Recollections of Forty Years in the House, Senate and Cabinet Part 63

On the 10th of November Mr. Conant wrote me that our bonds had been depressed by the rumors which had been circulated respecting probable legislation which would depreciate their value, and that four and a half per cent. bonds had fallen off three-fourths per cent. He said: "If, in any legislation which may be enacted regarding silver, provision could be made not only exempting the debt and interest thereon from payment in silver, but declaring that payment of the same shall be made in gold coin, it would aid us immeasurably in placing our bonds."

Two days later I received a letter from F. O. French, of New York, as follows:

"Our business people are very much alarmed at the rumored strength of the silver people, and, as they apprehend the gravest disasters from the success of the Bland bill, a committee of gentlemen connected with insurance and trust companies, as well as with the banks, go to Washington to-morrow to present their views to the finance committee.

"Once dispatch this silver business--and I have faith that it cannot live in the light of full discussion by the Senate--and we shall renew funding, and by attaining resumption put an end to financial discussions as we did to slavery."

And on the following day I wrote to August Belmont & Co.:

"Your letter of the 9th instant was received, and also a personal letter from Mr. Belmont.

"I am watchful of the course of legislation in Congress and of the current of public sentiment, both in our own and foreign countries, on the silver question. I am not prepared at present to give any a.s.surance as to what will be done in Congress, nor of the action of the executive department. It is better to let the matter stand as it is, awaiting events without any committals whatever. I have faith to believe that all will come our right so far as the public credit is affected, and will write you again when anything definite can be said."

On the 29th of November Belmont wrote me a long letter containing the following statements:

"I need hardly a.s.sure you, at this late day, of my earnest solicitude for the success of the funding and resumption operations, and of my personal deep regret, apart from all pecuniary considerations, as a member of the syndicate, to see this unfortunate situation of the silver question put a complete stop to all further sales of the four per cent. bonds at present, here and in England. The capitalists and banks on both sides of the Atlantic will not buy a bond at par _in gold_, when it is almost certain, from the overwhelming vote in the House, and the known att.i.tude of the Senate, that a silver bill, making the old silver dollar a legal tender for all private and public obligations, will pa.s.s both Houses this winter. . . .

"The bonds are selling at ninety-nine and one-fourth in gold in open market, and it seems to me very doubtful policy to offer bonds, by us, to the public at this moment, and thus a.s.sist the advocates of the old silver dollar by our apparent indifference to the injustice and dishonesty of the Bland bill."

This condition of suspense and anxiety continued during the remainder of the year.

My first annual report, as Secretary of the Treasury, was made to Congress on the 3rd of December, 1877. The statement made of our financial condition was a very favorable one, showing a surplus revenue of $30,340,577.69. The receipts from different sources of revenue were largely diminished, but the expenditures for the year were reduced by an equal amount. The surplus revenue was applied to the redemption of United States notes and of fractional currency, and to the payment of six per cent. bonds for the sinking fund.

The report dealt with the usual topics of such reports, embracing a great variety of subjects. What attracted the most attention was, naturally, what was said about refunding the public debt and the resumption of specie payments. The results of refunding during the previous year have already been sufficiently stated. The plans for the resumption of specie payments were fully explained. The mode and manner of bringing this about was not specified in the law, but the time for resumption was fixed and the means provided for acc.u.mulating coin for that purpose were ample.

By the resumption act the Secretary of the Treasury was required to redeem legal tender notes to the amount of eighty per centum of the sum of national bank notes issued, and to continue such redemption, as circulating notes were issued, until there was outstanding the sum of $300,000,000 of such legal tender United States notes, and no more.

By the same act it was provided that, on and after the 1st day of January, 1879, the Secretary of the Treasury should 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," it continued, "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 14, 1870, 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."

In obedience to this provision I had sold at par, for coin, $15,000,000 four and a half per cent. bonds, or $5,000,000 during each of the months of May, June and July, and $25,000,000 at par, in coin, of four per cent. bonds, or $5,000,000 for each of the months of August, September, October, November and December. Of the coin thus received $4,000,000 had been sold for the redemption of United States notes, and the residue was in the treasury. The surplus revenue had also, under the same authority, been applied to the redemption of the residue of United States notes, not redeemed by the sale of coin, and the balance was held in the treasury in preparation for resumption.

These operations, aided greatly, no doubt, by the favorable condition of our foreign commerce, had advanced the market value of United States notes to ninety-seven and three-eighths per cent., or within nearly two and a half per cent. of coin. They had also conclusively demonstrated the practicability of restoring United States notes to par, in coin, by the time fixed by law, and that without disturbing either domestic or foreign trade or commerce. Every step had been accompanied with growing business, with the advance of public credit, and the steady appreciation of United States notes. The export of bullion had been arrested, and our domestic supply had acc.u.mulated in the treasury. The exportation of other domestic products had been largely increased, with great advantage to all industries. I said the course adopted under the resumption act, if pursued, would probably be followed with like favorable results, and a sufficient fund for the maintenance of resumption would doubtless acc.u.mulate in the treasury at or before the date fixed by law.

I strongly urged the firm maintenance of a policy that would make good the promise contained in the United States note when issued-- a promise repeated in the act "To strengthen the public credit,"

approved March 18, 1869, and made definite and effective by the resumption act, and a.s.serted that dishonored notes, less valuable than the coin they promise, though justified by the necessity which led to their issue, should be made good as soon as practicable; that the public credit was injured by failure to redeem them; that every holder who was compelled by law to receive them was deprived of a part of his just due; that our national resources being ample, the process of appreciation being almost complete, and the wisdom of the law having been demonstrated, it was the dictate of good policy and good faith to continue the process of preparation, so that, at or before the time fixed by law, every United States note would have equal purchasing power with coin; that to reverse this policy in the face of a.s.sured success would greatly impair the public credit, arrest the process of reducing the interest on the public debt, and cause anew the financial distress our country had recently suffered.

The first section of the resumption act plainly provided for the permanent subst.i.tution of silver coin for the whole amount of fractional currency outstanding. Section 3 directed the permanent reduction of United States notes to an amount not exceeding $300,000,000. No distinct legislative declaration was made in the resumption act that notes redeemed after that limit was reached should not be reissued; but section 3579 of the Revised Statutes of the United States provided that "when any United States notes are returned to the treasury they may be reissued, from time to time, as the exigencies of the public interest may require."

I expressed in my report the opinion that, under this section, notes, when redeemed after the 1st of January, 1879, if the amount outstanding was not in excess of $300,000,000, might be reissued as the exigencies of the public service required. A note redeemed with coin was in the treasury and subject to the same law as if received for taxes, or as a bank note, when redeemed by the corporation issuing it. The authority to reissue it did not depend upon the mode in which it was returned to the treasury. But this construction was controverted, and I thought should be settled by distinct provisions of law. It should not be open to doubt or dispute. The decision of this question by Congress would involve not merely the construction of existing law, but the public policy of maintaining in circulation United States notes, either with or without the legal tender clause. These notes were of great public convenience--they circulated readily; were of universal credit; were a debt of the people without interest; were protected by every possible safeguard against counterfeiting; and, when redeemable in coin at the demand of the holder, formed a paper currency as good as had yet been devised.

It was conceded, I said, that a certain amount could, with the aid of an ample reserve in coin, be always maintained in circulation.

Should not the benefit of this circulation inure to the people, rather than to corporations, either state or national? The government had ample facility for the collection, custody, and care of the coin reserves of the country. It was a safer custodian of such reserves than a mult.i.tude of scattered banks would be. The authority to issue circulating notes by banks was not given to the banks for their benefit, but for the public convenience, and to enable them to meet the ebb and flow of currency caused by varying crops, productions, and seasons. It was indispensable that a power should exist somewhere to issue and loan credit money at certain times, and to redeem it at others. This function could be performed better by corporations than by the government. The government could not loan money, deal in bills of exchange, or make advances on property.

I expressed the opinion, that the best currency for the people of the United States would be a carefully-limited amount of United States notes, promptly redeemable on presentation in coin, supported by ample reserves of coin, and supplemented by a system of national banks, organized under general laws, free and open to all, with power to issue circulating notes secured by United States bonds, deposited with the government and redeemable on demand in United States notes or coin. Such a system would secure to the people a safe currency of equal value in all parts of the country, receivable for all dues, and easily convertible into coin. Interest could thus be saved on so much of the public debt as could be conveniently maintained in permanent circulation, leaving to national banks the proper business of such corporations, of providing currency for the varying changes, the ebb and flow of trade.

I said that the legal tender quality given to United States notes was intended to maintain them in forced circulation at a time when their depreciation was inevitable. When they were redeemable in coin this quality might either be withdrawn or retained, without affecting their use as currency in ordinary times. But all experience had shown that there were periods when, under any system of paper money, however carefully guarded, it was impracticable to maintain actual coin redemption. Usually contracts would be based upon current paper money, and it was just that, during a sudden panic, or an unreasonable demand for coin, the creditor should not be allowed to demand payment in other than the currency upon which the debt was contracted. To meet this contingency, it would seem to be right to maintain the legal tender quality of the United States notes. If they were not at par with coin it was the fault of the government and not of the debtor, or, rather, it was the result of unforseen stringency not contemplated by the contracting parties.

In establishing a system of paper money, designed to be permanent, I said it should be remembered that theretofore no expedient had been devised, either in this or other countries, that in times of panic or adverse trade had prevented the drain and exhaustion of coin reserves, however large or carefully guarded. Every such system must provide for a suspension of specie payment. Laws might forbid or ignore such a contingency, but it would come; and when it came it could not be resisted, but had to be acknowledged and declared, to prevent unnecessary sacrifice and ruin. In our free government the power to make this declaration would not be willingly intrusted to individuals, but should be determined by events and conditions known to all. It would be far better to fix the maximum of legal tender notes at $300,000,000, supported by a minimum reserve of $100,000,000, of coin, only to be used for the redemption of notes, not to be reissued until the reserve was restored. A demand of coin to exhaust such a reserve might not occur, but, if events should force it, the fact would be known and could be declared, and would justify a temporary suspension of specie payments. Some such expedient could, no doubt, be provided by Congress for an exceptional emergency. In other times the general confidence in these notes would maintain them at par in coin, and justify their use as reserves of banks and for the redemption of bank notes.

As to the fractional currency I said the resumption act provided for the exchange and subst.i.tution of silver coins for such currency.

To facilitate this exchange, the joint resolution, approved July 22, 1876, provided that such coin should be issued to an amount not exceeding $10,000,000, for an equal amount of legal tender notes. It also provided that the aggregate amount of such coin and fractional currency outstanding should not exceed, at any time, $50,000,000. That limit would have been reached if the whole amount of fractional currency issued and not redeemed, had been held to be "outstanding." It was well known, however, that a very large amount of fractional currency issued had been destroyed, and could not be presented for redemption, and could hardly be held to be "outstanding." The Treasurer of the United States, the Comptroller of the Currency, and the Director of the Mint concurred in estimating the amount, so lost and destroyed, to be not less than $8,083,513.

As it was evident that Congress intended to provide an aggregate issue of $50,000,000 of such coin and currency in circulation, I directed the further issue of silver coin, equal in amount to the currency estimated to have been lost and destroyed.

I recommended that the limitation upon the amount of such fractional coin, to be issued in exchange for United States notes, be repealed.

The coin was readily taken, was in great favor with the people, its issue was profitable to the government, and experience had shown that there was no difficulty in maintaining it at par with United States notes. The estimated amount of such coin in circulation in the United States in 1860, at par with gold, was $43,000,000.

Great Britain, with a population of 32,000,000, maintained an inferior fractional coin to the amount of $92,463,500, at par with gold, and other nations maintained a much larger _per capita_ amount. The true limit of such coin was the demand that might be made for its issue, and if only issued in exchange for United States notes there was no danger of an excess being issued.

By the coinage act of 1873, any person might deposit silver bullion at the mint to be coined into trade dollars of the weight of 420 grains, troy, upon the payment of the cost of coinage. This provision had been made at a time when such a dollar, worth in the market $1.02-13/100 in gold, was designed for the use of trade in China, where silver was the only standard. By the joint resolution of July 22, 1876, pa.s.sed when the trade dollar in market value, had fallen greatly below one dollar in gold, it was provided that it should not be thereafter a legal tender, and the Secretary of the Treasury was authorized "to limit the coinage thereof to such an amount as he may deem sufficient to meet the export demand for the same." Under these laws the amount of trade dollars issued, mainly for exportation, was $30,710,400.

In October, 1877, it became apparent that there was no further export demand for trade dollars, but deposits of silver bullion were made, and such dollars were demanded of the mint for circulation in the United States, that the owner might secure the difference between the value of such bullion in the market and United States notes. At the time the mints were fully occupied by the issue of fractional, and other coins, on account of the government. Therefore, under the authority of the law of 1876 referred to, I directed that no further issues of trade dollars be made until necessary again to meet an export demand. In case another silver dollar was authorized, I recommended that the trade dollar be discontinued.

The question of the issue of a silver dollar for circulation as money had, previous to my report, been discussed and carefully examined by a commission organized by Congress, which had recommended the coinage of the old silver dollar. With such legislative provisions as would maintain its current value at par with gold, its issue was recommended by me. I thought a gold coin of the denomination of one dollar was too small for convenient circulation, while such a coin in silver would be convenient for a mult.i.tude of daily transactions, and in a form to satisfy the natural instinct of h.o.a.rding.

I discussed the silver question to some length and said that of the metals, silver was of the most general use for coinage. It was a part of every system of coinage, even in countries where gold was the sole legal standard. It best measured the common wants of life, but, from its weight and bulk, was not a convenient medium in the larger exchanges of commerce. Its production was reasonably steady in amount. The relative market value of silver and gold was far more stable than that of any other two commodities--still, it did vary. It was not in the power of human law to prevent the variation. This inherent difficulty had compelled all nations to adopt one or the other as the sole standard of value, or to authorize an alternative standard of the cheaper coin, or to coin both metals at an arbitrary standard, and to maintain one a par with the other by limiting the amount and legal tender quality of the cheaper coin, and receiving or redeeming it at par with the other.

It had been the careful study of statesmen for many years to secure a bimetallic currency not subject to the changes of market value, and so adjusted that both kinds could be kept in circulation together, not alternating with each other. The growing tendency had been to adopt, for coins, the principle of "redeemability"

applied to different forms of paper money. By limiting tokens, silver, and paper money, to the amount needed for business, and promptly receiving or redeeming all that might at any time be in excess, all these forms of money could be kept in circulation, in large amounts, at par with gold. In this way, tokens of inferior intrinsic value were readily circulated, and did not depreciate below the paper money into which they were convertible. The fractional coin then in circulation, though the silver of which it was composed was of less market value than the paper money, pa.s.sed readily among all cla.s.ses of people and answered all the purposes for which it was designed. And so the silver dollar, if restored to our coinage, would greatly add to the convenience of the people.

But this coin should be subject to the same rule, as to issue and convertibility, as other forms of money. If the market value of the silver in it was less than that of gold coin of the same denomination, and it was issued in unlimited qualities, and made a legal tender for all debts, it would demonetize gold and depreciate our paper money.

The importance of gold as the standard of value was conceded by all. Since 1834, it had been practically the sole coin standard of the United States, and, since 1815, been the sole standard of Great Britain. Germany had recently adopted the same standard.

France, and other Latin nations, had suspended the coinage of silver, and, it was supposed, would gradually either adopt the sole standard of gold, or provide for the convertibility of silver coin, on the demand of the holder, into gold coin.

In the United States, several experiments had been made with the view of retaining both gold and silver in circulation. The 2nd Congress undertook to establish the ratio of fifteen of silver to one of gold, with free coinage of both metals. By this ratio gold was under-valued, as one ounce of gold was worth more in the markets of the world than fifteen ounces of silver, and gold, therefore, was exported. To correct this, in 1837, the ratio was fixed at sixteen to one, but sixteen ounces of silver were worth, in the market, more than one ounce of gold, so that silver was demonetized.

These difficulties in the adjustment of gold and silver coinage had been fully considered by Congress, prior to the pa.s.sage of the act approved February 21, 1853. By that act a new, and it was believed a permanent, policy was adopted to secure the simultaneous circulation of both silver and gold coins in the United States.

Silver fractional coins were provided for at a ratio of 14.88 in silver to one in gold, and were only issued in exchange for gold coin. The right of private parties to deposit silver bullion for such coinage was repealed, and these coins were issued from bullion purchased by the Treasurer of the Mint, and only upon the account, and for the profit, of the United States. The coin was a legal tender only in payment of debts for all sums not exceeding five dollars. Though the silver in this coin was then worth in the market 3.13 cents on the dollar less than gold coin, yet its convenience for use in change, its issue by the government only in exchange for, and its practical convertibility into, gold coin, maintained it in circulation at par with gold coin. If the slight error in the ratio of 1792 prevented gold from entering into circulation for forty-five years, and the slight error in 1837 brought gold into circulation and banished silver until 1853, how much more certainly would an error then of nine per cent. cause gold to be exported and silver to become the sole standard of value?

Was it worth while to travel again the round of errors, when experience had demonstrated that both metals could only be maintained in circulation together by adhering to the policy of 1853?

The silver dollar was not mentioned in the act of 1853, but from 1792 until 1874 it was worth more in the market than the gold dollar provided for in the act of 1837. It was not a current coin contemplated as being in circulation at the pa.s.sage of the act of February 12, 1873. The whole amount of such dollars, issued prior to 1853, was $2,553,000. Subsequent to 1853, and until it was dropped from our coinage in 1873, the total amount issued was $5,492,838, and this was almost exclusively for exportation.

By the coinage act approved February 12, 1873, fractional silver coins were authorized, similar in general character to the coins of 1853, but with a slight increase in silver in them, to make them conform exactly to the French coinage, and the old dollar was replaced by the trade dollar of 420 grains of standard silver.

Much complaint had been made that this was done with the design of depriving the people of the privilege of paying their debts in a cheaper money than gold, but it was manifest that this was an error.

No one then did or could foresee the subsequent fall in the market value of silver. The silver dollar was an unknown coin to the people, and was not in circulation even on the Pacific slope, where coin was in common use. The trade dollar of 420 grains was subst.i.tuted for the silver dollar of 412 grains because it was believed that it was better adapted to supersede the Mexican dollar in the Chinese trade, and experiment proved this to be true. Since the trade dollar was authorized $30,710,400 had been issued, or nearly four times the entire issue of old silver dollars since the foundation of the government. Had not the coinage act of 1873 pa.s.sed, the United States would have been compelled to suspend the free coinage of silver dollars, as the Latin nations were, or to accept silver as the sole coin standard of value.

Since February, 1873, great changes had occurred in the market value of silver. Prior to that time the silver in the old dollar was worth more than a gold dollar, while it was worth then, in 1877, about 92 cents. If by law any holder of silver bullion might deposit in the mint and demand a full legal tender dollar for every 412 grains of standard silver deposited, the result would be inevitable that as soon as the mints could supply the demand the silver dollar would, by a financial law as fixed and invariable as the law of gravitation, become the only standard of value. All forms of paper money would fall to that standard or below it, and gold would be demonetized and quoted at a premium equal to its value in the markets of the world. For a time the run to deposit bullion at the mint would give to silver an artificial value, of which the holders and producers of silver bullion would have the sole benefit. The utmost capacity of the mints would be employed for years to supply this demand at the cost of, and without profit to, the people. The silver dollar would take the place of gold as rapidly as coined, and be used in the payment of customs duties, causing an acc.u.mulation of such coins in the treasury. If used in paying the interest on the public debt, the grave questions then presented would arise with public creditors, seriously affecting the public credit.

It had been urged that the free coinage of silver in the United States would restore its market value to that of gold. Market value was fixed by the world, and not by the United States alone, and was affected by the whole ma.s.s of silver in the world. As the enormous and continuous demand for silver in Asia had not prevented the fall of silver, it was not likely that the limited demand for silver coin in this country, where paper money then was, and would be, the chief medium of exchange, would cause any considerable advance in its value. This advance, if any, would be secured by the demand for silver bullion for coin, to be issued by and for the United States, as well as if it were issued for the benefit of the holder of the bullion. If the financial condition of our country was so grievous that we must at every hazard have a cheaper dollar, in order to lessen the burden of debts already contracted, it would be far better, rather than to adopt the single standard of silver, to boldly reduce the number of grains in the gold dollar, or to abandon and retrace all efforts to make United States notes equal to coin. Either expedient would do greater harm to the public at large than any possible benefit to debtors.

The free coinage of silver would also impair the pledge made of the customs duties, by the act of February, 1862, for payment of the interest of the public debt. The policy adhered to of collecting these duties in gold coin, had been the chief cause of upholding and advancing the public credit, and making it possible to lessen the burden of interest by the process of refunding.

In view of these considerations, I felt it to be my duty to earnestly urge upon Congress the serious objections to the free coinage of silver on such conditions as would demonetize gold, greatly disturb all the financial operations of the government, suddenly revolutionize the basis of our currency, throw upon the government the increased cost of coinage, arrest the refunding of the public debt, and impair the public credit, with no apparent advantage to the people at large.

I believed that all the beneficial results hoped for from a liberal issue of silver coin could be secured by issuing this coin, in pursuance of the general policy of the act of 1853, in exchange for United States notes, coined from bullion purchased in the open market, by the United States, and by maintaining it by redemption, or otherwise, at par with gold coin. It could be made a legal tender for such sums and on such contracts as would secure to it the most general circulation. It could be easily redeemed in United States notes and gold coin, and only reissued when demanded for public convenience. If the essential quality of redeemability given to the United States notes, bank bills, tokens, fractional coins and currency, maintained them at par, how much easier it would be to maintain the silver dollar, of intrinsic market value nearly equal to gold, at par with gold coin, by giving to it the like quality of redeemability. To still further secure a fixed relative value of silver and gold, the United States might invite an international convention of commercial nations. Even such a convention, while it might check the fall of silver, could not prevent the operation of that higher law which places the market value of silver above human control. Issued upon the conditions stated, I was of opinion that the silver dollar would be a great public advantage, but that if issued without limit, upon the demand of the owners of silver bullion, it would be a great public injury.

CHAPTER x.x.xII.

ENACTMENT OF THE BLAND-ALLISON SILVER LAW.

Amendments to the Act Reported by the Committee on Finance--Revival of a Letter Written by Me in 1868--Explained in Letter to Justin S. Morrill Ten Years Later--Text of the Bland Silver Bill as Amended by the Senate and Agreed to by the House--Vetoed by President Hayes --Becomes a Law Notwithstanding His Objections--I Decide to Terminate the Existing Contract with the Syndicate--Subscriptions Invited for Four per Cent. Bonds--Preparations for Resumption--Interviews with Committees of Both Houses--Condition of the Bank of England as Compared with the United States Treasury--Mr. Buckner Changes His Views Somewhat.