I BEGIN MY DUTIES AS SECRETARY OF THE TREASURY.
Legislative Training of Great Advantage to Me in My New Position--
Loan Contract in Force When I Took the Portfolio--Appointment of
Charles F. Conant as Funding Agent of the Treasury Department in
London--Redeeming Called Bonds--Sale of Four Per Cent. Bonds Instead
of Four and a Half Per Cents.--Popularity of the New Loan--Great
Saving in Interest--On a Tour of Inspection Along the Northern
Atlantic Coast--Value of Information Received on This Trip--Effect
of the Baltimore and Pittsburg Railroad Strikes in 1877 Upon Our
Public Credit.
When I assumed the office of Secretary of the Treasury I had the
advantage of some of my predecessors in that I was acquainted with
the organization and duties of the treasury department. Ever since
1859 my connection with the committee of ways and means in the
House and with the committee on Finance in the Senate had brought
me into official relations with the head of that department. This
legislative training gave me a full knowledge of the several laws
that were to be executed in relation to public revenue, to all
forms of taxation, to coinage and currency, and to the public debt.
The entire system of national finance then existing grew out of
the Civil War, and I had participated in the passage of all the
laws relating to this subject. My intimate association with
Secretaries Chase, Fessenden and McCulloch, and my friendly relations
with Secretaries Boutwell and Richardson, led me, as chairman of
the Senate committee on finance, to have free and confidential
intercourse with them as to legislation affecting the treasury.
Secretary Bristow had not had the benefit of experience either in
Congress or the department. He was a good lawyer and an able man.
He doubted whether resumption would be effective without a gradual
retirement of United States notes, a measure that Congress would
not agree to. Congress repealed even the limited retirement of
such notes provided for by the resumption act. Secretary Morrill,
of Maine, my immediate predecessor, was in hearty sympathy with
the policy of Congress, of which he had been a useful Senator, and
but for his failing health would have been an efficient secretary.
Upon my assuming the duties of secretary, and for some time before,
he had been confined by illness to his lodgings in Washington.
The treasury department was then well organized. Most of the
principal officers had been long in the service. But few changes
were made by President Hayes or by myself, and only as vacancies
occurred or as incompetency was demonstrated. The following loan
contract was in force at the beginning of my administration of the
treasury department:
"This agreement, entered into this 24th day of August, in the year
of our Lord, 1876, between the Secretary of the Treasury of the
United States of America, of the first part, and Messrs. August
Belmont & Co., of New York, in behalf of Messrs. N. M. Rothschild
& Sons, of London, England, and associates, and Messrs. J. & W.
Seligman & Co., of New York, for themselves and associates, and
Messrs. Drexel, Morgan & Co., on behalf of Messrs. J. S. Morgan &
Co., of London, England, and Messrs. Morton, Bliss & Co., of New
York, representing the First National Bank of the city of New York,
the American Exchange National Bank of New York, the Merchants'
National Bank of New York, the Third National Bank of New York,
Messrs. Kuhn, Loeb & Co., of New York, the Bank of New York National
Banking Association, and Messrs. Morton, Rose & Co., of London,
and themselves, of the second part:
"Witnesseth, That the said Messrs. August Belmont & Co. of New
York, on behalf of Messrs. N. M. Rothschild & Sons and associates,
hereby agrees to purchase from the Secretary of the Treasury sixteen
million five hundred thousand dollars ($16,500,000) of the United
States bonds known as the four and a half per cent. funded loan of
1891, issued under the acts of July 14, 1870, and January 20, 1871;
and that Messrs. J. & W. Seligman & Co., for themselves and their
associates, hereby agree to purchase from the Secretary of the
Treasury six million seven hundred and fifty thousand dollars
($6,750,000) of the bonds hereinbefore described; and that Messrs.
Drexel, Morgan & Co., on behalf of Messrs. J. S. Morgan & Co., of
London, England, hereby agree to purchase from the Secretary of
the Treasury six million seven hundred and fifty thousand dollars
($6,750,000) of the bonds hereinbefore described; and that Messrs.
Morton, Bliss & Co., of New York, representing the First National
Bank of the city of New York, to the extent of four million dollars
($4,000,000); the American Exchange National Bank of New York, to
the extent of one million and fifty thousand dollars ($1,050,000);
the Merchants' National Bank of New York, to the extent of six
hundred thousand dollars ($600,000); the Third National Bank of
the city of New York, to the extent of seven hundred and fifty
thousand dollars ($750,000); Messrs. Kuhn, Loeb & Co., of New York,
to the extent of one million and fifty thousand dollars ($1,050,000);
the Bank of New York National Banking Association, to the extent
of three hundred thousand dollars ($300,000); Messrs. Morton, Rose
& Co., of London, to the extent of one million one hundred and
twenty-five thousand dollars ($1,125,000), and Messrs. Morton,
Bliss & Co., of New York, to the extent of one million one hundred
and twenty-five thousand dollars ($1,125,000), hereby agree, to
the extent severally for each as above stated, to purchase from
the Secretary of the Treasury ten million dollars ($10,000,000) in
the aggregate of the bonds hereinbefore described, making a total
aggregate of forty million dollars ($40,000,000), upon the terms
and conditions following, to-wit:
"First. Of the said aggregate amount, not less than ten million
dollars ($10,000,000) are hereby subscribed for, the subscription
to take effect on the 1st day of September, 1876, and the remaining
amount, namely, thirty million dollars ($30,000,000), may be divided
at the pleasure of the parties of the second part into several
successive subscriptions of not less than five million dollars
($5,000,000) each, to be made prior to the 4th day of March, 1877.
"Second. The parties of the second part shall have the exclusive
right to subscribe, in the same proportion to each of the subscribers,
for the remainder, namely, two hundred and sixty million dollars
($260,000,000), or any portion of said loan authorized to be issued
by the acts of Congress aforesaid, by giving notice thereof to the
Secretary of the Treasury on or before the 30th day of June, 1877;
but the party of the first part reserves the right to terminate
this contract at any time after March 4, 1877, by giving ten days'
notice thereof to the parties of the second part.
"Third. That the Secretary of the Treasury shall, when subscriptions
are made by the said parties of the second part, issue calls with
even date with said subscriptions for the redemption of an equivalent
amount of six per cent. 5-20 bonds of the United States, as provided
by said act of July 14, 1870.
"Fourth. The parties of the second part agree to pay for said four
and a half per cent. bonds par and interest accrued to the date of
application for delivery of said bonds, in gold coin, matured United
States gold coin coupons, or any of the six per cent. 5-20 bonds
called for redemption, or in United States gold certificates of
deposit issued under the act of March 3, 1863, with the understanding
that payment to the extent of the amount of any call shall be made
within the time during which such call shall mature: _Provided_,
That, if the parties of the second part shall elect so to do, they
may have the privilege of making any of said subscriptions payable
specifically in uncalled six per cent 5-20 bonds of the United
States, in which case the Secretary of the Treasury may, to the
extent of such payments, omit the calls mentioned in condition No. 3.
"Fifth. The parties of the second part shall receive in coin a
commission of one-half of one per cent. on all bonds taken by them,
as allowed by the act of July 14, 1870, and shall assume and defray
all expenses which may be incurred in sending bonds to London upon
their request, or by transmitting bonds, coupons, or coin from
there to the treasury department at Washington, including all cost
of making exchange of bonds, and shall also be charged with the
preparation and issuing of the bonds.
"Sixth. No bonds shall be delivered to the parties of the second
part, or either of them, until payment shall have been made in full
therefor in accordance with the terms of this contract.
"Seventh. During the continuance of this contract any sales of
bonds ordered by the Secretary of the Treasury, by authority of
law, except those that it may become necessary to sell to pay
judgments of the Court of Commissioners of Alabama Claims, shall
be made through the parties of the second part, who shall be allowed
thereon a commission of one per cent. in gold coin. And it is
provided that the amount of bonds so ordered shall not exceed in
the aggregate $25,000,000, unless by mutual agreement of the
parties.
"Lot M. Morrill, Secretary of the Treasury.
"Aug. Belmont & Co., On behalf of N. M. Rothschild & Sons, London.
"J. & W. Seligman & Co., On behalf of Seligman Brothers.
"Drexel, Morgan & Co., On behalf of J. S. Morgan & Co., of London.
"Morton, Bliss & Co., For themselves and associates, as named
above."
By its terms the contract provided for the sale of $40,000,000,
four and a half per cent. bonds of the United States at par in gold
coin. The contractors had the exclusive right to subscribe for
all or any portion of the remainder of the four and a half per
cent. bonds, amounting to $260,000,000. The right to terminate
this contract at any time after March 4, 1877, after ten days'
notice, was reserved by the United States. The proceeds of the
bonds sold were to be applied solely to the payment of the six per
cent. 5-20 bonds of the United States. No provision was made in
this contract for the accumulation of coin for the redemption of
United States notes. The process of refunding under it progressed
slowly.
I felt it to be important that I should have some personal
representative in London, to protect the interests of the United
States in the execution of this contract, and, therefore, on the
31st of March, 1877, I appointed Charles F. Conant, as the funding
agent of the treasury department, and directed him to assume the
general management and supervision of all business in London,
arising from the funding of bonds. A letter of instructions
prescribing his duties was given him. He was directed to pursue
the same general plan under which former negotiations had been
conducted, except as modified by these instructions, which were
based upon the contract before mentioned. All bonds, money, or
coupons received by him were to be securely kept in safes, furnished
by the department for that purpose, to be deposited in the vaults
of the Messrs. Rothschild. Combination locks were provided for
each safe, and no safe could be unlocked except by three persons
on distinct combinations, each person using a combination unknown
to the others. He was to keep me fully advised as to the course
of the market, of the price not only of American securities, but
of foreign securities, and was to receive the new bonds and deliver
them to the Rothschilds in exchange for the bonds redeemed. He
proved to be a very competent and faithful agent, and furnished me
important financial information, which aided me greatly in refunding
operations. His compensation and allowances, as well as those of
all persons sent to London in connection with the refunding of the
public debt, were paid by the syndicate, so that no expense whatever
was incurred by the treasury on this account.
I gave the following notice to the parties to this contract that
I would, on the part of the United States, terminate it.
"Treasury Department, }
"Washington, D. C., April 6, 1877.}
"Gentlemen:--I received your friendly cable message of the 10th
ultimo, and return my thanks and hearty good wishes.
"I am very solicitous to promote the funding of our six per cent.
bonds as rapidly as practicable, and feel indebted to you for the
aid you have given in placing the four and a half per cent. bonds.
"I propose no change at present; but it is my desire, if practicable,
to withdraw the four and a half per cent. bonds from the market
and substitute in their place the four per cent. bonds authorized
by the funding act.
"These bonds, as you know, are a very desirable investment, running
thirty years from the date of issue, with every guard and security
that has been given to any bond of the United States, and we think
as safe and desirable as the securities of any other nation. It
is probably the bond into which all the debt of the United States
will in time be converted. I hope you and your associates will be
able to engage with me to place this bond on the market when
$200,000,000 of the four and a half per cent. bonds have been sold.
"The public policy of the United States to resume specie payments
on or before the 1st of January, 1879, is fully established by the
law and by public opinion. It may be that the surplus revenue will
be sufficient to enable me to carry out this policy without the
sale of bonds. I am authorized by the resumption act to sell five,
four and a half, or four per cent. bonds to prepare for resumption,
and it may be desirable to sell through the syndicate, under that
act, a limited amount of bonds, not exceeding, I hope, $30,000,000
a year. I do not wish in the execution of this duty to disturb
the exchanges between Europe and this country. For this purpose
I desire to sell only the four per cent. bonds and must sell at
par in coin, but could receive in payment coin coupons maturing
within a limited time. I invite from you and your associates such
suggestions and offers as you may think proper to make for the
purchase of such bonds.
"The operations of the syndicate have become so important that I
have deemed it proper to ask Mr. Charles F. Conant, late Assistant
Secretary of the Treasury, to take charge of the business in London
in connection with the gentlemen already there. He is well informed
as to our laws, and I trust his services may be of advantage to
the government and agreeable to you.
"I will give my personal attention to this business, and will
receive with pleasure any suggestions from you that will promote
our common object.
"Very truly,
"John Sherman, Secretary.
"Messrs. N. M. Rothschild & Sons, London, England."
I received the following letter:
"New York, April 12, 1877.
"Hon. John Sherman, Secretary of the Treasury, Washington.
"My Dear Sir:--I had an interview with Messrs. Drexel, Morgan &
Co., and conveyed to them your wishes respecting limiting the sale
of the four and a half and taking the four per cent. bond in hand
with the co-operation of the Messrs. Rothschild.
"I told Mr. Drexel that you would be happy to see him and Mr. L.
P. Morton in Washington, whenever convenient for them to go, and
that on receipt by you of favorable advices from Mr. Conant after
his arrival in London, you desired that Drexel, Morton and I should
repair to Washington, in company with other leading members of the
syndicate, with a view of entering into a contract with the
government, in conformity with your views as expressed to me, or
perhaps with some slight modifications, which, if suggested by the
London people, through Mr. Conant, you may deem proper to adopt.
"I shall see Mr. Morton in the course of this day, and have no
doubt but that he, as well as Drexel and myself, will be happy to
aid you in raising the credit of our common country, and assist
the President and you in this patriotic work. I remain, dear Mr.
secretary, yours, very faithfully.
"Jos. Seligman."
A month later I wrote to Mr. Conant as follows:
"Treasury Department, }
"Washington, May 14, 1877.}
"Dear Mr. Conant:-- . . . On Friday last I concluded a modification
of the present syndicate contract, which provides for the sale of
five million four and a half per cent. bonds at par in coin for
resumption purposes. A further negotiation is pending as to the
renewal and modification of the contract, of which I will give you
due notice when completed. In the meantime I wish to keep steadily
in view the sale of the balance of two hundred million four and a
half per cent. bonds, and, if possible, I wish to make the necessary
calls during this month and next.
"You can assure Messrs. Rothschild of every disposition on the part
of the government to meet their views, and to extend the contract
with the necessary modifications. Their efforts in maintaining
the credit of the bonds and securing this result will be highly
appreciated.
"I would like to have you write me at least twice a week as fully
as practicable.
"Very truly,
"John Sherman.
"Mr. C. F. Conant, London."
As the process of redeeming called bonds required a notice of ninety
days, I postponed the termination of the existing contract until
after that period. My purpose in terminating the contract was to
substitute for sale the four per cent. bonds of the United States
instead of the four and a half per cent. bonds. I believed that
the advancing credit of the United States would justify this
reduction of the rate of interest. Another reason for this step
was that, in addition to refunding at a lower rate of interest, I
wished to commence preparation for the resumption of specie payments
on January 1, 1879, according to law. This could only be done by
the sale of bonds for gold coin. I reserved the remainder of the
four and a half bonds, amounting to $100,000,000, authorized by
the refunding act, for resumption purposes in case the four per
cent. bonds could not be sold at par in coin.
Another reason for a change in the existing contract was that it
gave to the syndicate a monopoly in the sale of bonds while I wished
to sell the bonds directly to the people. The new contract was as
follows:
"This agreement, entered into this 9th day of June, 1877, between
the Secretary of the Treasury of the United States, of the first
part, and Messrs. August Belmont & Co., of New York, on behalf of
Messrs. N. M. Rothschild & Sons, of London, England, and associates
and themselves; Messrs. Drexel, Morgan & Co., of New York, on behalf
of Messrs. J. S. Morgan & Co., of London, and themselves; Messrs.
J. & W. Seligman & Co., of New York, on behalf of Messrs. Seligman
Brothers, of London, and themselves; Messrs. Morton, Bliss & Co.,
of New York, on behalf of Messrs. Morton, Rose & Co., of London,
and themselves; and the First National Bank of the city of New York--
"Witnesseth: That the said Messrs. August Belmont & Co., on behalf
of Messrs. N. M. Rothschild & Sons, and associates and themselves,
hereby agree to purchase from the Secretary of the Treasury
$10,312,500 of the bonds known as the four per cent. consols of
the United States, issued under the acts of July 14, 1870, January
20, 1871, and January 14, 1875, and that Messrs. Drexel, Morgan &
Co., on behalf of Messrs. J. S. Morgan & Co., and themselves, agree
to purchase $4,062,500 of said bonds, and that Messrs. J. & W.
Seligman & Co., on behalf of Messrs. Seligman Brothers, and
themselves, agree to purchase $4,062,500 of said bonds, and that
the First National Bank of the city of New York agree to purchase
$2,500,000 of said bonds, making a total aggregate of $25,000,000
of said bonds, on the terms and conditions following:
"First. Of the said aggregate amount not more than $5,000,000
shall be sold for resumption purposes, the remaining $20,000,000
to be sold for funding purposes, and subscribed for by the parties
of the second part during the months of July and August, 1877.
"Second. The parties of the second part shall have the exclusive
right to subscribe in the same proportion to each of the subscribers,
for the remainder of the four per cent. consols of the United
States, or any portion of said consols authorized to be issued by
the acts of Congress aforesaid, by giving notice thereof to the
Secretary of the Treasury on or before the 30th day of June, 1878;
but the party of the first part reserves the right to terminate
this contract at any time after the 31st day of December, 1877, by
giving ten days' notice thereof to the parties of the second part.
"Third. That the Secretary of the Treasury shall not sell for
resumption purposes exceeding five millions per month during the
continuance of this contract, except by mutual agreement of the
parties hereto. When subscriptions are made for other than resumption
purposes by the parties of the second part, the party of the first
part shall issue calls of even date with said subscriptions for
the redemption of an equal amount of six per cent. 5-20 bonds of
the United States, as provided for in said act of July 13, 1870.
"Fourth. The parties of the second part agree to pay for said four
per cent. bonds par and interest accrued to the date of application
for delivery of said bonds in gold coin, matured United States gold
coin coupons, or any of the six per cent. 5-20 bonds called for
redemption, or in United States gold certificates of deposit issued
under the act of March 3, 1863, with the understanding that payment
to the extent of the amount of any call shall be made within the
time during which call shall mature: _Provided_, That if the
parties of the second part shall elect so to do, they may have the
privilege of making any of said subscriptions payable specifically
in uncalled six per cent. 5-20 bonds of the United States, in which
case the Secretary of the Treasury may, to the extent of such
payments, omit the calls mentioned in condition No. 3.
"Fifth. The parties of the second part shall receive in coin a
commission of one-half of one per cent. on all bonds taken by them,
as allowed by the act of July 14, 1870, and shall assume and defray
all expenses which may be incurred in sending bonds to London or
elsewhere upon their request, or by transmitting bonds, coupons,
or coin to the treasury department at Washington, including all
cost of making the exchange of bonds, and shall also be charged
with the cost of the preparation and issuing of the bonds.
"Sixth. No bonds shall be delivered to the parties of the second
part, or either of them, until payment shall have been made in full
therefor in accordance with the terms of this contract.
"Seventh. During the continuance of this contract any sales of
bonds ordered by the Secretary of the Treasury, by authority of
law, shall be made through the parties of the second part, who
shall be allowed thereon a commission similar in amount and subject
to the same deductions as prescribed in the fifth clause of this
contract.
"Eighth. It is also agreed that the parties of the second part
shall offer to the people of the United States, at par and accrued
interest in coin, the four per cent. registered consols and four
per cent. coupon consols of the denominations of fifty dollars and
one hundred dollars, embraced in this contract, for a period of
thirty days from the public notice of such subscriptions, and in
such cities and upon such notice as the Secretary of the Treasury
may prescribe prior to the opening of the lists, and further, to
offer to the subscribers the option of paying in installments,
extending through three months.
"John Sherman, Secretary of the Treasury.
"August Belmont & Co., On behalf of N. M. Rothschild & Sons, of
London, And associates and themselves.
"Drexel, Morgan & Co., On behalf of J. S. Morgan & Co., of London,
And themselves.
"J. & W. Seligman & Co., On behalf of Seligman Brothers and
themselves.
"Morton, Bliss & Co., On behalf of Morton, Rose & Co., of London,
And themselves.
"The First National Bank of the city of New York, by H. C.
Fahnestock.
"Witnesses as to all:
"R. C. McCormick.
"E. J. Babcock."
By this contract the syndicate was to take $25,000,000 of the four
per cent. bonds at par, or in exchange of six per cent 5-20 bonds.
Of this sum $5,000,000 in gold coin was to be paid to the treasury
for resumption purposes. The eighth section was a new provision,
and required the syndicate to offer to the people of the United
States, at par and accrued interest in coin, the four per cent.
bonds, for a period of thirty days, in such cities and upon such
notice as the Secretary of the Treasury might prescribe.
The result of this contract was not only to save one-half of one
per cent. on the annual interest of the bonds redeemed, but to so
popularize the loan that within a brief period I was able to
terminate the contract according to its terms, and to sell the four
per cent. bonds directly to the people at par, without a commission,
or the aid of a syndicate.
I wrote to Mr. Conant as follows:
"Treasury Department, }
"Washington, May 31, 1877.}
"Dear Mr. Conant:--Your letter of the 19th is received. Since its
date matters here have changed greatly for the better, and I have
made two calls for ten millions each.
"There is a strong, steady demand for our bonds, and I have now no
fear but the two hundred millions four and a halfs will be exhausted
before the 1st of July, when they will be withdrawn. The prospect
of placing the four per cent. bonds, commencing July 1, is very
good. I have submitted to the syndicate a proposition in substance
requiring them to take twenty-five millions four per cents., during
July and August, of which five millions will be for resumption
purposes, with a stipulation that if they take fifty millions
additional in September and October the contract will be extended
to January 1, 1878, five millions a month to be applied for resumption
purposes. I do not propose to vary essentially from the proposition.
I have another offer almost as good from other parties, but I hope
to combine these two offers into a modified syndicate, and, if
possible, reserve the right to sell bonds at par, in coin or 5-20
bonds, to persons who apply directly to me for exchange, giving,
however, the syndicate the half per cent. commission. We will
considerably reduce the cost of the bonds, I think, to one-tenth
of one per cent., so that the contracting parties will have a
reasonably fair commission. I am already assured of many sales of
the bonds whenever offered, without the aid of the syndicate, so
that I consider myself strong enough to undertake the placing the
bonds even without their aid, if they will not agree to reasonable
terms. If I can secure the active, hearty co-operation of all the
parties who wish to engage in selling the bonds, and they will be
content with a reasonable profit, the operation of funding can go
on so rapidly that they ought to be satisfied with the profit they
will make.
"I have not overlooked the possibility that some movement of coin
will be made to meet called bonds in Europe in excess of bonds sold
there, but hope to perfect arrangements by which I will secure
American bullion to meet this demand, without stopping accumulations
of coin in the treasury.
"The prospects here are favorable for a good crop in all the states
of the Mississippi valley, but there will probably be a bad crop
in California.
"What we must do is push the loan so that it will be an established
success before the meeting of Congress. If you can succeed in
inspiring the Rothschilds to aid this purpose I am sure of success.
My proposition has been sent to them, and I was advised would be
answered by telegram about this time; but by the 15th I hope to
have the arrangements completed.
"If upon receipt of this letter there is anything of striking
interest affecting the loan you may cable me.
"All well in the department. Matters are going along quietly and
steadily.
"Very truly yours,
"John Sherman.
"Hon. Chas. F. Conant, London."
This letter he received about the time the new contract was executed.
I subsequently sent him the following cable telegram:
"Washington, June 9, 1877.
"Conant, London:
"Contract of August 24, 1876, closed new four and a half per cent.
bonds of $200,000,000. New contract twenty-five millions four per
cent. bonds taken firm. Particulars by mail.
"Sherman."
Two days later I received a reply, as follows:
"London, June 11, 1877.
"Sherman, Washington:
"Congratulations. Rothschilds request me to say that it is important
for this market that the public subscriptions in America for four
per cents. should be a success, and this will make the market for
London. N. M. Rothschild & Sons hope Secretary of the Treasury
will advise that banks subscribe immediately. J. S. Morgan & Co.,
N. M. Rothschild & Sons, think subscription should be opened soon,
in view of preparing London market.
"Conant."
This new agreement gave at once a great impetus to the new loan in
all parts of the United States, as well as in London. The following
letters received indicate this:
"Merchants' National Bank, }
"Cleveland, O., June 11, 1877.}
"Hon. John Sherman, Secretary Treasury United States.
"Dear Sir:--We learn that you propose to offer the public a certain
portion of the new four per cent. loan for a limited time, the
amount subscribed to be paid in gold at the par value of the bonds.
"This bank, being a public depositary of the government of the
United States, shall be glad to further your plans, and act as
agent for the sale of such portion of the loan as you may suggest,
and endeavor to give it such publicity as would secure the sale of
a portion of these bonds in this part of Ohio.
"Wishing you success in the effort, I remain, very respectfully
and truly,
"T. P. Handy, President.
"Treasury Department, June 12, 1877.
"John P. Hunt, Esq., Philadelphia, Pa.
"Sir:--Your note is received. The department will be happy to
receive your subscription in a short time. The bonds are not
prepared, and the treasury regulations for the popular subscription
cannot be issued for a few days, when a copy will be sent you.
"It is the purpose to give you, and all other citizens of the United
States, an opportunity to subscribe at some convenient place in
the city of your residence, to be designated in due time, requiring
only a small deposit at the time of subscription, and allowing the
privilege of paying at any time within ninety days thereafter.
"The bonds will bear date the 1st of July, and will be sold at par
in coin and accruing interest to date of payment.
"Very respectfully,
"John Sherman, Secretary."
Contemporaneous with this contract for selling the four per cent.
bonds for gold coin, there appeared in the New York "Times" a
suggestion that these bonds could be paid in silver. Henry F.
French, Assistant Secretary of the Treasury, in a published letter
of the date of June 11, asserted his opinion that the bonds issued
under the act of July 14, 1870, for refunding, were redeemable in
coin of the standard value at that date, and that "as it cannot be
known what bonds have been transferred since the act of 1873, all
bonds under the act of 1870 must be paid in gold coin of the standard
value named in the act of 1873."
I received a letter from Messrs. Seligman & Co., inclosing an
extract from the New York "Times," as follows:
"New York, June 12, 1877.
"Hon. John Sherman, Secretary of the Treasury, Washington.
"Dear Mr. Secretary:--We beg to inclose a short editorial article
which appeared in to-day's New York 'Times,' which, coming from a
Republican paper, may frighten investors in our country and abroad.
Intelligent people know that you, sir, as well as President Hayes,
are sound on the silver question, and yet it may appear to you
proper, and highly advantageous to the prompt marketing of the four
per cent. bonds, to disabuse those who have been led to believe
that the President and you favor the remonetizing of silver, with
a view of paying our national debt in a metal so fluctuating as
silver has become since the principal nations of Europe have
demonetized it. We remain, dear Mr. secretary, your obedient
servants,
"J. & W. Seligman & Co."
The article in the New York "Times," of June 12, 1877, said:
"In a dispatch received by the Secretary of the Treasury yesterday
from Mr. Conant, the syndicate agent in London, it was stated that
the contract touching the four per cent. bonds is well received in
London, and the new bond bids fair to be the most popular of American
securities. There is no doubt that the bond has many advantages
both for home and foreign investors. It has only one point of
weakness, and that is, if the silver ring should succeed in getting
an unlimited issue of legal tender silver dollars, this bond would
be payable, principal and interest, in that coin. Shrewd men, who
know what silver has done and is liable to do in the way of ups
and downs, will take this fact into consideration, and the government
will ultimately be compelled to do the same. At present the strength
of the silver movement is estimated to be small, but if this estimate
should prove to be mistaken, the new four per cents. would suffer."
Mr. August Belmont wrote me a letter upon this subject of the date
of June 14th, in which he said:
"Permit me to add a few words to the letter of my house of this
day, in order to urge upon you the _vital_ importance of an official
expression of yours _over you own signature_, in the sense of the
letter of Assistant Secretary French, published in this morning's
papers.
* * * * *
"You are placed at this moment, by a large portion of your political
friends, in a somewhat similar position as the late Mr. Chase was
by the attempt of Thad. Stevens to have Congress pass a law to
declare the principal of the 5-20 bonds payable in currency.
"Mr. Chase took the bull by the horns by declaring, over his own
signature, that the principal as well as the interest of the 5-20
bonds were payable in gold, the faith of the United States being
pledged to this by the tacit understanding of the government and
its creditors.
"Nothing has reflected more credit and renown upon that great
statesman--then as prominent and favored a son of the noble State
of Ohio as you are to-day--and nothing more effectually paved the
way to the great work of reducing the burden of our people by
lowering our interest one-third than that expression, sanctioned
and confirmed by subsequent enactment of Congress in 1869.
* * * * *
"You will, in my opinion, insure the success of your financial
measures, and add greatly to your high and prominent political
position, if you will unequivocally declare that the funded debt
of the government can only be redeemed, principal and interest, in
gold coin, and that until otherwise agreed upon by the mutual
consent of the great commercial nations of the United States,
England, France, and Germany, the silver dollar can only be accepted
as an auxiliary standard for the payment of fractional indebtedness."
To this I replied as follows:
"Treasury Department, }
"Washington, June 16, 1877.}
"Dear Sir:--Your private note, the letter of your firm, and one
from Messrs. Seligman & Co., asking me to make a public statement
over my own signature, similar to that of Mr. French, are received.
I have given to this important suggestion the most serious
consideration, and have come to the firm conclusion that such an
act on my part would be inexpedient, and defeat the very object
you have in view. As a purely executive officer, I have no power
to pass upon the question mooted. My attempt to do so would at
once unite all those who are seized with this mania, and those who
oppose executive encroachment upon legislative power. It would
create excitement, personal and political animosities would mingle
with it, and it would tend more than anything else to defeat the
success of the law. I am quite sure this would be the result.
"As to whether Congress or the people would ever undertake to pay
either principal or interest of the bonded debt, and especially
the bonds sold since 1873, in silver, I have a firm conviction that
the question will never seriously be raised. These bonds will be
paid, principal and interest, in gold coin. The people of the
United States have always been extremely sensitive as to the public
credit. They never have, for the sake of an apparent profit,
yielded any question involving the public honor.
"The great satisfaction that will arise from the funding of the
loan at a low rate of interest, together with their strong sense
of public honor and public faith, will always secure the payment
of these bonds, principal and interest, in coin.
"Parties or factions may, for a time, raise and contest questions,
but they are but bubbles, and will pass away, and, like all other
questions involving the public credit, will be rightfully settled,
in due time, by Congress and the people.
"Nothing would so tend to disturb this result as unauthorized
'theses,' or dogmas, by an executive officer, upon a question purely
legislative or judicial. Indeed, it may be that too much has
already been said about this matter by both the President and
myself, and I assure you that you will have no occasion to be
disturbed by anything truthfully reported of either of us hereafter.
The better way is to move right along, making your own statements,
and if, at any time, I see a proper occasion for a strong expression
of my opinion, I will give it.
"Please show this to Mr. Seligman, and such of your associates as
you deem proper, as an answer to all.
"Very truly yours,
"John Sherman.
"Hon. August Belmont, New York."
The new loan was promptly placed on the market on the 14th of June
by the following circular letter signed by the members of the
syndicate:
"Under the authority of a contract with the Secretary of the
Treasury, the undersigned hereby give notice that from this date
until July 16, at 3 p. m., they will receive subscriptions for the
four per cent. funded loan of the United States in denominations
as stated below, at par and accrued interest in gold coin.
"The bonds are redeemable after thirty years from July 1, 1877,
and carry interest from that date, payable quarterly, and are exempt
from the payment of taxes or duties to the United States, as well
as from taxation in any form, by or under state, municipal, or
local authority.
"The interest on the registered stock will be paid by check, issued
by the treasurer of the United States to the order of the holder,
and mailed to his address. The check is payable on presentation,
properly indorsed, at the offices of the treasurer and assistant
treasurers of the United States.
"The subscriptions will be for coupon bonds of $50 and $100, and
registered stock in denominations of $50, $100, $500, $1,000,
$5,000, and $10,000.
"The bonds, both coupon and registered, will be ready for delivery
July 2, 1877.
"Forms of application will be furnished by the treasurer at
Washington, the assistant treasurers at Baltimore, Boston, Chicago,
Cincinnati, New Orleans, New York, Philadelphia, St. Louis, and
San Francisco, and by the national banks and bankers generally.
The applications must specify the amount and denominations required,
and for registered stock the full name and post office address of
the person to whom the bonds shall be made payable.
"Two per cent. of the purchase money must accompany the subscription.
The remainder may be paid, at the pleasure of the purchaser, either
at the time of the subscription or at any time prior to October
16, 1877, with interest added at four per cent. to date of payment.
"The payments may be made in gold coin to the treasurer of the
United States at Washington, or assistant treasurers at Baltimore,
Boston, Chicago, Cincinnati, New Orleans, and St. Louis, and to
the assistant treasurer at San Francisco, with exchange on New
York, or to either of the undersigned.
"To promote the convenience of subscribers, the undersigned will
also receive, in lieu of coin, United States notes or drafts on
New York, at their coin value on the day of receipt in the city of
New York.
"August Belmont & Co., New York.
"Drexel, Morgan & Co., New York.
"J. & W. Seligman & Co., New York.
"Morton, Bliss & Co., New York.
"First National Bank, New York.
"Drexel & Co., Philadelphia.
"June 16, 1877."
A few days later I wrote the following letter:
"Treasury Department, }
"Washington, D. C., June 19, 1877.}
"Sir:--Your letter of the 18th instant, in which you inquire whether
the four per cent. bonds now being sold by the government are
payable, principal and interest, in gold coin, is received. The
subject, from its great importance, has demanded and received
careful consideration.
"Under laws now in force, there is no coin issued or issuable in
which the principal of the four per cent. bonds is redeemable, or
the interest payable, except the gold coins of the United States
of the standard value fixed by laws in force on the 14th of July,
1870, when the bonds were authorized.
"The government exacts, in exchange for these bonds, payment at
par in such gold coin, and it is not to be anticipated that any
future legislation of Congress, or any action of any department of
the government, would sanction or tolerate the redemption of the
principal of these bonds, or the payment of the interest thereon,
in coin, of less value than the coin authorized by law at the time
of the issue of the bonds, being the coin exacted by the government
in exchange for the same.
"The essential element of _good faith_, in preserving the equality
in value between the coinage in which the government receives and
that in which it pays these bonds, will be sacredly observed by
the government and the people of the United States, whatever may
be the system of coinage which the general policy of the nation
may at any time adopt.
"This principle is impressed upon the text of the law of July 14,
1870, under which the four per cent. bonds are issued, and requires,
in the opinion of the executive department of the government, the
redemption of these bonds and the payment of their interest in coin
of equal value with that which the government receives from its
issue.
"Very respectfully,
"John Sherman, Secretary.
"Francis O. French, Esq., 94 Broadway, New York."
The subscriptions were taken in every part of the United States,
and within thirty days $67,600,000 were taken in this country and
$10,200,000 in Europe, making $77,800,000 sold. This sum, when
applied to the payment of the six per cent. bonds, made an annual
saving to the people of the United States of $1,556,000. Since
the 1st of March, 1877, there had been sold under the refunding
act $135,000,000 four and a half per cent. bonds and that amount
of six per cent. bonds was paid off and canceled, thus saving to
the people of the United States $2,025,000 in coin each year. The
aggregate reduction of interest by both classes of bonds from the
1st of March to the close of the popular loan, was $3,581,000 a
year in coin. This was regarded as a great success.
Early in July I set out on the revenue cutter "U. S. Grant" on a
visit of inspection along the north Atlantic coast, accompanied by
the chief of the coast survey, the secretary of the lighthouse
board, the superintendent of the life-saving service, and the chief
of the revenue marine service, and also by Webb Hayes, the son of
the President. We visited the life-saving stations along the New
Jersey coast. I was deeply interested in this service, which I
regard as the most deserving humanitarian branch of the public
service. We also visited some of the leading lighthouses along
the coast and the principal customhouses between the Chesapeake
Bay and Eastport, Maine. We were everywhere received with great
kindness and many social courtesies were extended to us, especially
in New York, Boston and Portland. This outing was a great relief
from the close confinement I had undergone since the 4th of March.
The information I gathered as to these branches of the service,
with which I had not previously had much acquaintance, was of great
value to me. Such trips are sometimes treated by the press as
"junketing" at the public expense. This is a great error. Each
of us paid his share of the expenses and the vessel only pursued
its usual course of duty. I was brought into close association
with these subordinate officers of the department and became informed
of their duties, and their fitness for them, and was enabled to
act with intelligence on their recommendations.
The only unpleasant incident that occurred on the trip was the
running of the cutter upon a rock upon the coast of Maine. This
happened in the afternoon of a beautiful day. All the gentlemen
with me and the officers of the vessel were on deck. The various
buoys were being pointed out and a map of the channel was lying
before us. Some mention was made of a buoy that ought to be near
the place where we were to mark the location of a rock, but none
was found, and suddenly we heard the scraping of the vessel upon
the rock. The cutter trembled and careened over. The captain was
somewhat alarmed and turned the vessel toward the beach, where it
was speedily examined and found to be somewhat injured. We
ascertained afterwards that the buoy had been displaced by a storm
and that a vessel was then on its way to replace it. The sinking
of the revenue cutter "U. S. Grant" was reported in the morning
dispatches and created some excitement; but the vessel did not
sustain any substantial injury. We thought it best to leave it
for a time to be thoroughly examined and repaired and took another
vessel to complete our journey to Eastport, the northeastern port
of the United States. From thence Webb Hayes and myself returned
to Portland and crossed over the Burlington, Vermont, on Lake
Champlain, and from thence went to Saratoga, where we remained a
few days, and then returned to Washington on the 22nd of July. We
passed through Baltimore on the day the riots occurred in that
city, and soon after heard of the much more dangerous outbreak in
Pittsburg.
On the 6th of August I wrote to Mr. Conant as follows:
"Your letter of the 26th ultimo is received. You can safely say
to the Messrs. Rothschild that the strikes have been totally
disconnected with the government, but grow purely out of a contract
between the managers of the leading lines of railway and their
employees as to rates of pay.
"The railroad companies have, for several years, competed with each
other in a very improvident and reckless way, and are now, and have
been for some time, carrying freight for less than cost. This has
caused a large reduction of the net income of roads, has led to
the loss of dividends, and now to the reduction of wages of employees
to rates scarcely sufficient to support life. Hence the strikes.
"The government has been appealed to by both railroads and strikers,
by states and by cities, for relief, and has promptly extended it
in every proper case, and, without shedding blood, has, in every
case, suppressed the riot, and maintained the peace, so that the
government is really stronger by reason of these unfortunate events
than before. I do not observe that any change has been made by
them, either in the price of bonds or in the price of gold, nor in
the payment of subscriptions to four per cent. bonds.
"No effort is made to sell the bonds now, nor do I care to press
the home market, until enough bonds are sold abroad to provide for
called bonds abroad.
"The month of August must necessarily be a languid one, and I do
not advise any unusual efforts to force sales.
"Your supplemental cipher was received after your telegram, but
was soon found and dispatch made out."
I no doubt was mistaken in the effect of the strikes upon our public
credit. From that time forward for many months there was scarcely
any sale of government bonds at any price. The contracting parties
informed me that no bonds were then selling in the market and that
in New York they were a trifle below par. Practically, for the
remainder of the year, government securities were greatly affected
in price and value.