The course of President Grant's Administration in regard to the
Finances had proved in all respects successful. The first bill which
received his signature was the Act "to strengthen the public credit,"
approved March 18, 1869. It pledged the Government to the payment in
coin, or its equivalent, of all obligations, notes, and bonds, except
those where the law authorizing the issue stipulated that payment might
be made in "lawful money," which simply meant legal-tender notes. The
demand for this declaratory Act arose from a desire to undo the evil
which had been caused by the resolution of the Democratic party in the
preceding Presidential election in favor of paying all public debts in
paper, except where coin was specifically named in the law. The
position of each party was therefore precisely the reverse of the
other: the Republicans held the normal law of payment of Government
obligations to be in coin, unless payment in paper money had previously
been agreed upon; the Democrats held that all Government obligations
might be discharged in paper, unless payment in coin had previously
been agreed upon. This was the division line in the Presidential
canvass of 1868, and it was the division line among parties in the
Forty-first Congress. In the House, where the Act had been reported by
General Schenck, the vote on its passage was 98 _ayes_ to 47 _noes_.
No Democrat voted in the affirmative. A few Republicans, under the
lead of General Butler, voted in the negative.
When the Act was reported to the Senate, Mr. Thurman offered an
amendment declaring that "nothing in this Act shall apply to the
obligations commonly called Five-twenty bonds." This would reserve
three-fourths of the bonded debt from the operation of the law, and
would effectively defeat its object. Every Democrat in the Senate who
voted on the question, voted in favor of Mr. Thurman's amendment.
Mr. Morton of Indiana and one or two other Republican senators voted
with the Democrats, but the amendment was defeated by a decisive
vote.
--Mr. Garrett Davis offered an amendment, "that the just and equitable
measure of the obligation of the United States upon their outstanding
bonds, is the value at the time in gold and silver coin of the paper
currency advanced and paid to the Government on those bonds." Mr.
Davis argued earnestly in favor of his amendment. He declared it to
be "robbery and iniquity for this Congress to make the people of the
United States pay nearly $900,000,000 more than by law and equity
they are bound to pay."
--Mr. Bayard seconded the arguments of Mr. Davis. "Suppose, instead
of issuing paper money," said Mr. Bayard, "it had pleased Congress
to order a debasement of our National coinage. Suppose twenty-five
per cent more of alloy or worthless metal had been injected into our
currency, and with that base coinage men had come forward to buy your
bonds, what would be thought of the man who, when the day of payment
of those bonds arrived, should say, 'I gave you lead, or lead in
certain proportions; but for all the worthless metal I handed you,
you must give me back gold'? Whether he was more maddened or more
dishonest would be the only question arising in men's minds." Mr.
Bayard used this analogy to illustrate the wrong of paying the bonds
of the Government in coin, and expressed the belief that the debasing
of the coinage would have been "far more Constitutional and right than
the power which Congress exercised when they issued paper money."
When President Grant sent his first annual message to Congress
(December, 1869), the National debt, less cash in the Treasury,
amounted to $2,453,559,735, the cash being $194,674.947. The
aggregate obligations bearing interest in coin had risen to
$2,107,938,000; while the three per cent certificates and the Navy
pension-fund, which alone carried interest in currency, amounted to
$61,195,000. The debt bearing no interest, composed of old
demand-notes, legal-tenders, fractional currency, and certificates for
gold deposited, had fallen to $431,861,763. The seven-thirty notes had
disappeared from the financial statement, and the bonds authorized by
the Act of March 3, 1865, amounted to $958,455,700. The rate of
interest on the bonds still stood at six per cent, except on the old
debt of 1858 and 1860, and upon $194,567,300 of the ten-forties issued
under the Act of March 3, 1864. One of the chief recommendations in
the President's message was the refunding of the debt in bonds, with
interest not exceeding four and a half per cent. He urged legislation
for redeeming the legal-tenders at their market value, at the option
of the holder, increasing the rate from day to day or week to week.
He believed "that immediate resumption, even if practicable, would not
be desirable," but that "a return to a specie basis should be
commenced immediately." He expressed the belief that the revenue might
be at once reduced $60,000,000 or possibly $80,000,000 a year. In
connection with this feature of the message, Secretary Boutwell
submitted a well-matured plan for funding the debt and expressed entire
confidence in its success.
The result was the refunding Act of July 14, 1870. It was a broad and
effective measure. It was subsequently modified by the Act of Jan. 20,
1871, permitting the payment of interest quarterly, and increasing the
amount of bonds bearing five per cent interest. The two laws for
purposes of refunding, taken together, authorized the issue of
$500,000,000 at five per cent, $300,000,000 at four and a half per
cent, and $1,000,000,000 at four per cent,--all to be payable in coin,
to be exempt from taxation, and to be issued without any increase of
the debt. The fives were redeemable after ten years, the four-and-a-halfs
after fifteen years, the fours after thirty years. The laws were
not enacted without considerable legislative controversy. The
exemption from taxation and the payment in coin were stubbornly
though unsuccessfully resisted. A proposition to state the interest
in sterling money and in francs, as well as in dollars, so that the
bonds might be more easily negotiated abroad, was vigorously pressed,
but was happily defeated.
Further reduction of the revenue was effected by the Act of July 4,
1870. There was an earnest effort to repeal the income tax, but it was
retained for the year, and was to terminate at the end of 1871. The
duties on tea, coffee, sugar, and some articles of iron and steel, were
diminished. In presenting the conference report Mr. Schenck estimated
that the reduction in customs charges by the Bill would be $27,000,000,
and in the internal taxes more than $50,000,000. Many persons feared
that the reduction of taxes was too rapid, but it was impossible to
resist a movement so popular as the removal of the burdens left by the
war. Under such a pressure it was probable that Congress might not
have sufficient regard to the prospective needs of the Government.
The condition of trade, wise legislation, and the hope of refunding the
debt with rapid reduction of interest, were producing beneficent
results; but the expectations of the Secretary of the Treasury in
regard to the prompt sale of the new bonds were rudely shocked by the
war between France and Germany, which was declared immediately after
Congress had clothed him with enlarged powers. At home, as well as in
Europe, the money markets were so far disturbed that prudence forbade
immediate action. After a necessary postponement and careful
preparation Mr. Boutwell gave notice that on March 6, 1871, books
would be opened in this country and in Europe for subscriptions to the
bonds. Preference was awarded to subscribers for the five per cents
within the limit of $200,000,000. On the anniversary of the passage of
the Act, July 14, 1871, a proposition came from a syndicate of London
bankers to take this whole amount of the five per cents. The National
banks, with a few individuals in this country, subscribed for
$117,518,950, and the residue was conceded to the foreign syndicate.
The leading arguments in the House for the policy of refunding were
made by Mr. Dawes and by Mr. Ellis H. Roberts. The gain to the
Government, as they proved, would be obvious and great. If the new
bonds were exchanged for the whole amount of six per cents already
issued, and were to run only till the time of redemption, the saving,
without compounding interest, would amount to an enormous aggregate,
certainly exceeding $600,000,000. The country was therefore
disappointed that events beyond the sea had for a time suspended the
operations of funding, and compelled the Treasury to maintain its high
rate of interest. The suspension was not due to the neglect or
mismanagement of any executive officer, or to lack of foresight on the
part of Congress in providing the requisite legislation. It was simply
a case in which the money market for the time prevented the Secretary
of the Treasury from accomplishing any large proportion of the total
funding operations contemplated by the Government.
When the Forty-second Congress met in December, 1871, the gold premium
was 101-1/8 @ 110-3/8. The funding process was in its early stages.
Specie was going to Europe at the rate of $66,000,000 per annum, and
the balance of trade for that fiscal year was running against the
United States to the amount of $183,000,000. It was a period of
financial theories. The prejudice against National banks seemed to
increase, and the _fiat_ of a Government so rich and powerful as that
of the United States would, it was maintained, suffice to make all the
notes it might put out available for money, and the volume ought to
be abundant enough to stimulate every nerve of production and trade.
Against such appeals the more conservative sentiment of the country
held that honor and safety demanded the redemption of the United-States
notes in coin at the earliest practicable day. The steps proposed to
this end were extreme and therefore unwise. A large number of
financiers urged the repeal of the legal-tender clause, the funding of
the notes into bonds with some limitations, and further contraction of
their volume by direct withdrawal. The argument was presented that if
a man could not pay his overdue note he would deem it a privilege to
give a new obligation to run on interest for a longer period, and the
Nation ought to prove itself as honest as its citizens. This specious
plea assumed that the legal-tender note was simply a promise to pay,
with only the qualities of an individual obligation. It neglected to
consider its different and essential character as a circulating medium.
The advocates of the repeal of the legal-tender clause included many
able lawyers, who however did not meet the objection that this clause
was an element in the value of the currency, only less important than
that of positive redemption. Nor did they seem to perceive that the
abrogation of this feature in the contract between the Government and
the note-holders would lead to confusion and distress in commercial
circles, and would violate the obligations of common honesty.
The debate went on in Congress and in the press, but no general scheme
of legislation could be agreed upon. Congress took up the tariff and
the internal revenue, and passed the Acts of March 5, May 1, and June
6, 1872. By the first Act, all internal taxes were removed from fish,
fruits, and meats. By the second, all duties on tea and coffee were
absolutely removed after the first day of the ensuing July, reducing
the revenue by this single Act to the extent of $20,000,000 per annum.
The last Act (June 6) made a reduction of ten per cent in the customs
duties on all importations of cotton, wool, iron, steel, paper, rubber,
glass, and leather, with a number of specific changes in the tariff,
and a large addition to the free list. The effect of the three Acts
upon the revenue of the Government was a diminution of $44,000,000 in
custom receipts and $20,650,000 in internal taxes. The machinery for
collecting the internal revenue was greatly simplified and improved.
A proposition introduced by Mr. Clinton L. Merriam of New York proved
to be of great convenience and safety to the National banks. It
permitted the Secretary of the Treasury to issue certificates of
deposit in denominations of $5,000 without interest, in exchange for
notes, and these certificates became available for the reserves of the
banks and for settlements of clearing-house balances.
The Forty-third Congress met in a period of discouragement and
disaster. The financial panic which swept over New York in the
preceding September (1873) was followed by deep depression throughout
the country. Wrecks of business enterprises were everywhere visible,
the financial markets of the world were disturbed and alarmed, doubt
and hesitation filled the minds of senators and representatives. A
black flag seemed to overhand the finances of the Government as well as
of individuals. Plans for funding the public debt were checked, the
movement for resumption was weakened. The situation gave fresh
arguments to the champions of the _fiat_ dollar. It affected commerce
and diminished the revenue by arresting production and by reducing
imports. The division of opinion among senators and representatives
was very pronounced, as was shown in the bills introduced, in the
amendments submitted, and still more significantly in the debates upon
the President's message. The first definite action was upon a currency
bill introduced in the Senate. As reported from the Finance Committee,
the first section fixed the maximum limit of United-States notes at
$382,000,000. The limit was raised to $400,000,000 on motion of Mr.
Wright of Iowa, and the Senate refused to allow any clause for future
reduction. This was $44,000,000 beyond the amount of legal-tender
notes then in circulation. An enlargement of the circulation of the
National banks was made at the same time, by which in connection with
the greenbacks there might be an addition of $100,000,000 to the paper
currency of the country. The two Houses differed as to details, but
soon agreed upon a bill containing the general provisions proposed in
the Senate.
This action of Congress followed an earnest popular demand, resulting
from the distrust which had become so general in consequence of the
panic. A large proportion of the business men, especially in the West
and South-West, believed that an increased circulation of notes would
bring great relief. At the beginning of the session of Congress,
President Grant had clearly intimated that he had come to the same
conclusion. He said in his annual message: "In view of the great
actual contraction that has taken place in the currency, and the
comparative contraction continuously going on, due to the increase of
manufactures and all the industries, _I do not believe there is too
much of it now for the dullest period of the year_. Indeed, if
clearing-houses should be established, thus forcing redemption, it is
a question for your consideration whether banking should not be made
free, retaining all the safeguards now required to secure bill-holders."
But nearly five months had elapsed since the President had expressed
these views, and during that time he had come to more conservative
conclusions, and he now vetoed the bill, which did not seem so
radical in its provisions as his own recommendation had been.
To make National banking free before compelling the banks to redeem
their notes in coin, would have proved a measureless inflation, and the
President wisely receded from the position assumed in his annual
message.
An important Act, changing the Customs laws, was reported from the
Committee on Ways and Means by Mr. Ellis H. Roberts, who had made the
investigation which led to it with great care and sagacity. It
received the assent of both branches, though some amendments were added
to it in the Senate. It was radical in its nature. It changed methods
which had prevailed from the foundation of the Government, and it has
withstood all criticism since its enactment. Instead of moieties and
perquisites theretofore allowed to customs officers in the chief cities
for the detection of frauds upon the revenue, specific salaries were
established; and the modes of procedure against violators of the law
were more clearly defined, and made more efficient.
The various propositions in this Congress fairly illustrate the
conflicting views on financial matters held among the people. The
business depression continued. The country looked to Congress for
relief, and yet did not agree upon any measures of relief. The party
in the majority was held responsible for the condition of industry and
trade, and the elections in the autumn of 1874 showed how wide-spread
and intense was the dissatisfaction with the existing order of things.
The very freedom and breadth of discussion which were essential to
secure unity of action were taken as ground of censure, and the failure
to provide for a return to specie payment was brought as an indictment
against the majority in Congress by those who had shown the least
faith in the National credit and the least regard for the National honor.
For the first time since the organization of the Republican party and
its accession to power in the Union, an opposition majority was
elected to the House of Representatives. The Republican leaders took
warning, and agreed that before losing control of the lower House they
would secure the passage of an Act for the resumption of specie
payment. President Grant and Secretary Bristow were earnest in
recommending a measure of that character. Personal conferences to
compare views, to consolidate Republican opinion, and to induce harmony
of action were held early in the second session of the Forty-third
Congress. Concessions were made, a middle ground was secured, and a
measure was finally perfected. The long discussion had demonstrated
the difficulties of the situation. But public necessity and party
interest combined to induce a sacrifice of financial theories in order
that practical results might be achieved.
The bill reported to the Senate by Mr. Sherman on the 21st of December
(1874) embodied the conclusions which had been reached in private
conference. The next day he gave notice that he would press it to
an immediate vote. Mr. Thurman and Mr. Schurz spoke of it as a party
measure agreed upon in caucus. The former argued at some length
against the bill. The latter stated that "with the present volume of
currency it is impossible to resume and maintain redemption," and he
sought unsuccessfully to secure the cancellation of legal-tender notes
at the rate of $2,000,000 per month. Mr. Bayard charged that the bill
was rather adverse than favorable to resumption. The Senate passed the
bill on the same day by a vote of 32 to 14. Not a single Democratic
member of the Senate supported it. The negative vote was Democratic,
with the exception of Sprague of Rhode Island and Tipton of Nebraska.
The House did not consider the bill until the 7th of January, directly
after the holidays. It was then passed by 125 _ayes_ to 106 _noes_,
a much closer vote than had been anticipated. The Democrats were
unanimous against it, and were strengthened by the accession of some
twenty Republicans. These were of two classes. Judge Kelley stood as
the representative of one, deeming it unwise and premature to force
specie payment at that time; the other class was represented by Mr.
Dawes and the Messrs. Hoar of Massachusetts, General Hawley of
Connecticut, and some others from New England, who thought the measure
that came from the Senate was incomplete, in that it did not provide
for specie payment soon enough, or take means sufficiently energetic
to secure it at the date named. With these exceptions the Act was a
Republican measure, unanimously opposed by the Democratic party.
In approving the Act President Grant took the somewhat unusual step
of sending to the Senate a special message. While declaring the
measure a subject of congratulation, he suggested further legislation
to make it more effective. His recommendations included first an
increase of the revenue; second the redemption of legal-tender notes
in coin, reckoned at a premium of ten per cent in the beginning and
gradually diminishing until the date named in the Act for resumption;
third an addition to the facilities for coinage, in one or more of the
Western cities, so as to save to the miner the cost of transporting
bullion to the principal mint at Philadelphia. Congress responded only
to the first of the President's recommendations.
The policy of increasing the revenue became the subject of earnest
discussion for the remainder of the Forty-third Congress. The rapid
repeal of taxes, in which each session of Congress had vied with the
one preceding it for a series of years, had produced its legitimate
result in an impending deficiency in the Treasury. This was now
remedied by the Act approved March 3, 1875, to protect the sinking-fund
and provide for the exigencies of the Government. This Act repealed
the provision for a reduction of ten per cent in certain customs
duties under the Act of June 6, 1872, which had really been passed
without full consideration or due appreciation of its probably
effect. The Act also increased the duties on sugars and certain other
articles, raised the tax on spirits from 70 to 90 cents a gallon, and
on tobacco from 20 to 24 cents per pound, and modified in many respects
the regulations concerning the collection of revenue from these products.
Such was the action as originally devised for resumption of specie
payment. The most remarkable feature of the bill to that end was the
promptness with which it was passed, after the long period of
preparatory debate in both Houses of Congress on the subject. Nearly
ten years had elapsed since the war closed, and although the subject
was one which constantly engaged the attention of financiers and to a
large extent enlisted the interest of the public, it had never been
framed into a practical legislative measure. It had now been
accomplished, as might well be said, in a day. The pressure upon the
Republicans, caused by the Democratic victory of the preceding autumn,
was very great. The Democratic senators and representatives, though
recording themselves unanimously in opposition to the measure, were
not willing to risk its defeat by the parliamentary strategy of delay,
as they might easily have done. Their party leaders had no faith in
the measure, but they knew how troublesome was the subject; they knew
that it had proved the stumbling-block in the Republican policy for
years, and they were more than willing that it should be taken out of
the way on the eve of their accession to the control of the House of
Representatives. If the Act should prove to be successful their
hostility to it might be forgotten and they could well arraign their
opponents for so long neglecting to enact it. If on the other hand
it should prove unsuccessful, it would remain a standing reproach to
the financial policy of the Republican party. Benefits as they well
knew are soon forgotten, while injuries are tenaciously remembered; and
this they believed was as true of parties as of persons. In short, as
the leaders of the Democracy viewed it, the Resumption Act, passed over
their combined vote, could do them no harm, while the chances were
that it would inure to their advantage.
The Territory of Colorado, which was prevented by Andrew Johnson from
entering the Union in 1866, was now, after the lapse of ten years,
admitted as a State under a bill approved by General Grant in the
closing year of his Presidency. The Territory had in the long interval
developed great wealth in the precious metals, in rich deposits of iron
and coal, and most surprising of all, in its agricultural resources.
The two senators, Jerome B. Chaffee and Henry M. Teller, were kinsmen
and were among the pioneers of the Territory who had been deeply
concerned in its progress and development. Mr. Chaffee had represented
the Territory in Congress for the six years immediately preceding its
admission as a State, and had worked with energy and success for the
interest of his constituents. He was somewhat impaired in health when
he took his seat in the Senate, and did not desire to remain in public
life. Mr. Teller continued in the Senate for a longer period, and
acquired political leadership in his State.
Michael C. Kerr, who was elected Speaker of the Forty-fourth Congress,
was prevented by ill-health from presiding for any considerable
length of time. Owing to marked symptoms of pulmonary disease he was
warned by friends that he should not accept a position so laborious and
so exhausting as the Speakership. It was beyond his strength. He
died during the Congressional recess on the 19th of August, 1876, in
the fiftieth year of his age. At the meeting of Congress in the
following December, Samuel J. Randall of Pennsylvania (who had been
Mr. Kerr's competitor in the Democratic caucus) was chosen Speaker.
He had represented a Philadelphia district for thirteen years and had
acquired a thorough knowledge of the rules and methods of the House.
He is a strong partisan, with many elements of leadership. He is
fair-minded towards his political opponents, generous to his friends,
makes no compromise with enemies, never neglects his public duties,
and never forgets the interests of the Democratic party.