THE PANIC OF 1873 AND ITS RESULTS.
Failure of Jay Cooke and Co.--Wild Schemes "for the Relief of the
People"--Congress Called Upon for Help--Finance Committee's Report
for the Redemption of United States Notes in Coin--Extracts from
My Speech in Favor of the Report--Bill to Fix the Amount of United
States Notes--Finally Passed by the Senate and House--Vetoed by
President Grant and Failure to Pass Over His Objection--General
Effect Throughout the Country of the Struggle for Resumption--
Imperative Necessity for Providing Some Measure of Relief.
During the first four years of General Grant's administration the
financial condition of the United States was eminently prosperous.
The total reduction of the national debt, from the 1st of March,
1869, to the 1st of November, 1873, was $383,629,783, the annual
saving of interest resulting therefrom being $27,432,932. During
this period the value of United States notes compared with coin
steadily increased. The funding of the six per cent. bonds into
five per cent. bonds, under the refunding act, continued at the
rate of about $85,000,000 a year. The credit of the United States
steadily advanced during this period, so that the Secretary of the
Treasury, in his report of 1873, stated that it had not stood higher
since the close of the Rebellion than it did at that time. This
improvement of the public credit was accompanied with a large
reduction of internal taxes and duties on imported goods. The
business of the country was prosperous, the increase and extension
of railroads and the development of new industries was marked,
indicating great prosperity.
All this was subsequently changed by the happening of a panic in
September, 1873. The cause of this was attributed to over-trading,
to the expansion of credits, and to rash investment made in advance
of public needs. This panic commenced by the failure of Jay Cooke
& Co., of Philadelphia, an enterprising firm of high standing, then
engaged in selling the bonds of the Northern Pacific Railroad
Company. I was engaged at that time, with a committee of the
Senate, of which William Windom was chairman, in examining many
plans of public improvements, especially in the increase of facilities
for water transportation at the mouth of the Mississippi river,
and at the great lakes on our northern boundary, improvements since
then made with great benefit to the commerce of the United States.
Roscoe Conkling, of New York, was a member of that committee. We
were at Buffalo when the failure of Cooke & Co. was announced. We
all felt that for the present, at least, our duties as a committee
were at an end. The panic spread so that in a month all industries
were in a measure suspended. The wildest schemes for relief were
proposed, in and out of Congress. The panic spread to the banks,
which were compelled in self-defense to call in their loans, to
withhold their circulating notes, and contract their business. As
usual on the happening of such a panic, an appeal was made to the
treasury for relief, a demand was made for an increase in the volume
of the United States notes, and that the Secretary of the Treasury
should use the money of the government to buy exchange.
The New York Produce Exchange applied to the Secretary of the
Treasury on the 29th of September, 1873, in resolutions, as follows:
"Whereas, The critical condition of the commercial interests of
the country requires immediate relief by the removal of the block
in negotiating foreign exchange; therefore be it
"_Resolved_, That we respectfully suggest to the Secretary of the
Treasury the following plans for relief in this extraordinary
emergency:
"First, That currency be immediately issued to banks or bankers,
upon satisfactory evidence that gold has been placed upon special
deposit in the Bank of England, by their correspondents in London,
to the credit of the United States, to be used solely in purchasing
commercial bills of exchange.
"Second, That the President of the United States and the Secretary
of the Treasury are respectfully requested to order the immediate
prepayment of the outstanding loan of the United States due January
1, 1874."
This request had, as a matter of course, to be denied. But the
secretary did purchase $13,000,000 of bonds for the sinking fund,
to the full extent the condition of the treasury allowed. It is
difficult to realize or to convey by description the wild ideas
developed by such a panic. The government for the time being is
expected to provide a remedy for a condition it did not create,
but, instead of aiding, the government is most likely to need aid.
The revenues from importations fell off and the value of United
States notes declined.
When Congress convened in December, 1873, the wildest schemes for
relief to the people were proposed. A large increase of United
States notes was demanded. More than sixty bills, resolutions and
propositions were introduced in the Senate in respect to the
currency, the public debt and national banks, all bearing upon the
financial condition of the country, expressing every variety of
opinion, from immediate coin payments to the wildest inflation of
irredeemable paper money. All these were referred to the committee
on finance, then composed as follows: Messrs. Sherman (chairman),
Morrill, of Vermont, Scott, Wright, Ferry, of Michigan, Fenton and
Bayard.
The several measures referred to the committee were taken up and
considered, but the same wide divergence of opinion was developed
in the committee as existed outside of Congress among the people.
The majority of the committee reported to the Senate the following
resolution:
"_Resolved_, That it is the duty of Congress during its present
session to adopt definite measures to redeem the pledge made in
the act approved March 18, 1869, entitled 'An act to strengthen
the public credit,' as follows: 'And the United States also pledges
its faith to make provision, at the earliest practicable period,
for the redemption of United States notes in coin;' and the committee
on finance is directed to report to the Senate, at as early a day
as practicable, such measures as will not only redeem the pledge
of the public faith, but will also furnish a currency of uniform
value, always redeemable in gold or its equivalent, and so adjusted
as to meet the changing wants of trade and commerce."
Mr. Ferry, of Michigan, a member of the committee, offered the
following substitute for the pending resolution:
"That the committee on finance is directed to report to the Senate,
at as early a day as practicable, such measures as will restore
commercial confidence and give stability and elasticity to the
circulating medium through a moderate increase of currency."
Upon these adverse propositions a long debate followed without
practical results. I made a long speech on the 16th day of January,
1874, in favor of the resolution of the committee. I then said:
"At the outset of my remarks I wish to state some general propositions
established by experience, and the concurring opinions of all
writers on political economy. They may not be disputed, but are
constantly overlooked. They ought to be ever present in this
discussion as axioms, the truth of which has been so often proven
that proof is no longer requisite.
"The most obvious of these axioms, which lies at the foundation of
the argument I wish to make to-day, is that a specie standard is
the best and the only true standard of all values, recognized as
such by all civilized nations of our generation, and established
as such by the experience of all commercial nations that have
existed from the earliest period of recorded time. While the United
States, as well as all other nations, have for a time, under the
pressure of war or other calamity, been driven to establish other
standards of value, yet they have all been impelled to return to
the true standard; and even while other standards of value have
been legalized for the time, specie has measured their value as it
now measures the value of our legal tender notes.
"This axiom is as immutable as the law of gravitation or the laws
of the planetary system, and every device to evade it or avoid it
has, by its failure, only demonstrated the universal law that specie
measures all values as certainly as the surface of the ocean measures
the level of the earth.
"It is idle for us to try to discuss with intelligence the currency
question until we are impressed with the truth, the universality,
and the immutability, of this axiom. Many of the crude ideas now
advanced spring from ignoring it. The most ingenious sophistries
are answered by it. It is the governing principle of finance. It
is proved by experience, is stated clearly by every leading writer
on political economy, and is now here, in our own country, proving
its truth by measuring daily the value of our currency and of all
we have or produce. I might, to establish this axiom, repeat the
history of finance, from the shekels of silver, 'current money with
the merchant,' paid by Abraham, to the last sale of stock in New
York. I might quote Aristotle and Pliny, as well as all the writers
on political economy of our own time, and trace the failure of the
innumerable efforts to establish some other standard of value, from
the oxen that measured the value of the armor of Homeric heroes to
the beautifully engraved promise of our day; but this would only
be the hundred-times-told tale which every student may find recorded,
not only in schoolbooks, but in the writings of Humboldt, Chevalier,
Adam Smith, and others of the most advanced scientific authorities.
They all recognize the precious metals as the universal standard
of value. Neither governments, nor parliaments, nor congresses
can change this law. It defies every form of authority, but silently
and surely asserts itself as a law of necessity, beyond the
jurisdiction of municipal law.
* * * * *
"Of late years much difficulty has grown out of the slightly varying
value of silver and gold, as compared with each other, and the
tendency of opinion has been to adopt gold alone as the standard
of value. The United States has twice changed the relative value
of these metals, and other modern nations have been driven to
similar expedients. At the Paris monetary conference, held in
1867, which I had the honor to attend, the delegates of twenty
nations represented agreed to recommend gold alone as the standard
of value. The United States, and nearly all the commercial nations,
have adopted this standard, and reduced the use of silver to a mere
token coinage of less intrinsic value than gold, but maintained at
par with gold by the right to be converted into gold at the will
of the holder. So that for all practical purposes we may regard
gold as the only true standard, the true money of the world, by
which the value of all property, of all productions, of all credits,
and of every medium of exchange, and especially of all paper money,
is tested.
"Specie, in former times, was not only the universal standard of
value, but it was the general medium of all exchanges. In modern
times this is greatly changed. Specie is still the universal
standard of value, but it has ceased to be even the usual medium
of exchange. The failure to distinguish between the standard of
value and the medium of exchanges occasions many of the errors into
which so many fall, and nearly every Senator who has spoken on one
side of the question has fallen into this error. Specie has lost
a portion of its sovereign power, for with the enormous increase
of exchanges it was found that, valuable as it is, it is too heavy
to transport from place to place as a medium of exchange. The
perils of the sea, the dangers of theft and robbery, led to devices
to substitute promises to pay gold in place of the actual gold.
* * * * *
"Mr. president, thus far my remarks are founded upon the experience
of ages, applicable to all countries and to all commercial nations
of our time. I present them now as axioms of universal recognition.
And yet I have heard these axioms denounced in this debate as
'platitudes,' useless for this discussion in the Senate of the
United States. The wisdom of ages, the experience of three thousand
years, the writings of political economists, are whistled down the
wind as if we in the Senate were wiser than all who have reasoned
and thought and legislated upon financial problems--that all this
accumulated wisdom consists of 'platitudes' unworthy to influence
an American Senate in the consideration of the affairs of our day
and generation.
"Sir, I do not think so. If we disregard these 'platitudes,' we
only demonstrate our own ignorance and punish our constituents with
evils that we ought to avoid. I purpose now to pursue the argument
further, and to prove that we are bound, both by public faith and
good policy, to bring our currency to the gold standard; that such
a result was provided for by the financial policy adopted when the
currency was authorized; that a departure from this policy was
adopted after the war was over, and after the necessity for a
depreciated currency ceased; and that we have only to restore the
old policy to bring us safely, surely, and easily to a specie
standard.
"First, I present to you the pledge of the United States to pay
these notes in coin 'at the earliest practicable period.' In the
'act to strengthen the public credit,' passed on the 18th day of
March, 1869, I find this obligation:
'And the United States also solemnly pledges its public faith to
make provision, at the earliest practicable period, for the redemption
of the United States notes in coin.'
* * * * *
"The Congress of the United States, in order to put into form its
sense of this obligation, passed the act 'to strengthen the public
credit,' and the last and most important clause of this act is the
promise which I have just read, that these notes should be paid,
'at the earliest practicable period,' in coin.
* * * * *
"On the day we made that promise, the 18th of March, 1869, the
greenbacks, the notes of the United States, were worth 75¾ cents
in gold; or in other words, gold was at a premium of thirty-two
per cent. . . . What was the result? After you enacted that law--
the faith of the people of the United States that you would redeem
this pledge--the value of your greenbacks advanced, not rapidly,
but gradually, and in one year, to within twelve per cent. of par
in gold.
* * * * *
"Mr. president, we see, then, the effect of this promise. And I
here come to what I regard as a painful feature to discuss--how
have we redeemed our promise? It was Congress that made it, in
obedience to the public voice; and no act of Congress ever met with
a more hearty and generous approbation. But I say to you, with
sorrow, that Congress has done no single act the tendency of which
has been to advance the value of these notes to a gold standard;
and I shall make that clearer before I get through. Congress made
this promise five years ago. The people believed it and business
men believed it. Four years have passed away since then, and your
dollar in greenbacks is worth no more to-day than it was on the
18th of March, 1870; and no act of yours has even tended to advance
the value of that greenback to par in gold, while every affirmative
act of yours since that time has tended to depreciate its value
and to violate your promise.
* * * * *
"Every bond that was issued was issued only upon the sacred pledge
contained in this act, that the interest of that bond should be
paid in coin; and the principal should be paid, when due, in coin.
The fifth section of the act provides that all duties on imported
goods shall be paid in coin; and that this money shall be set aside
as a special fund to pay the interest on the bonded debt in coin.
Then, in order to secure the greenbacks, it authorized any holder
of greenbacks to pay any government debt with them; it authorized
the holder of greenbacks to pay any debt, public or private, with
them; and every citizen of the United States was bound to take
them. Then it authorized them to be converted into six per cent.
bonds of the United States--those bonds payable, principal and
interest, in gold. If the policy provided for by this act had been
maintained, we would long since have been at specie payments,
without any serious disturbance of our monetary affairs.
* * * * *
"Now, Mr. president, I come to show the Senate how this provision,
the convertible clause of the act of February 25, 1862, was repealed.
On the 3rd of March, 1863, Congress passed 'An act to provide ways
and means for the support of the government.' This act was passed
during the dark hours of the war. The currency of the country did
not flow into the treasury rapidly enough to pay our army. I
remember that at about the time this act was passed there were very
large unpaid requisitions. The Secretary of the Treasury, instead
of issuing any more six per cent. bonds, desired to float a 10-40
five per cent. bond; in other words, to reduce the burden of interest
upon the public debt. At this time there were three hundred millions
of circulation outstanding, and with all the rights, and all the
privileges, conferred upon the greenbacks, they did not flow into
the treasury fast enough to furnish means to carry on the operations
of the war.
* * * * *
"In other words, the suspension of this convertibility clause was
passed with a view to promote conversion; to encourage conversion;
to induce conversion; and, if possible, to induce a conversion into
a five per cent. gold bond instead of into a six per cent. bond.
When the Secretary of the Treasury presented this view to Congress
he was at once met with the pledge of the public faith; with the
promise printed upon the back of the greenbacks that they could be
converted into six per cent. bonds at the pleasure of the holder;
and that we could not take away that right. This difficulty was
met by the ingenuity of the then Senator from Vermont (Mr. Collamer).
He said that no man ever exercised a right which could not properly
be barred by a statute of limitations; and if this right was
injurious to the people of the United States, and prevented the
conversion of these notes into bonds, we might require the holder
of these notes to convert them within a given time; that we could
give them a reasonable time within which they could convert them
into six per cent. bonds, and after that take away the right.
"The act of March 3, 1863, was amended by inserting this clause:
'And the holders of United States notes, issued under or by virtue
of said acts, shall present the same for the purpose of exchanging
the same for bonds, as therein provided, on or before the 1st day
of July, 1863; and thereafter the right so to exchange the same
shall cease and determine.'
* * * * *
"Now, Mr. president, I have shown you that the greenbacks were
based upon coin bonds; that they had the right to be converted into
coin bonds; that that right was taken away as to the 5-20 bonds;
but that, in practice and in effect, the greenback was convertible
into an interest-bearing bond of the United States up to 1866, and
until the passage of the law to which I will now refer.
* * * * *
"If this act had contained a simple provision restoring to the
holder of the greenback the right to convert his note into bonds
there would have been no trouble. Why should it not have been
done? Simply because the then Secretary of the Treasury believed
that the only way to advance the greenbacks was by reducing the
amount of them; that the only way to get back to specie payments
was by the system of contraction. If the legal tender notes could
have been wedded to any form of gold bond by being made convertible
into it, they would have been lifted, by the gradual advance of
our public credit, to par in gold, leaving the question of contraction
to depend upon the amount of notes needed for currency. Sir, it
was the separation of our greenbacks from the funding system that
created the difficulty we have upon our hands to-day; and I say
now that, in my judgment, the only true way to approach specie
payments is to restore this principle, and give to the holder of
the greenback, who is your creditor, the same right that you give
to any other creditor. If he has a note which you promised to pay
and cannot, and he desires interest on that note by surrendering
it, why should you not give it to him? No man can answer that.
It is just as much a debt as any other portion of the debt of the
United States."
Finally, after more than three months study and debate, a majority
of the committee agreed upon a measure and directed me to report
it to the Senate. It fixed the maximum limit of the United States
notes at $382,000,000. It provided for a gradual payment of these
notes in coin or in five per cent. bonds, at the option of the
Secretary of the Treasury, from the 1st of January, 1876. It was
entitled "An act to provide for the redemption and reissue of United
States notes and for free banking."
In obedience to the instructions of the committee, on the 23rd of
March, 1874, I reported the bill as an original measure, and said:
"It is due to the members of the committee on finance that I should
say that the bill which I have just reported, as it appears on its
face, is in the nature of a compromise measure, which is more or
less acceptable all around, but at the same time there are certain
features of the bill which members of the committee on finance will
feel at liberty to express their opposition to, and also to propose
amendments to. It is due to them that I should make this statement.
The bill itself, as appears on its face, is the result of great
labor, long consideration, and the consequence of compromise. In
many cases we were not able, however, to reconcile conflicting
opinions; and on those points, of course, members of the committee
will feel themselves at liberty to oppose certain features of the
bill."
Mr. Thurman said:
"I should like to inquire of my colleague whether he proposes to-
day or to-morrow, when he makes the motion that he indicated, to
state what, in the opinion of the committee reporting this bill,
will be its practical effect, so that we may have the views of the
committee as to the workings of the bill should it become a law.
I am sure I, for one, should like very much to know what the
committee, who have devoted so much time to this subject, think
will be the practical working of the measure, at any time that it
suits the convenience of the chairman of the committee to make such
statement."
I replied:
"When the subject is introduced, if it be convenient, to-morrow,
I propose to make a very brief statement of the effect of each
section, as we understand it; but I do not intend, by any long
speeches or any remarks, to prolong this matter unnecessarily. I
have expressed my own individual views, and each member of the
committee, I suppose, stands to the opinion expressed by him in
the speeches he has made in the Senate--speeches that were carefully
considered, and by which the position of each Senator was stated;
but undoubtedly I shall feel it my duty, when the bill is called
up, to state what I regard as the actual practical effect of these
different propositions; and some of them, I will now say, I assented
to with great reluctance."
On the next day the bill was taken up in the Senate, and I then
stated the general provisions of the bill. I insert extracts from
my speech, which indicate the difficulties we encountered:
"Mr. president, some complaint has been made in the Senate and in
the country at the delay in the presentation, by the committee on
finance, of some bill covering the financial question; but a moment's
reflection will, I am sure, convince every Senator that there has
been no fault on the part of that committee. From the beginning
of the session to this hour that committee, under the direction of
the Senate, has been studying and discussing the various plans and
propositions which were referred to the committee; and I may say
that over sixty different propositions, either coming in the form
of petitions or in the form of bills, have been sent to the committee,
all of these suggesting different plans and ideas. It was impossible
to consider all these and to agree upon any comprehensive measures
until within a day or two.
"There was another consideration. The committee found itself
divided in opinion, precisely as the country is, and precisely as
the Senate is, into as many as three different classes of opinion.
There were, first, those who desired to take a definite and positive
step toward the resumption of specie payments. There were, second,
those who desired an enlargement of the currency, or what we commonly
call an inflation of the currency. There were, third, those who,
while willing to see the amount of bank notes increased and the
question of the legal tender settled in some form, were also desirous
that some definite step should be taken toward a specie standard.
There were these differences of opinion.
"For the purpose of ascertaining the views of the Senate, and not
involving ourselves in reporting a bill that would be defeated as
the bill of the last session was, we presented, early in the session,
resolutions of a general character which stated these three ideas:
First, the resolution of the majority of the committee that some
definite step should be taken toward specie payments. Then there
was the amendment offered by the gentleman who now occupies the
chair [Mr. Ferry, of Michigan], that there ought to be an increase
of the currency without reference to any plan of redemption. Third,
there was the proposition made by the Senator from Delaware [Mr.
Bayard], that measures should be taken at once looking to the
resumption of specie payments.
"These propositions were discussed, and the committee were enlightened
by that discussion; at least they obtained the opinions of Members
of the Senate. Subsequently, in the course of our investigation,
a question about the $25,000,000 section (section 6 of the act of
July 12, 1870) came up, and the committee deemed it right, by a
unanimous vote, to ascertain the sense of the Senate as to whether
they wished this section carried into execution. As it stood upon
the statute book it was a law without force. It was a law so
expressed that the comptroller said he could not execute it.
Therefore the committee reported a bill which would have provided
the necessary details to carry into execution that section of the
existing law. But in the present temper of the public mind, in
the Senate and in the country, that bill was discussed, and has
been discussed day after day, without approaching the question at
all. During all this time the committee have been pursuing their
inquiries, and finally they have reported the bill which is now
before us.
"The measure that is reported is not a satisfactory one to any of
us in all its details. Probably it is not such as the mind of any
single Member of the Senate would propose. It is in the nature of
a compromise bill, and therefore, while it has the strength of a
compromise bill, it has also the weakness of a compromise bill.
There are ideas in it which, while meeting the views of a majority,
taken separately will be opposed by others. I am quite sure I say
nothing new to the Senate when I say it does not in all respects
meet my own views. But there is a necessity for us to yield some
of our opinions. We cannot reconcile or pass any measure that will
be satisfactory to the country unless we do so. Any positive
victory by either extreme of this controversy will be an absolute
injury to the business of the country. Therefore, any measure that
is adopted ought to be so moderate, pursuing such a middle course,
such a middle ground, that it will give satisfaction to the country.
It must be taken as a whole; and therefore the effect of amending
this proposition will be simply to destroy it. If an amendment in
the direction of expansion is inserted, it will drive away some
who would be willing to support it as is. If an amendment in the
way of contraction is proposed and carried by a majority of the
Senate, it will drive away those who might be willing to take this
measure as a compromise. The only question before the Senate now
is, whether this is a fair compromise between the ideas that have
divided the people of this country and the Members of the Senate;
whether it will surely improve our currency while giving the relief
that is hoped for by a moderate increase of the currency. Now I
ask the secretary to read the first section of the bill."
The chief clerk read section 1, as follows:
"_Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled_, That the maximum
limit of United States notes is hereby fixed at $382,000,000, at
which amount it shall remain until reduced as hereinafter provided."
I then continued:
"It is manifest to every Senator that the initial step in this
controversy is to fix the aggregate limit of United States notes.
The United States notes, although they are very popular, and justly
so, in this country, are at this moment inconvertible; they are
irredeemable, and they are depreciated. These are facts admitted
on all hands. In making that statement I do not intend at all to
deny that the United States notes have served a great and useful
purpose; and though I was here at the birth of them and advocated
them in all stages of their history, yet I am compelled to say at
this moment, twelve years after their issue, that they are
inconvertible; they are irredeemable; and they are depreciated this
day at the rate of twelve per cent. They have been legally
inconvertible since July 1, 1863, and practically inconvertible
since the close of the war; that is, the government refuses to
receive them, either in payment of customs or in payment at par of
any bond of the United States offered by it. They are irredeemable
on their very face. They have depreciated almost from the date of
their issue, at one time being worth only forty cents in gold, and
to-day only worth ninety cents. That is the condition of the United
States notes.
"Now, there is another thing admitted by all Senators. I do not
trespass on any disputed ground when I say that every addition to
the volume of these notes, while they thus stand depreciated,
irredeemable, and inconvertible, is as certain to further depreciate
them, as it is that to pour water into an overflowing bucket will
cause it still more to overflow; as certain as the law of gravitation;
as certain as anything human or divine. It is equally true that
any contraction of this currency, any withdrawal of the amount of
it, is undoubtedly an appreciation of its value, making it nearer
and nearer to the standard of gold.
"This is so plain a proposition that it is not necessary to discuss
it; and the whole people of the country understand it; the plainest
and simplest people understand it as well as the wisest. Those
who desire to increase prices, to start and put in operation new
enterprises, desire an increase of the currency without any plan
of redemption. Those, on the other hand, who want to get back to
the specie standard, to appreciate the value of these notes, desire
to withdraw them, get them out of the way, or give new uses and
new values to them so as to advance them nearer and nearer the
standard of gold. Therefore it is that I say the very first step
at the outset of this controversy is to settle what is the legal
limit of these notes; how many are there now authorized by law;
how many are there outstanding. And here it is a strange thing
that on this very point, a purely legal question, the most important
one in our financial discussion, there is a great difference of
opinion. There ought not to be uncertainty or room for a difference
of opinion upon a question of this kind. It ought to be settled.
On the one hand it is insisted by Senators who compose the majority
of the committee on finance that the legal limit of United States
notes is $356,000,000; that the amount which has been already
issued, of what is known as the $44,000,000 reserve, was unlawfully
issued, although under great press of circumstances and without
any intention on the part of the secretary to do more than he
thought he had a lawful right to do. On the other hand it is
insisted by other Senators that the legal limit of United States
notes is $400,000,000; and here is a margin of $44,000,000 upon
which there is a dispute of law as to the power of the secretary
to issue it. That dispute ought to be settled at once. It is a
question that ought not to be in doubt a moment, because the power
to issue that $44,000,000 places it in the discretion of the
Secretary of the Treasury either to advance or to lower the value
of all property in the United States, of all debts in the United
States, of everything that is measured by United States notes.
"Should we undertake to say that the secretary did wrong in exceeding
the limit at $356,000,000? A majority of the committee believe
that that is now the legal limit, and believe it conscientiously.
But should be undertake to fix that as the legal limit? Twenty-
six million dollars of the $44,000,000 are outstanding. They are
now issued; they are now a part of the currency of the country.
They are just as much the currency as that which was issued before.
You cannot distinguish between them. You cannot say which of the
$382,000,000 now outstanding is legal and which is illegal. So
far as the United States are concerned, they are all debts of the
United States which we are bound to pay, whether they have been
issued legally or illegally. I do not understand even my friend
from Delaware to dispute the duty and obligation of the United
States to pay these notes, even if they have been illegally issued.
There can be no question about it. It is impossible to distinguish
between them. The only question is whether our agent exceeded his
authority or not. Therefore, without raising the question as to
the legality of this issue, reserving to each Senator his own
opinion on the subject, we have adopted as the _status quo_
$382,000,000, the amount now outstanding; and we recognize that
amount as the maximum legal obligation of the United States in the
form of notes, and we propose upon that basis to erect our
superstructure. We therefore say that we will raise no question
as to the mode of retiring the $26,000,000; we will simply say that
the amount now outstanding shall never be exceeded. That is a
recognition, at least, that they are outstanding lawfully and
properly; at any rate, so far as the obligation of the United States
to pay them is concerned.
"Mr. president, a limit ought to be fixed. But there is a difference
of opinion as to what should be the limit. If I had the power to
fix this limit I should say that the limit which was fixed by the
old law should remain at $356,000,000; and I would provide a mode
and manner of issuing United States bonds to retire the $26,000,000
slowly and gradually, without disturbing the ordinary business of
the country. I would thereby seek to recover the ground we have
lost by what has occurred since the panic, and go back to the
standard prior to that time. But I know that would be very difficult;
that would involve an increase of the bonded debt. Our revenues
are not sufficient to call in this $26,000,000. We have no surplus
revenue now as we had a year or two ago. We could only do it by
the issue of bonds, and the process itself would be a very hard
one. Besides, it is probable that public opinion and the judgment
of Congress would not sustain such a proposition; and therefore it
is hardly worth while to recommend it. We assume, therefore, that
the $382,000,000 is the present limit, and we say that shall be
the maximum limit.
* * * * *
"I said it was a compromise by the committee. I speak of a majority
of the committee. As a matter of course my friend is at liberty
to dissent from any of its propositions. On question of this kind
committees are very rarely unanimous; but I will say that on this
point a very decided majority of the committee concurred in the
section.
"To the second section I wish to invite the careful and earnest
attention of the Senate. This section is an honest effort to deal
with the great problem of redemption. Every Senator who has spoken
contemplates that a time must come when all the United States notes
must be redeemed in coin. The public faith of the United States
is so pledged. The notes were issued with the understanding that
they should be paid in coin. No man could survive politically in
this country who would declare that it was his purpose never to
pay these notes in coin. My friend who now presides [Mr. Ferry,
of Michigan], speaks always of his measure of inflation as a means
of bringing about at some time specie payments; and I will say that
in the Senate I have not heard any Senator deny that it is the duty
of the United States at some time to pay these notes in coin. In
all this discussion there is at least that one point agreed upon.
If I state this too strongly I hope I will be here corrected.
"Now, Mr. president, how shall it be done, and when shall it be
done? I say that now, nine years after the close of our Civil War,
twelve years after these notes have been authorized and issued,
five years after the dominant party has declared its purpose to
pay them at the earliest day practicable, there should be no longer
delay. The United States ought to do something toward the fulfillment
of that pledge and the performance of that duty. There must be
something very peculiar in the condition of our country that will
justify a longer delay; a longer procrastination in the performance
of this solemn pledge, this public policy--our own political
obligation.
"Mr. president, this section is the result of the patient consideration
of the committee on finance as to how this result is to be brought
about; and upon this very section there is most likely to be a
contrariety and difference of opinion among Senators, because the
mode and manner of redemption is the thing which has excited the
public mind and upon which men all over the country differ. I
wish, therefore, to deal with this question. We have got to pay
these notes in coin. The time when is not defined by the law.
Are we prepared now to fix a day when we will pay these notes in
coin? If the condition of our country was such as to justify it,
I would greatly prefer fixing the time when these notes should be
paid in coin; but I am disposed to agree with what has been stated
by the Senator from Indiana, and by other Senators, that in the
present condition of our coinage, the present condition of our
foreign trade, we are not prepared to fix a definite day when we
will pay in coin. Why? I find, by reference to official documents,
that we now have in gold and silver coin in this country about
$140,000,000. This statement of Dr. Linderman does not include
the bullion on hand. How much that is I am not prepared to state.
The whole amount of gold and silver coin in the country, however,
is about $140,000,000. Some of that is in circulation in the
Pacific states, but the bulk of it is in the treasury of the United
States, the property of individuals and the property of the United
States. The total annual production of gold and silver in this
country cannot be estimated at over $70,000,000; and heretofore,
at least $50,000,000 of this has been exported over and above the
amount that has been imported. The balance of trade has been
against us; and although I do not regard that as entering much into
the calculation, yet it is a fact that until recently, perhaps,
the balance of trade has been against us. The annual coinage of
the United States for the last year or two has been largely
increasing, and last year the coinage of the United States was
$38,689,183, besides stamping into fine bars, which operate as a
kind of coinage, of $27,517,000. So that there has been in fact
converted, of gold and silver, into coin, or bars stamped by the
United States, $66,000,000 during the last year, showing a use and
employment of gold in this country that is now rapidly increasing.
"But still this state of affairs would not justify us in saying
that we are prepared to declare a resumption of specie payments
absolutely upon the basis of $800,000,000 of paper money, including
our fractional currency. I am, therefore, not prepared to say that
the United States can, on a fixed day, within a reasonable time--
within such a time as would give confidence in our ability to
perform it--say that we will absolutely redeem our notes in coin.
"I know that Senators here, for whose opinion I have the highest
respect, who are probably more sanguine of our ability and capacity
to do this than I am--many of those who have agreed with me and co-
operated with me--think we are able and strong enough to fix the
time for the absolute resumption of specie payments; but I have
always doubted it. Indeed I have thought there was a better way
to reach the great result. But if we cannot fix the time when we
will redeem in coin, can we not give additional value to our United
States noes, so as to gradually appreciate them to the coin standard,
and thus advance toward specie payments if we cannot reach the
goal? Because we cannot accomplish all that we have agreed to do
in a given time, does that relieve us from the necessity of
progressing in that direction? When we have before us a long
journey that will take months to pass, perhaps years, shall we
delay starting on that journey because we cannot reach the end of
it in a year or two? Not at all. I therefore say that the time
has arrived this moment when the United States ought to do something
to advance its notes to the specie standard.
"Now what is that something? There are two propositions, and only
two propositions, that have been made, aside from absolute coin
redemption, that have had any strength whatever. One is to allow
the United States notes to be received in payment of customs duties,
the other is to allow United States notes to be converted into
bonds. In regard to the first, I agree entirely that if the matter
was open now to our choice and selection, one of the best methods
we could adopt to advance our notes to par in gold would be by
repealing that restriction which prevents the receiving of them
for customs duties; but we are met there by the sacred pledge of
the United States; we are met there by the fact that customs duties
are, by the law of 1862, agreed to be collected in coin."
Mr. Bayard inquired:
"Does not the law provide that the customs duties shall be paid in
coin or in notes of the United States? Is not the alternative
given by the law?"
I replied:
"O, no. If the Senator will look at section 5 of the act of February
25, 1862--my friend from Vermont can turn to it in a moment--he
will find that there is an express stipulation that the customs
duties shall be collected in coin, and that this coin shall be set
aside as a pledge--legal language is used--and shall only be applied,
first, to the payment of the interest on the public debt, and,
secondly, to the establishment of a sinking fund of one per cent.
That was the basis of the obligation of the United States to pay
in coin, and but for the fact that we collected our customs duties
in coin during the war we could not have paid the interest on our
public debt in coin, and therefore our bonds would have sunk out
of sight. That pledge we cannot now violate; and I never have yet
been able to bring my mind to the consideration of any proposition
whatever which would ever shock or excite the fear of the public
creditors in that respect. The safety of the public creditors
consists in having a specific fund for the payment of their interest;
the principal will take care of itself; and that fund has always
been maintained in the darkest hours of the war. Except the
propositions that have been made here and there to impair that fund
by allowing a portion of the customs duties to be paid in currency,
it has never been either invaded or threatened; but all such
propositions have been voted down. I, therefore, while I see the
policy and the expedience of allowing these notes to be used in
payment of customs duties, simply say we are precluded from that
remedy because we have mortgaged that fund, and we have no power
to take them for any purpose except that which the mortgage
stipulates.
* * * * *
"We then come to the redemption in bonds. There is the moral
obligation, on the part of the United States, which has issued its
notes payable in coin, but for reasons of public policy does not
pay in coin, to give to its creditors its notes bearing interest
in place of coin. The United States cannot plead inability to pay
interest on its notes if it will not or cannot pay the principal.
Why should not the United States give its obligation bearing interest
just as any individual would have to do? There is a moral obligation
which rests upon the United States every day of the year to every
holder of these notes, because, although the United States has not
said when it will redeem these notes in coin, yet it is bound to
do what it can to give them additional value. Although it may not
receive these notes for customs duties, why can it not receive
these notes in payment of bonds? Why discriminate against these
notes in the sale of bonds? The answer is, that during the war we
were compelled to do it; and so we were. I very reluctantly yielded
to that necessity. We were compelled to do it; but, sir, it was
only expected that that would continue to the close of the war;
and, practically, during the whole of the war these notes were
received at par for bonds at par.
"If, therefore, we are to take any step toward specie payments,
why not give to the holder of United States notes who demands it,
a bond of the United States bearing a reasonable rate of interest
in exchange for his notes? This should only be done after a
reasonable time, so as to prevent any injury to the private contracts
between debtor and creditor. When we cannot pay the coin, we are
honorably and sacredly bound to pay in a bond of the United States,
which in ordinary times would approximate to par in gold. In other
words, this is a qualified redemption. The Senator from Indiana
calls it a 'half-way measure.' It is a half-way measure in the
right direction, and indeed it is practical specie payment."
The bill led to a long continuous debate which extended to the 6th
of April, 1874. Several amendments were offered and adopted which
enlarged the maximum of notes to $400,000,000, and greatly weakened
the bill as a measure of resumption of specie payments. By reason
of these amendments many of those who would have supported the bill
as introduced voted against it on its passage, I among the number.
The bill, however, passed the Senate by a vote of yeas 29 and nays
24. The title of the bill was changed to "A bill to fix the amount
of United States notes and the circulation of national banks, and
for other purposes." This change of title indicates the radical
change in the provisions of the bill. Instead of a return to specie
payments, it provided for an expansion of an irredeemable currency.
The bill, as it passed the Senate, was as follows:
"_Be it enacted, etc.,_, That the maximum amount of United States
notes is hereby fixed at $400,000,000.
"Sec. 2. That forty-six millions in notes for circulation, in
addition to such circulation now allowed by law, shall be issued
to national banking associations now organized and which may be
organized hereafter, and such increased circulation shall be
distributed among the several states as provided in section 1 of
the act entitled 'An act to provide for the redemption of the three
per cent. temporary loan certificates and for an increase of national
bank notes,' approved July 12, 1870. And each national banking
association, now organized or hereafter to be organized, shall keep
and maintain, as a part of its reserve required by law, one-fourth
part of the coin received by it as interest on bonds of the United
States deposited as security for circulating notes or government
deposits; and that hereafter only one-fourth of the reserve now
prescribed by law for national banking associations shall consist
of balances due to an association available for the redemption of
the circulating notes from associations in cities of redemption,
and upon which balances no interest shall be paid."
The bill was taken up in the House of Representatives on the 14th
of April, 1874, and, without any debate on its merits, was passed
by the vote of 140 yeas and 102 nays.
On the 22nd of April, President Grant returned the bill to the
Senate with his veto, and the Senate, upon the question, "Shall
the bill pass notwithstanding the objections of the President of
the United States," voted 34 yeas and 30 nays. I voted nay. The
president of the Senate declared "that two-thirds of the Senators
present not having voted in the affirmative the Senate refuses to
pass the bill."
Thus, for that session, the struggle for resumption ended; but the
debate in both Houses attracted popular discussion, and tended in
the right direction. The evil effects of the stringency in monetary
affairs, the want of confidence, the reduction of the national
revenue, the decline of domestic productions, all these contributed
to impress Congress with the imperative necessity of providing some
measure of relief. Instead of inflation, of large issues of paper
money by the United States and the national banks, there grew up
a conviction that the better policy was to limit and reduce the
volume of such money to an amount that could be maintained at par
with coin.
During the canvass that followed I spoke in many parts of Ohio,
confining myself chiefly to financial questions. The stringency
of the money market which occurred the preceding year still continued,
and great interest was manifested in the measures proposed during
the preceding session, especially in the defeat of the bill to
prevent the contraction of the currency. At the request of General
Garfield I spoke in Warren in his Congressional district, where he
met, for the first time, a decided opposition. I insert his
autograph letter, the original being in his familiar hand writing:
"Hiram, Ohio, September 25, 1874.
"Dear Senator:--In accordance with the arrangement which I made
with you and with the central committee, we have posted you for a
mass meeting at Warren, on Saturday afternoon, October 10. I hope
I shall not embarrass you by suggesting that in your speech you
take occasion to say a few words in reference to my standing and
public service as a representative. It will do much to counteract
the prejudice that a small knob of persistent assailants have
created against me. I write also to inquire if you will be willing
to speak at another place the same evening. If so, we are very
anxious to have you do so. Please telegraph me to Garrettsville,
Ohio, and oblige,
"Very truly yours,
"J. A. Garfield."