Recollections of Forty Years in the House, Senate and Cabinet Part 75

On the 28th I wrote the First National Bank of New York:

"Your letter of yesterday is received. I do not see my way clear to issue another call until the one now outstanding is covered by subscription. There is still a deficit of about $4,000,000 on the 71st call. There is not, however, the slightest objection to your stating authoritatively, or, if desired, I will do so in response to a direct inquiry, that every dollar of the proceeds of four per cent. bonds sold during the present year had been applied on calls for refunding, and it is my purpose to continue this unless I give public notice to the contrary.

"I feel the more inclined to refuse to make a call by reason of the probable requisition that may be made for the Halifax award, and I do not wish by any chance to impair the resumption fund."

During the latter part of December the air was full of rumors of a combination in New York for a run upon the sub-treasury on the opening of the new year. The alarm was so great that the president of the National Bank of Commerce in that city, who was also chairman of the clearing house committee, at three o'clock p. m. on the 30th, with the advice of other bankers, sent me, by special messenger, an urgent request for the transfer to his bank, on the following day, from the sub-treasury, of $5,000,000 in gold, in exchange for a like amount in United States notes, to enable the banks, he said, to meet a "corner" in gold. To this there could be but one reply.

The treasury had no power to make the transfer, even if it desired to do so. I therefore declined the proposition, and did not believe in a "corner."

During the exciting events connected with resumption and refunding I did not overlook the political condition in Ohio, and wrote a letter in regard to it, which I think proper here to insert, as it presents my view at its date:

"December 26, 1878.

"My Dear Sir:--Much obliged for your kind letter of the 21st.

"My official duties engross my time so much that I scarcely catch a glimpse of home affairs by reading the newspapers, and your intelligent view is therefore the more interesting. It seems to me that the nomination of General Garfield for governor and Foster for lieutenant governor would be a very excellent arrangement, but I understand that it is not agreeable to them. Garfield has no desire for the position, while Foster feels that he ought to head the ticket. An understanding that Garfield is to be Senator might embarra.s.s us in certain doubtful districts, where the chief contest would be upon that office. Still such a ticket would be universally conceded to be very strong and would inspire confidence, and would be entirely satisfactory to me. Indeed, I wish to be in a condition to support our political friends in anything they may do in the convention, without taking an active part in it.

"The contingency that you refer to with which my name is connected is still to remote to talk about. I never supposed that a person occupying my office, open to attack and compelled to say no to so many persons, could be sufficiently popular to justify any party in running him for the presidency, and, therefore, I have always dismissed such suggestions as the kindly compliments of the hour.

Certainly it has not gained my mental consent, nor is it considered by me as one of the probabilities of the future. If I should get the maggot in my brain it would no doubt be more likely to hurt than help.

"The tendency of public opinion is evidently towards General Grant, whose absence and good conduct are in his favor, while the involuntary feeling of Republicans would be in favor of nominating him as a remonstrance against the violence in the south, and notice that it must end.

"However, a year hence will be time enough to settle this matter.

"I send my hearty greetings for the holiday season, and remain,

"Very truly yours, "John Sherman.

"Hon. Richard Smith, Cincinnati, O."

About this time I received the following letter:

"United States Legation, } "Mexico, December 15, 1878.} "Hon. John Sherman, Washington, D. C.

"My Dear Sir:--Allow me to send you, as a New Years' greeting, my hearty congratulations on your successful management of our national finances and on the resumption of specie payments, which I have no doubt will be an accomplished fact when this letter reaches you.

"The nation owes you a great debt for your courage, persistence and wisdom in adhering to your policy for re-establishing and maintaining our government credit. To your conduct I attribute the present honorable position of the Republican party, more than to any other one influence. I believe that neither the country nor the party will forget your services.

"Very truly, "John W. Foster."

CHAPTER x.x.xVII.

REFUNDING THE NATIONAL DEBT.

Over $140,000,000 of Gold Coin and Bullion in the Treasury January 1, 1879--Diversity of Opinion as to the Meaning of Resumption-- Effect of the Act to Advance Public Credit--Funding Redeemable Bonds Into Four per Cents.--Letters to Levi P. Morton and Others-- Six per Cent. Bonds Aggregating $120,000,000 Called During January, 1879--The Sale in London--Charges of Favoritism--Further Enactments to Facilitate the Funding--Difficulty of Making Sales of Four per Cent. Bonds to English Bankers--Large Amounts Taken in the United States--One Subscription of $190,000,000--Rothschild's Odd Claim-- Complimentary Resolution of the New York Chamber of Commerce.

On the 1st of January, 1879, when the resumption act went into effect, the aggregate amount of gold coin and bullion in the treasury exceeded $140,000,000. United States notes, when presented, were redeemed with gold coin, but instead of the notes being presented for redemption, gold coin in exchange for them was deposited, thus increasing the gold in the treasury.

The resumption of specie payments was generally accepted as a fortunate event by the great body of people of the United States, but there was a great diversity of opinion as to what was meant by resumption. The commercial and banking cla.s.ses generally treated resumption as if it involved the payment and cancellation of United States notes and all forms of government money except coin and bank notes. Another cla.s.s was opposed to resumption, and favored a large issue of paper money without any promise or expectation of redemption in coin. The body of the people, I believe, agreed with me in opinion that resumption meant, not the cancellation and withdrawal of greenbacks, but the bringing them up to par and maintaining them as the equivalent of coin by the payment of them in coin on demand by the holder. This was my definition of resumption. I do not believe that any commercial nation can conduct modern operations of business upon the basis of coin alone. Prior to our Civil War the United States undertook to collect its taxes in specie and to pay specie for its obligations; this was the bullion theory. This narrow view of money compelled the states to supply paper currency, and this led to a great diversity of money, depending upon the credit, the habits and the wants of the people of the different states. The United States notes, commonly called greenbacks, were the creature of necessity, but proved a great blessing, and only needed one attribute to make them the best subst.i.tute for coin money that has ever been devised. That quality was supplied by their redemption in coin, when demanded by the holder.

The feeling in the treasury department on the day of resumption is thus described by J. K. Upton, a.s.sistant secretary, in an article written at the close of 1892:

"The year, however, closed with no unpleasant excitement, but with unpleasant forebodings. The 1st day of January was Sunday and no business was transacted. On Monday anxiety reigned in the office of the secretary. Hour after hour pa.s.sed; no news came from New York. Inquiry by wire showed all was quiet. At the close of business came this message: '$135,000 of notes presented for coin --$400,000 of gold for notes.' That was all. Resumption was accomplished with no disturbance. By five o'clock the news was all over the land, and the New York bankers were sipping their tea in absolute safety.

"Thirteen years have since pa.s.sed, and the redemption fund still remains intact in the sub-treasury vaults. The prediction of the secretary has become history. When gold could with certainty be obtained for notes, n.o.body wanted it. The experiment of maintaining a limited amount of United States notes in circulation, based upon a reasonable reserve in the treasury pledged for that purpose, and supported also by the credit of the government, has proved generally satisfactory, and the exclusive use of these notes for circulation may become, in time, the fixed financial policy of the government."

The immediate effect of resumption of specie payments was to advance the public credit, which made it possible to rapidly fund all the bonds of the United States then redeemable into bonds bearing four per cent. interest. Early in January, 1879, I issued a circular offering the four per cent. funded loan of the United States at par and accrued interest to date of subscription in coin. It was substantially similar to the one issued on the 16th of January, 1878, but graded the commission, allowing from one-eighth of one per cent. to one-fourth of one per cent., according to the amount subscribed.

Several letters written about this date will show my view better than anything I can say now:

"Washington, D. C., January 6, 1879.

"Dear Sir:--Your note of the 2nd was received upon my return from the west.

"Much obliged for subscription, and hope that you will soon get above the ten millions and thus be ent.i.tled to the additional one- tenth. I cannot, however, allow it on the first ten millions without adopting it as a rule, which would be impossible, by reason of the limitation of the entire cost to one-half of one per cent.

I may be compelled to allow the one-eighth commission down to $1,000, but perhaps not, as I have to carefully husband the limited fund out of which all expenses must be paid. With the energy and hopefulness now exhibited, we can easily refund the 5-20's within this year and, perhaps, within six months. The more rapid the process the less disturbance it will create. I am hopeful and sanguine of improving business, not that greenbacks will be so abundant, but that employment will be ready for everyone willing to work.

"Thanks for your congratulations, which I heartily reciprocate, for the syndicate are ent.i.tled to a large portion of the merit now given to me. As I got more than my share of the abuse, it is probably thought that I should get more than my share of the credit.

"Very truly yours, "John Sherman.

"Hon. L. P. Morton, New York."

"Washington, D. C., January 8, 1879.

"R. C. Stone, Esq., Secretary Bullion Club, New York.

"Dear Sir:--Your letter of the 5th inst., inclosing a card of invitation from the Bullion Club, to attend a dinner at their club house on Thursday evening, the 16th inst., is received.

"I regret that my official duties will not permit me, in person, to respond to the toast you send me, and I cannot do so, by letter, in words more expressive than the toast itself, 'To Resumption-- may it be forever.'

"Irredeemable money is always the result of war, pestilence, or some great misfortune. A nation would not, except in dire necessity, issue its promises to pay money when it is unable to redeem those promises. I know that when the legal tenders were first issued, in February, 1862, we were under a dire necessity. The doubt that prevented several influential Senators, like Fessenden and Collamer, from voting for the legal tender clause, was that they were not convinced that our necessities were so extreme as to demand the issue of irredeemable paper money. Most of those who voted for it justified their vote upon the ground that the very existence of the country depended upon its ability to coin into money its promises to pay. THat was the position taken by me. We were a.s.sured by Secretary Chase that nearly one hundred millions of unpaid requisitions were lying upon his table, for money due to soldiers in the presence of the enemy, and for food and clothing to maintain them at the front. We then provided for the issue of legal tender United States notes, as an extreme remedy in the nation's peril. It has always seemed strange that so large and respectable a body of our fellow- citizens should regard the continuance of irredeemable money as the permanent policy of a nation so strong and rich as ours, able to pay every dollar of its debts on demand, after the causes of its issue had disappeared. To resume is to recover from illness, to escape danger, to stand sound and healthy in the financial world, with our currency based upon the intrinsic value of solid coin.

"Therefore I say, may resumption be perpetual. To wish otherwise is to hope for war, danger, and national peril, calamities to which our nation, like others, may be subject, but against which the earnest aspiration of every patriot will be uttered.

"Very respectfully yours, "John Sherman."

"January 10, 1879.

"H. C. Fahnestock, Esq., "Vice President First National Bank, New York.

"Sir:--Your unofficial letter of the 9th inst., suggesting the danger that may arise from the very large and rapid subscriptions to the four per cent. bonds, is received.

"The danger is apparent enough to all, and certainly to those who purchase without ability to pay at the time stipulated, but it is not one that the government can guard against, except only by taking care to have ample security for each subscription.

"In the face of the advertis.e.m.e.nt now outstanding, I could not withdraw the money from deposit with subscribing banks, until at or near the time of the maturity of the call, when they must be prepared to pay. It is not the interest of the government to force subscriptions beyond the ability of investors, but we cannot check subscriptions by any violation of the public advertis.e.m.e.nt or any public caution against the danger that is open to everyone.

"Very truly yours, "John Sherman."

"Washington, D. C., January 13, 1879.

"George Kerr, Esq., Janesville, Bremer Co., Iowa.

"Sir:--I have received your letter of the 6th instant inclosing a slip cut from the Bremer County 'Independent,' a weekly paper published in Waverly, containing a statement to the effect that the First National of New York is enjoying, from the department, special privileges in the matter of holding public money on account of subscriptions to the four per cent. consols of 1907, and receiving from the government unusual commissions on subscription.