Recollections of Forty Years in the House, Senate and Cabinet Part 50

The regular meeting occurred on the 6th of December, 1875, when Thomas W. Ferry, of Michigan, was elected president _pro tempore_ of the Senate, and Michael C. Kerr, a Democratic Representative from the State of Indiana, was elected by a large majority as speaker of the House.

This political revolution was no doubt caused largely by the financial panic of 1873, and by the severe stringency in monetary affairs that followed and continued for several years. Many financial measures of the highest importance in respect to the public credit were acted upon, but were generally lost by a disagreement between the two Houses. I do not deem it necessary to refer to the political questions that greatly excited the public mind during that session. Congress was largely occupied in political debate on questions in respect to the reconstruction of the states lately in rebellion, upon which the two Houses disagreed. Among other measures which failed was the act amendatory of the acts authorizing the refunding of the national debt, which pa.s.sed the Senate but was not considered by the House.

During this session of Congress all sorts of financial plans were presented in each House, but all were aimed, directly or indirectly, at the resumption act, although that act itself was adopted as a remedy for existing financial evils, and especially to deal with and prevent the recurrence of such a panic as that of 1873. I took occasion, on the presentation of the resolution of the New York Chamber of Commerce in favor of the resumption of specie payments, at the time provided by the resumption act, to discuss the policy of that measure more fully than I thought it expedient to do so when, as a bill, it was pending in the previous Congress. This speech was made in the Senate on the 6th of March, 1876. It was the result of great labor and care, and was intended by me to be, and I believe it is now, the best presentation I have ever been able to offer in support of the financial policy of the government, and especially in support of the resumption of specie payments.

I said:

"Mr. president, I have taken the unusual course of arresting the reference to the committee of finance of the memorial of the Chamber of Commerce of New York, in order to discuss, in an impersonal and nonpartisan way, one of the questions presented by that memorial, and one which now fills the public mind and must necessarily soon occupy our attention. That question is, 'Ought the resumption act of 1875 be repealed?' The memorial strongly opposes such repeal, while other memorials, and notably those from the boards of trade of New York and Toledo, advocate it. These opposing views are supported in each House of Congress, and will, when our time is more occupied than now, demand our vote.

"And, sir, we are forced to consider this question when the law it is proposed to repeal is only commencing to operate, now, three years before it can have full effect--during all which time its operation will be under your eye and within your power--and while the pa.s.sions of men are heated by a presidential combat, when a grave questions, affecting the interests of every citizen of the United States, will be influenced by motives entirely foreign to the merits of the proposition. And the question presented is not as to the best means of securing the resumption of a specie standard, but solely whether the only measure that promises that result shall be repealed. We know there is a wide and honest diversity of opinion as to the agency and means to secure a specie standard.

"When any practicable scheme to that end is proposed I am ready to examine it on its merits; but we are not considering the best mode of doing the thing, but whether we will recede from the promise made by the law as it stands, as well as refuse all means to execute that promise. If the law is deficient in any respect it is open to amendment. If the powers vested in the secretary are not sufficient, or you wish to limit or enlarge them, he is your servant, and you have but to speak and he obeys. It is not whether we will acc.u.mulate gold or greenbacks or convert our notes into bonds, nor whether the time to resume is too early or too late. All these are subjects of legislation. But the question now is whether we will repudiate the legislative declaration, made in the act of 1875, to redeem the promise made and printed on the face of every United States note, a promise made in the midst of war, when our nation was struggling for existence, a promise renewed in March, 1869, in the most unequivocal language, and finally made specific as to time by the act of 1875.

"And let us not deceive ourselves by supposing that those who oppose this repeal are in favor of a purely metallic currency, to the exclusion of paper currency, for all intelligent men agree that every commercial nation must have both; the one as the standard of value by which all things are measured, which daily measures your bonds and notes as it measures wheat, cotton, and land; and also a paper or credit currency, which, from its convenience of handling or transfer, must be the medium of exchanges in the great body of the business of life. Statistics show that in commercial countries a very large proportion of all transfers is by book accounts and notes, and more than nine-tenths of all the residue of payments is by checks, drafts, and such paper tools of exchange.

"Of the vast business done in New York and London not five per cent. is done with either paper money or gold or silver, but by the mere balancing of accounts or the exchange of credits. And this will be so whether your paper money is worth forty per cent.

or one hundred per cent. in gold. The only question is whether, in using paper money, we will have that which is as good as it promises, as good as that of Great Britain, France, or Germany; as good as the coin issued from your mints; or whether we will content ourselves with depreciated paper money, worth ten per cent. less than it promises, every dollar of which daily tells your const.i.tuents that the United States in not rich enough to pay more than ninety per cent. on the dollar for its three hundred and seventy millions of promises to pay, or that you have not courage enough to stand by your promise to do it.

"Nor are we to decide whether our paper money shall be issued directly by the government or by banks created by the government; nor whether at a future time the legal tender quality of United States notes shall continue. I am one of those who believe that a United States note issued directly by the government, and convertible on demand into gold coin, or a government bond equal in value to gold, is the best currency we can adopt; that it is to be the currency of the future, not only in the United States, but in Great Britain as well; and that such a currency might properly continue to be a legal tender, except when coin is specifically stipulated for it.

"But these are not the questions we are to deal with. It is whether the promise of the law shall be fulfilled, that the United States shall pay such of its notes as are presented on and after the 1st day of January, 1879, in coin; and whether the national banks will, at the same time, redeem their notes either in coin or United States notes made equal to coin; or whether the United States shall revoke its promise and continue, for an indefinite period, to still longer force upon the people a depreciated currency, always below the legal standard of gold, and fluctuating daily in its depreciation as Congress may threaten or promise, or speculators may h.o.a.rd, or corner, or throw out your broken promises. It is the turning point in our financial history, which will greatly affect the life of individuals and the fate of parties, but, more than all, the honor and good faith of our country.

"At the beginning of our national existence, our ancestors boldly and hopefully a.s.sumed the burden of a great national debt, formed of the debts of the old confederation and of the states that composed it; and, with a scattered population and feeble resources, honestly met and paid, in good solid coin, every obligation. After the War of 1812, which exhausted our resources, destroyed our commerce, and greatly increased our debt, a Republican administration boldly funded our debt, placed its currency upon the coin basis, promptly paid its interest, and reduced the princ.i.p.al; and within twenty years after that war was over, under the first Democratic President, paid in coin the last dollar, both princ.i.p.al and interest, of the debt. And now, eleven years after a greater war, of grander proportions, in which, not merely foreign domination threatened us, but the very existence of our nation was at stake, and after our cause has been blessed with unexampled success, with a country teeming with wealth, with our credit equal to that of any nation, we are debating whether we will redeem our promises, according to their legal tenor and effect, or whether we will refuse to do so and repeal and cancel them.

"I would invoke, in the consideration of this question, the example of those who won our independence and preserved it to us, to inspire us so to decide this question that those who come after us may point to our example of standing by the public faith now solemnly pledged, even though to do so may not run current with the temporary pressure of the hour, or may entail some sacrifice and hardship.

"What then is the law it is proposed to repeal? I will state its provisions fully in detail, but the main proposition--the essential core of the whole--is the promise, to which the public faith is pledged, that the United States will redeem in gold coin any of its notes that may be presented to the treasury on and after the 1st day of January, 1879. This is the vital object of the law.

It does not undertake to settle the nature of our paper money after than, whether it shall be reissued again, whether it shall thereafter be a legal tender, nor whether it shall or shall not supersede bank notes. All this is purposely left to the future. But it does say that on and after that day the United States note promising to pay one dollar shall be equal to the gold dollar of the mint.

"The questions then arise--

"First. Ought this promise be performed?

"Second. Can we perform it?

"Third. Are the agencies and measures prescribed in the law sufficient for the purpose?

"Fourth. If not, what additional measures should be executed?

"Let us consider these questions in their order, with all the serious deliberation that their conceded importance demands.

"And first, ought this promise be fulfilled?

"To answer this we must fully understand the legal and moral obligations contained in the notes of the United States. The purport of the note is as follows:

'THE UNITED STATES PROMISES TO PAY THE BEARER ONE DOLLAR.'

"This note is a promise to pay one dollar. The legal effect of this note has been announced by the unanimous opinion of the Supreme Court of the United States, the highest and final judicial authority in our government.

"The legal tender attribute given to the note has been the subject of conflicting decisions in that court, but the nature and purport of it is not only plain on its face, but is concurred in by every judge of that court and by every judicial tribunal before which that question has been presented.

"In the case of Bank vs. Supervisors, 7 Wallace, 31, Chief Justice Chase says:

'But, on the other hand, it is equally clear that these notes are obligations of the United States. Their name imports obligation.

Every one of them expresses upon its face an engagement of the nation to pay to the bearer a certain sum. The dollar note is an engagement to pay a dollar, and the dollar intended is the _coined_ dollar of the United States, a certain quant.i.ty in weight and fineness of gold or silver, authenticated as such by the stamp of the government. No other dollars had before been recognized by the legislation of the national government as lawful money.'

"Again, in the case of Bronson vs. Rhodes, 7 Wallace, 251, Chief Justice Chase says:

'The note dollar was the promise to pay a coined dollar.'

"In the Legal Tender Cases, 12 Wallace, 560, Justice Bradley says:

'It is not an attempt to _coin_ money out of a valueless material, like the coinage of leather, or ivory, or cowrie sh.e.l.ls. _It is a pledge of the national credit_. It is a _promise_ by the government to _pay dollars;_ it is not an attempt to _make_ dollars. The standard of value is not changed. The government simply demands that its credit shall be accepted and received by public and private creditors during the pending exigency. . . .

'No one supposes that these government certificates are never to be paid, that the day of specie payments is never to return. And it matters not in what form they are issued. . . . Through whatever changes they pa.s.s, their ultimate destiny is _to be_ paid.'

"In all these legal tender cases there is not a word in conflict with these opinions.

"Thus, then, it is settled that this note is not a dollar, but a debt due; a promise to pay a dollar in gold coin. Congress may define the weight and fineness of a dollar, and it has been done so by providing a gold coin weighing twenty-five and eight-tenths grains of standard gold nine-tenths fine. The promise is specific and exact, and its nature is fixed by the law and announced by the court. Here I might rest as to the nature of the United States note; but it is proper that I state the law under which it was issued and the subsequent laws relating to it.

"The act of February 25, 1862, gave birth to this note as well as the whole financial policy of the war. The first section of that act authorizes the Secretary of the Treasury to issue, upon the credit of the United States, United States notes to the amount of $150,000,000, payable to bearer at the treasury of the United States. The amount of these notes was subsequently increased during the war to the maximum sum of $450,000,000, but the nature and character of the notes was the same as the first ones. The enlargement of the issue did not in the least affect the obligation of the United States to pay them in coin. This obligation was recognized in every loan law pa.s.sed during the war; and to secure the note from depreciation the amount was carefully limited, and every quality was given to it to maintain its value that was possible during the exigencies of the war. I might show you, from the contemporaneous debates in Congress, that at every step of the war the notes were regarded as a temporary loan, in the nature of a forced loan, but a loan cheerfully borne, and to be redeemed soon after the war was over.

"It was not until two years after the war, when the advancing value of the note created an interest to depreciate it in order to advance prices for the purpose of speculation, that there was any talk about putting off the payment of the note. The policy of a gradual contraction of the currency with a view to specie payments was, in December, 1865, concurred in by the almost unanimous vote of the House of Representatives, and the act of April 12, 1866, authorized $4,000,000 of notes a month to be retired and canceled. No one then questioned either the policy, the duty, or the obligation of the United States to redeem these notes in coin.

"Why has not this obligation been performed? How comes it that fourteen years after these notes were issued, and eleven years after the exigency was over, we are debating whether they shall be paid, and when they shall be paid? We may well pause to examine how this plain and positive obligation has so long been deferred by a nation always sensitive to the public honor.

"The fatal commencement of this long delay was in this provision of the act, approved March 3, 1863, as follows:

'And the holders of United States notes issued under, and 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.'

"Thus, under the pressure of war, and the plausible pretext of a statute of limitations, the most essential legal attribute of the note was taken away. This act, though convenient in its temporary results, was a most fatal step, and for my part in acquiescing in, and voting for it, I have felt more regret than for any act of my official life. But it must be remembered that the object of this provision was not to prevent the conversion of notes into bonds, but to induce their conversion. It was the policy and need of the government to induce its citizens to exchange the notes freely for the bonds, so that the notes might again be paid out to meet the pressing demands of the war. It was believed that if this right to convert them was limited, in time this would cause them to be more freely funded; and Mr. Chase, then Secretary of the Treasury, anxious to prevent a too large increase of the interest of the public debt, desired to place in the market a five per cent. bond instead of a six per cent. bond. The fatal error was in not changing the right to convert the note into a five per cent. bond instead of a six per cent. bond. This was, in fact, proposed in the committee on finance, but it was said that a right to convert a note into a bond at any time, was not so likely to be exercised as if it could only be exercised at the pleasure of the government.

And this plausible theory to induce the conversion of notes into bonds was made the basis, after the war was over, for the refusal of the United States to allow the conversion of its notes into bonds, and has been the fruitful cause of the continued depreciation and dishonor of United States notes for the last five years, during which, our five per cent. bonds have been at par with gold, while our notes rise and fall in the gamut of depreciation from six to twenty per cent. below gold.

"Notwithstanding that the right to convert notes into bonds was taken away, yet, in fact, they were, during the war, received par for par for bonds; and after the war was over all the interest- bearing securities were converted into bonds; but the notes--the money of the people--the artificial measure of value, the most sacred obligation, because it was past due, was refused either payment or conversion, thus cutting it off from the full benefit of the advancing credit of the government, and leaving to it only the forced quality of legal tender in payment of debts.

"Shortly after the war was over, and notably during the presidential campaign of 1868, the question arose whether the bonds of the United States were payable in coin or United States notes. Both notes and bonds were then below par in coin, the notes ranging from sixty- seven to seventy-five cents in coin; and five per cent. bonds from seventy-two to eighty cents in coin. Here again the opportunity was lost to secure the easy and natural appreciation of our notes to the gold standard. Had Congress then authorized the conversion of notes into bonds, when both were depreciated, both would have advanced to par in gold; but, on the one hand, it was urged that this would cause a rapid contraction, and, on the other, that the right to convert the note into a bond was not specie payment; it was only the exchange of one promise for another. It was specie payment they very much favored, but did not have the wisdom then to secure. If the advocates for specie payment had then supported a restoration of the right to convert notes into bonds, they would have secured their object with but little opposition. But all measures to fund the notes at the pleasure of the holder were defeated, and, instead, there was ingrafted into the act to strengthen the public credit--

"First, a declaration 'that the faith of the United States is already pledged to the payment in coin, or its equivalent, of all the obligations of the United States not bearing interest, known as United States notes, and of all the interest-bearing obligations of the United States,' except such as by the law could be paid in other currency than gold and silver.

"Second, 'and the United States also solemnly pledges its faith to make provision, at the earliest practicable period, for the redemption of the United States notes in coin.'

"Here again, the obligation of the government to pay these notes in coin was recognized, its purpose declared, and the time fixed 'as early as practicable.' What was the effect of this important act of Congress? Without adding one dollar to the public debt, or the burden of the debt, both bonds and notes rose in value. Within one year, the bonds rose to par in gold, making it practicable to commence the refunding of six per cent. bonds into five per cent.

bonds. The notes rose under the stimulus of this new promise, in one year, from seventy-six cents to eighty-nine cents in gold, but no steps whatever were made to redeem them.

"The amount of bank notes authorized was increased fifty-four millions. The executive department pursued the policy of redeeming debts not due, and did, from an overflowing treasury, reduce very largely the public debt, but no steps whatever were taken to advance the value of our notes. The effect of the act of 1869 was exhausted on the adjournment of Congress in March, 1870, when the United States notes were worth eighty-nine cents in gold; and thereabouts, up and down, with many fluctuations, they have remained to this day. The bondholder, secure in the promise to him, is happy in receiving his interest in gold, with his bond above par in gold.

The note holder, the farmer, the artisan, the laborer, whose labor and production is measured in greenbacks, still receives your depreciated notes, worth ten per cent. less than gold you promised him 'at the earliest day practicable.' The one has a promise performed and the other a promise postponed.

"Thus we stood when the panic of 1873 came upon us; with more paper money afloat than ever circulated before in any country of the world. Even then, had we stood firmly, the h.o.a.rding tendency of the panic would have advanced our notes toward the gold standard, and, in fact, did so during the months of September and October, until the premium on gold had fallen to eight per cent. But, sir, at this critical moment, the Secretary of the Treasury, acting, no doubt, in good faith, but I think without authority of law, issued twenty-six millions more United States notes--part of the notes retired and canceled under previous acts. And now, notwithstanding all the talk about the contraction of the currency, we have not withdrawn one-half of this illegal issue. On the 1st of September, 1873, we had three hundred and fifty-six million notes outstanding.

Three months afterward, we had three hundred and eighty-two million; and now we have three hundred and seventy-one million.

"Sir, it was under the light of these events, after the fullest discussion ever given in Congress, of any question--after debate before the people during the recess of Congress, and full deliberation last winter--this act was pa.s.sed. There was and is now great difference of opinion as to the details, but the vital promise made to the note holder to make his note as good as gold in January, 1879, was concurred in by a large majority of both Houses, and by many who opposed the bill as too slow in its operation. This act of honor and public faith was applauded by the civilized world and concurred in by our const.i.tuents, the doubts only being as to the machinery to carry it into effect. The time was fixed by those who most feared resumption, and no one proposed a longer time. My honorable friend from Indiana [Mr. Morton] truly said (in the recent campaign in Ohio) that he partic.i.p.ated in framing it; and he and those who agreed with him fixed the time so remote as to excite the unfounded charge that the bill was a sham, a mere contrivance to bridge an election.

"And now, sir, to recapitulate this branch of the question, it is shown that the holder of these notes has a promise of the United States, made in February, 1862, to pay him one dollar in gold coin; that the legal purport of this promise has been declared by the Supreme Court; that we have taken away from this note one of the legal attributes given it, which would long since have secured its payment in coin--that when the note was authorized and issued, it was understood as redeemable in coin when the war was over; that our promise to pay it was renewed in 1869--'at as early a day as practicable;' that by reason of our failure to provide for its payment, it is still depreciated below par more than one-tenth of its nominal value; that we renewed this promise, and made it definite as to time, by act of 1875; that it is a debt due from the United States, and in law and honor due now in coin. Yet it is proposed to recall our promise to redeem this note in coin three years hence.