He had no faith in the value of the territory proposed to be purchased.
--Mr. McCarthy of New York rejected the plea that we should purchase
Alaska because Russia is a friendly power. "I ask this House," said
he, "whence this friendship comes. It comes from self-interest. She
is the absorbing power of the Eastern continent, and she recognizes
us as the absorbing power of the western continent; and through
friendship for us she desires to override and overbalance the
governments of Europe which are between her and us."
--General Butler moved a proviso, that "the payment of $500,000 of said
appropriation be withheld until the Imperial Government of Russia shall
signify its willingness to refer to an impartial tribunal all such
claims by American citizens against the Imperial Government as have
been investigated by the State Department of the United States and
declared to be just, and the amounts so awarded to be paid from said
$500,000 so withheld."
--General Garfield, presiding at the time over the Committee of the
Whole, ruled it out of order, and on an appeal being taken the decision
was sustained by _ayes_ 93, _noes_ 27. After dilatory motions and the
offer of various amendments, which were rejected, the bill was passed
by _ayes_ 113, _noes_ 43.
--The House prefaced the bill by a preamble, asserting in effect that
"the subjects embraced in the treaty are among those which by the
Constitution are submitted to the power of Congress, and over which
Congress has jurisdiction; and for these reasons, it is necessary that
the consent of Congress should be given to the said stipulations before
the same can have full force and effect." There was no mention of the
Senate's ratification, merely a reference to the fact that "the
President has entered into a treaty with the Emperor of Russia, and
has agreed to pay him the sum of seven million two hundred thousand
dollars in coin." The House by this preamble evidently claimed that
its consent to the treaty was just as essential as the consent of the
Senate,--that it was, in short, a subject for the consideration of
Congress.
The Senate was unwilling to admit such a pretension, especially when
put forth by the House in this bald form, and therefore rejected it
unanimously. The matter was sent to a conference, and by changing the
preamble a compromise was promptly effected, which preserved the rank
and dignity of both branches. It declared that "whereas the President
had entered into a treaty with the Emperor of Russia, and _the Senate
thereafter gave its advice and consent to said treaty, . . . and
whereas said stipulations cannot be carried into full force and effect,
except by legislation to which the consent of both Houses of Congress
is necessary;_ therefore be it enacted that there be appropriated the
sum of $7,200,000" for the purpose named. With this compromise the
bill was readily passed, and became a law by the President's approval
July 27, 1868.
The preamble finally agreed upon, though falling far short of the one
first adopted by the House, was yet regarded as a victory for that
branch. The issue between the Senate and the House, now adjusted by a
compromise, is an old one, agitated at different periods ever since
the controversy over the Jay treaty in 1794-95. It is simply whether
the House is bound to vote for an appropriation to carry out a treaty
Constitutionally made by the President and the Senate, without judging
for itself whether, on the merits of the treaty, the appropriation
should be made. After the appropriation required under the Jay treaty
had been voted by the House, that body declared in a resolution which
was adopted by _ayes_ 57, _noes_ 35, "that it is the Constitutional
right and duty of the House of Representatives, in all such cases, to
deliberate on the expediency or inexpediency of carrying such treaty
into effect, and to determine and act thereon as in their judgment
may be most conducive to the public good." But that was the
declaration of the House only; whereas the preamble agreed to in the
appropriation of money for the purchase of Alaska contained the assent
of both branches.
Though the Constitutional principle involved may not be considered as
one settled beyond a fair difference of opinion, there has
undoubtedly been a great advance, since the controversy between the
two branches in 1794, in favor of the rights of the House when an
appropriation of money is asked to carry out a treaty. The change
has been so great indeed that the House would not now in any case
consider itself under a Constitutional obligation to appropriate money
in support of a treaty, the provisions of which it did not approve. It
is therefore practically true that all such treaties must pass under
the judgment of the House as well as under that of the Senate and the
President. Judge McLean of the Supreme Court delivered an opinion
which is often referred to as embodying the doctrine upon which the
House rests its claim of power.* "A treaty," said the learned Justice,
"is the supreme law of the land only when the treaty-making power can
carry it into effect. A treaty which stipulates for the payment of
money undertakes to do that _which the treaty-making power cannot do;
therefore the treaty is not the supreme law of the land_. To give it
effect the action of Congress is necessary, and in this action the
representatives and senators act on their own judgment and
responsibility and not on the judgment and responsibility of the
treaty-making power. _A foreign government may be presumed to know
that the power of appropriating money belongs to Congress_. No act of
any part of the Government can be held to be a law which has not all
the sanctions to make it law."(2)
The territory which we thus acquired is of vast extent, exceeding in
its entire area a half million square miles. Its extreme length is
about eleven hundred miles; its extreme width about eight hundred.
It stretches nearly to the seventy-second degree of north latitude,
three hundred and fifty miles beyond Behring's Straits; and borders
upon the Arctic Ocean for more than a thousand miles. The adjacent
islands of the Aleutian group are included in the transfer, and reach
two-thirds of the way across the North Pacific in the latitude of
60 degrees,--the westernmost island being within six hundred miles of
the coast of Kamtchatka. The resources of the forests of Alaska are
very great,--the trees growing to a good height on the mountain sides
as far as two thousand feet above the tide level. The timber is of
the character generally found in Northern climates: yellow cedar of
durable quality, spruce, larch, fir of great size, and hemlock. In
the world's rapid and wasteful consumption of wood, the forests of
Alaska will prove not merely a substantial resource for the interests
of the future, but a treasure-house in point of pecuniary value. To
this source of wealth on land that of the water must be added, in the
seal and food fish which are found in immeasurable quantities along
the coast of the mainland and the islands.
From the time of the acquisition of Louisiana until the purchase of
Alaska, the additions of territory to the United States had all been
in the interest of slavery. Louisiana, stretching across the entire
country from South to North, was of equal value to each section; but
the acquisition of Florida, the annexation of Texas, the territory
acquired from Mexico by the treaty of Guadalupe Hidalgo, with the
addition of Arizona under the Gadsden treaty, were all made under the
lead of Southern statesmen to strengthen the political power and the
material resources of the South. Meanwhile, by the inexcusable errors
of the Democratic party, and especially of Democratic diplomacy, we
lost that vast tract on the north known as British Columbia, the
possession of which, after the acquisition of Alaska, would have given
to the United States the continuous frontage on the Pacific Ocean from
the south line of California to Behring's Straits. Looking northward
for territory, instead of southward, was a radical change of policy in
the conduct of the Government,--a policy which, happily and
appropriately, it was the good fortune of Mr. Seward to initiate under
impressive and significant circumstances.
[(1) Turner _vs_. The American Baptist Missionary Union, 5 McLean, 544.]
[(2) Mr. Jefferson, more promptly than other great statesmen of his
generation, appreciated the degree of power residing in the House of
Representatives. In a private letter discussing the subject he
expressed views in harmony with Justice McLean's opinion, long before
that opinion was delivered. He wrote to Mr. Monroe: "We conceive
the Constitutional doctrine to be, that though the President and Senate
have the general power of making treaties, yet whenever they include
in a treaty matters confided by the Constitution to the three branches
of the Legislature, an act of legislation will be necessary to confirm
these articles, and that the House of Representatives, as one branch of
the Legislature, are perfectly free to pass the act or to refuse it,
governing themselves by their own judgment whether it is for the good
of their constituents to let the treaty go into effect or not. On
this depends whether the powers of legislation shall be transferred
from the President, Senate, and House of Representatives, to the
President, Senate, and Piamingo, or any other Indian, Algerine, or
other chief."]