Recollections of Forty Years in the House, Senate and Cabinet Part 48

"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 princ.i.p.al.

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 pa.s.sage, I among the number.

The bill, however, pa.s.sed the Senate by a vote of yeas 29 and nays 24. The t.i.tle 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 t.i.tle 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 pa.s.sed 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 a.s.sociations 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 ent.i.tled '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 a.s.sociation, 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 a.s.sociations shall consist of balances due to an a.s.sociation available for the redemption of the circulating notes from a.s.sociations 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 pa.s.sed 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 pa.s.s 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 pa.s.s 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 canva.s.s 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 ma.s.s meeting at Warren, on Sat.u.r.day afternoon, October 10. I hope I shall not embarra.s.s 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 k.n.o.b of persistent a.s.sailants 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."

CHAPTER XXV.

BILL FOR THE RESUMPTION OF SPECIE PAYMENTS.

Decline in Value of Paper Money--Meeting of Congress in December, 1874--Senate Committee of Eleven to Formulate a Bill to Advance United States Notes to Par in Coin--Widely Differing Views of the Members--Redemption of Fractional Currency Readily Agreed to--Other Sections Finally Adopted--Means to Prepare for and Maintain Resumption --Report of the Bill by the Committee on Finance--Its Pa.s.sage by the Senate by a Vote of 32 to 14--Full Text of the Measure and an Explanation of What It Was Expected to Accomplish--Approval by the House and the President.

When Congress met in December, 1874, the amount of United States notes outstanding was $382,000,000. The fractional notes outstanding convertible into legal tenders amounted to $44,000,000, and the amount of national bank notes redeemable in lawful money was $354,000,000, in all $780,000,000. Each dollar was worth a fraction less than 89 cents in coin. While these notes were at a discount coin did not and could not circulate as money. The government exacted coin for customs duties and paid coin for interest on its bonds. If there was an excess of coin received from customs to pay interest then the excess was sold at a premium. If the receipts from customs were insufficient to pay the interest on bonds, the government had to buy the coin and pay the premium. The people who were demanding more money to relieve the stringency did not see that the best way to get more money into circulation was to adopt measures that would make United States notes and bank notes equal to coin, when all three forms of money would enter into circulation and thus give them more money and all kinds of equal value.

While our paper money was depreciated the gold and silver bullion from our mines went abroad and was converted into foreign coin, while a large portion and perhaps a majority of our people demanded more paper money, which declined in value in exact proportion to its increase. During the war vast expenditures compelled us to use paper money; the return of peace and the excess of revenue over expenditures should have been promptly followed by coin payments or notes payable in coin. We delayed this process so long that the popular mind rested content with depreciated money, but the panic of 1873, and the feverish speculation which preceded it, convinced the great body of our business men that there was no remedy for existing evils but a return to specie payments.

Another bill concerning currency and free banking was reported by Horace Maynard, of Tennessee, on the 29th of January, 1874, from the committee on banking and currency of the House of Representatives, which provided for free banking and a gradual reduction and cancellation of United States notes by the issue of notes payable in gold in two years from the pa.s.sage of the bill. This was fully debated in the House of Representatives and amended and pa.s.sed.

In the Senate it was reported by me from the committee on finance, with a subst.i.tute which provided for free banking and that on and after the 1st of January, 1877, and holder of United States notes might present them for payment either in coin or five per cent.

bonds of the United States, at the suggestion of the Secretary of the Treasury. This subst.i.tute was amended in the Senate by striking out all provisions for the redemption of United States notes, leaving the measure one for free banking alone. The House disagreed to the amendments and a committee of conference was appointed, which resulted in a measure fixing the amount of United States notes outstanding at $382,000,000, and making no provision for their redemption. It was a crude and imperfect measure. I voted for it because it provided for a redistribution of national banks among the states. I said: "Because I cannot get a majority of both Houses of Congress to agree to specie resumption I ought not therefore to refuse to vote for a bill on the subject of banking and currency." The bill was approved by the President on the 20th of June, 1874. This long struggle prepared the way for the result accomplished at the next session.

When Congress met in December, 1874, the feeling that the remedy for existing evils was the return to specie payments, was general among Republican Senators and Members. The abortive efforts of the previous session and the veto of President Grant of one of the bills referred to contributed to it. At the first Republican conference I called attention to the necessity of our uniting, if possible, on some measure that would advance United States notes to par in coin and moved that a committee of eleven Senators be created to formulate a bill for that purpose. It was agreed to, and, as the names of the Senators composing the committee have already been published, I feel justified in repeating them: The committee consisted of Senators John Sherman (chairman), William B. Allison, George S. Boutwell, Roscoe Conkling, George F. Edmunds, Thomas W. Ferry, F. T. Freylinghuysen, Timothy O. Howe, John A.

Logan, Oliver P. Morton, and Aaron A. Sargent.

When the committee met it was agreed that each member should state how far he would go in the direction of specie resumption. When these statements were made it was manifest that the divergence of opinion was so great that an agreement was almost impossible. Yet, the necessity of an agreement was so absolute that a failure to agree was a disruption of the Republican party.

The first section of the act to provide for the resumption of specie payments, which related to the coinage and issue of fractional silver under the act of February 21, 1853, and the redemption of an equal amount of fractional currency outstanding should be redeemed, and was readily agreed to. This fractional currency was so worn and filthy, and it cost so much to reissue, that by general consent its destruction was agreed to, and its replacement by bright new silver coin, which followed, was heartily welcomed.

The second section was an unjust concession to the miners of gold.

It repealed the coinage charge for converting standard gold bullion into coin. This charge had been maintained, not only to cover the cost of coining, but to prevent the exportation of American coins.

If the coins were of less value than the bullion of which they were made, however small the difference, they would not be exported while bullion could be had for exportation. The concession was made and the charge for coinage of gold was prohibited.

The free banking provisions in the third section were not seriously contested. The contraction of the volume of United States notes as national bank notes increased, was one of the chief subjects of disagreement. It was finally agreed that this contraction should extend only to the retirement of United States notes in excess of $300,000,000.

The most serious dispute was upon the question whether United States notes presented for redemption and redeemed could be reissued. On the one side it was urged that, being redeemed, they could not be reissued without an express provision of law. The inflationists, as all those who favored United States notes as part of our permanent currency were called, refused to vote for the bill if any such provision was inserted, while those who favored coin payments were equally positive that they would vote for no bill that permitted notes once redeemed to be reissued. This appeared to be the rock upon which the party in power was to split. I had no doubt under existing law, without any further provision, but that United States notes could be reissued. It was finally agreed that no mention should be made by me for or against the reissue of notes, and that I must not commit either side in presenting the bill.

The date for general resumption of specie payments on all United States notes was fixed on the first of January, 1879, four years from the framing of this bill. The important and closing clause of the bill was referred to Mr. Edmunds and myself. It provided the means to prepare for and to maintain resumption. It placed under the control of the Secretary of the Treasury all the surplus revenue in the treasury, and gave him full power to issue, sell and dispose of, at not less than par in coin, any of the bonds described in the refunding act. We were careful to select phraseology so comprehensive that all the resources and credit of the government were pledged to redeem the notes of the United States, as fully and completely as our Revolutionary fathers pledged to each other their lives, their fortunes, and their sacred honor, in support of the declaration of American independence.

After every sentence and word of this bill had been carefully scrutinized, I was authorized by every member of the committee to submit it to the committee on finance, and to report it from that committee as the unanimous act of the Republican Senators. We naturally expected some support from Mr. Bayard and other Democratic Senators, who, no doubt, were in favor of specie payments, but they perhaps thought it best not to share the risk of the measure.

I reported the bill from the committee on finance on the 21st of December, 1874, and gave notice that on the next day I would call it up with a view to immediate action. On the 22nd, after the morning business, I moved to proceed to the consideration of the bill, and gave notice that I intended to press it to its pa.s.sage, from that hour forward, at the earliest moment practicable. It was well understood that the bill was the result of a Republican conference. It was taken up by the decisive vote of 39 yeas to 18 nays.

It was not my purpose to do more than to present the provisions of the bill. My brief statement led to a desultory debate, partic.i.p.ated in almost exclusively by Democratic Senators, the Republican Senators remaining silent. Several votes were taken, each showing a majority of more than two-thirds in favor of the bill and against all amendments. It pa.s.sed the Senate without change by the vote of 32 yeas to 14 nays.

I here insert the bill as introduced and pa.s.sed, with my statement in support of its provisions:

"AN ACT TO PROVIDE FOR THE RESUMPTION OF SPECIE PAYMENTS.

"_Be it enacted by the Senate and House of Representatives of the United States of America in Congress a.s.sembled_, That the Secretary of the Treasury is hereby authorized and required, as rapidly as practicable, to cause to be coined, at the mints of the United States, silver coins of the denominations of ten, twenty-five, and fifty cents, of standard value, and to issue them in redemption of an equal number and amount of fractional currency of similar denominations, or, at his discretion, he may issue such silver coins through the mints, the sub-treasuries, public depositaries, and post offices of the United States; and, upon such issue, he is hereby authorized and required to redeem an equal amount of such fractional currency, until the whole amount of such fractional currency outstanding shall be redeemed.

"Sec. 2. That so much of section three thousand five hundred and twenty-four of the Revised Statutes of the United States as provides for a charge of one-fifth of one per centum for converting standard gold bullion into coin is hereby repealed; and hereafter no charge shall be made for that service.

"Sec. 3. That section five thousand one hundred and seventy-seven of the Revised Statutes, limiting the aggregate amount of circulating notes of national banking a.s.sociations, be, and hereby is, repealed; and each existing banking a.s.sociation may increase its circulating notes in accordance with existing law, without respect to said aggregate limit; and new banking a.s.sociations may be organized in accordance with existing law, without respect to said aggregate limit; and the provisions of law for the withdrawal and redistribution of national bank currency among the several states and territories are hereby repealed. And whenever, and so often, as circulating notes shall be issued to any such banking a.s.sociation, so increasing its capital or circulating notes, or so newly organized as aforesaid, it shall be the duty of the Secretary of the Treasury to redeem the legal tender United States notes in excess only of three hundred millions of dollars, to the amount of eighty per centum of the sum of national bank notes so issued to any banking a.s.sociation as aforesaid, and to continue such redemption as such circulating notes are issued until there shall be outstanding the sum of three hundred million dollars of such legal tender United States notes, and no more. And on and after the first day of January, anno Domini eighteen hundred and seventy-nine, the Secretary of the Treasury shall redeem in coin the United States legal tender notes then outstanding, on their presentation for redemption at the office of the a.s.sistant treasurer of the United States in the city of New York, in sums of not less than fifty dollars. And to enable the Secretary of the Treasury to prepare and provide for the redemption in this act authorized or required, he is authorized to use any surplus revenues from time to time in the treasury not otherwise appropriated, and to issue, sell, and dispose of, at not less than par in coin, either of the descriptions of bonds of the United States described in the act of Congress approved July fourteenth, eighteen hundred and seventy, ent.i.tled 'An act to authorize the refunding of the national debt,' with like qualities, privileges, and exemptions, to the extent necessary to carry this act into full effect, and to use the proceeds thereof for the purposes aforesaid.

And all provisions of law inconsistent with the provisions of this act are hereby repealed."

I said:

"Mr. president, I do not intend to reopen the debate on financial topics of last session. That debate was carried to such great length that it was not only exhaustive, but it was exhausting, not only mentally but physically. The Senate is composed of the same persons who shared in that debate, and it is utterly idle for us, in this short session, to reopen it and to invite the discussion of the various topics presented in that debate. The Senate is now within less than three months, a little more than two months, of its adjournment, and there is a general feeling throughout the country, shared by all cla.s.ses of people, that this Congress ought to give some definite notice to the people of this country as to their purpose in the important topics embraced in this bill; and I say to Senators on all sides of the House that this bill contains enough to accomplish the important object declared by the t.i.tle of the bill, and this without reviving all the troublesome and difficult questions which were discussed at the last session. It contains a few simple propositions which may be separated from the ma.s.s of financial topics discussed at the last session. Its purpose is declared upon the t.i.tle of the bill, 'An act to provide for the resumption of specie payments.' Every word, every line, and every provision, of this bill is in harmony with that t.i.tle. It will tend to promote the resumption of specie payments. It may fall short in many particulars of the desire of some Senators; and it does go further in that direction than some Senators were willing to support at the last session. It is a bill which demands reasonable concession from every Member of the Senate. If we undertake now to seek to carry out the individual views of any Senator, we cannot accomplish the pa.s.sage of any bill to promote this object, and therefore this bill has demanded of everyone who has consented to it thus far a surrender of some portions of his opinions as to measures and means to accomplish the great purpose. I will consider my duty done, so far as this bill is concerned, by simply stating its provisions and calling attention to the character of those provisions, without entering into a single topic that gave rise to the long discussion at the last session.

"The bill is intended to provide for the resumption of specie payments. The first section of the bill provides for the resumption of specie payments on the fractional currency. It is confined to that subject alone. It so happens that at this particular period of time the state of the money market, the state of the demand for silver bullion, and more especially the recent action of the German Empire, which has demonetized silver and thus cheapened that product, enables us now, without any loss of revenue, without any sacrifice, to enter the market for the purchase of bullion and resume specie payments on our fractional currency. The market price of bullion to-day will justify the government of the United States, without any sacrifice, at a price about equivalent to, or perhaps a trifle above, our fractional currency--scarcely a shadow above our fractional currency--to purchase silver bullion in the money markets of the world, mostly of our own production, perhaps entirely of our own production. This bill simply directs that the Secretary of the Treasury shall purchase this bullion and shall coin silver coin and subst.i.tute that in the place of fractional currency. This section is recommended not only by the Secretary of the Treasury and the President of the United States, but I believe will meet the general concurrence of every Member of the Senate, and we fortunately are enabled to embrace the present time to commence this operations without any loss to the government, except perhaps the cost of the coinage of this silver may have to be paid out of the treasury of the United States. That coinage may be done in the ordinary course of business without any increase of expenditures.

The mints of the United States are now prepared, immediately upon the pa.s.sage of this bill, to resume the coinage of silver coins of all the legal denominations. Therefore the committee has provided that the Secretary of the Treasury shall proceed to coin the silver coins, and in one of several ways to issue them in place of fractional currency.

"I need not dwell further upon this section, because I believe it will meet with the general a.s.sent of the Senate. It provides for the immediate resumption of specie payments upon the fractional currency, or at least as immediate as possible; that is, as soon as the government of the United States can, in the mints of the United States, coin the silver coin. That process may continue one, two, or three years, how long we cannot tell, depending entirely upon the force that may be employed in that direction. It takes a much longer time to coin these small coins than gold coins, and the operation will probably take more time than it would to coin any considerable amount of gold coin."

Mr. Hamilton, of Maryland, inquired:

"I would ask the Senator if there is authority to reissue that fractional currency?"

I said:

"I will come to that in a moment. The second section of this bill simply removes an inducement that now exists to export our gold bullion from the United States to Great Britain, where, by the long established laws of that country, they coin money free of charge.

This section involves the surrender of about $85,000 a year of revenue; that is, the government of the United States received last year for coining gold coins, $85,000, or one-fifth of one per cent.

on forty-five millions of gold coined. The only sacrifice of revenue, therefore, by the second section of the bill, is the sacrifice or surrender of $85,000, which heretofore has been levied upon those who produce gold bullion in order to convert it into coin. In the opinion of many men, among them the Secretary of the Treasury, the director of the mint, and perhaps a large number of Senators heretofore, this will tend, in a slight degree at any rate, to prevent the exportation of the gold of our own country into foreign parts, because when the government of the United States undertakes to put gold bullion in the form of gold coin without additional charge the tendency will inevitably be for the gold bullion to flow into the mints for coinage, and being put into the form of American coin, it is thought by a great many people that this will tend to prevent its exportation. To the extent it does so it prepares us for specie payments. That is the whole of the second section.

"The third section of the bill contains only two or three affirmative propositions. The first is that after the pa.s.sage of this act banking shall be free. Perhaps there is no idea stronger in the minds of the American people than a feeling of hostility against a monopoly--a privilege that one man or set of men can enjoy which is denied to another man or set of men. Under the law as it now stands banking is substantially free in the southern and some of the western states; but banking is not free in the great commercial states, in the older states, where wealth has acc.u.mulated for ages.

This may be a mere sentimental point, but it is well enough to meet it; and by the operation of this bill banking is made free, so that there will be no difficulty hereafter for any corporation organized as a national bank either to increase its circulation or for banks, to be organized under the provisions of existing law, to issue circulating notes to any extent within the limits and upon the terms and provisions of the banking law. This section, therefore, by making banking free, provides for an enlargement of the currency in case the business of the community demands it, and in case any bank in the United States may think it advisable or profitable to issue circulating medium in the form of bank notes, under the conditions and limitations of the banking law. Coupled with that is a provision, an undertaking, on the part of the United States, that as banks are organized or as circulating notes are issued, either by old or new banks, the government of the United States undertakes to retire eighty per cent. of that amount of United States notes. In other words, it proposes to redeem the United States notes to the extent of eighty per cent. of the amount of bank notes that may be issued; and here is the first controversial question that arises on this bill and the first that is settled.

"It may be asked if we provide for the issue of circulating notes to banks, why not provide for the retirement of an equal amount of United States notes. The answer is that under the provisions of the banking act, by the law as it now stands, a bank cannot be organized and maintained in existence unless the reserve which is in that bank, or required for that bank in the ordinary course of business, either on its deposits or circulation, is at least equal to twenty per cent. of the amount of its circulating notes, so that it was believed, according to the judgment of the best business men of the country, and I may say with the comptroller of the currency, that the retirement of eighty per cent. of the amount of bank notes is fully equivalent to keeping the amount of circulating medium in actual circulation on the same footing, so that this provision of the bill neither provides for a contraction nor expansion of the currency, but leaves the amount to be regulated by the business wants of the community, so that when notes are issued to a bank eighty per cent. of the amount in United States notes is redeemed, and this process continued until United States notes are reduced to three hundred millions."