Reminiscences of Sixty Years in Public Affairs Volume II Part 11

Subsequently I advised Congress to issue four per cent fifty year bonds as a basis of the banking system, coupled with an offer to the existing banks of a preference, but in case any bank should refuse to exchange the bonds then held by such bank, its charter after one year should be annulled and its banking privileges should be open to any other a.s.sociation that would purchase the four per cent bonds. This proposition aroused the hostility of the national banks and forthwith the city was invaded by bank officers and agents who succeeded in defeating the bill.

I had early foreseen that the Public Debt could be paid without much delay, and without a system of oppressive taxation. In July, 1863, in the introduction to my volume on the tax system of the country, I had predicted that the revenues would be equal to the payment of interest on a debt twice as large as the Public Debt then was, together with large annual payments of princ.i.p.al. I predicted also that these payments would menace the national banking system. My scheme looked for the perpetuation of that system for fifty years at least. The banks looked upon the scheme as a hostile project and they were therefore led to defeat a measure which in fact was liberal in the extreme. At that time the capital of all the national banks was limited to three hundred million dollars. Thus did the banks defeat a measure which was designed to secure their perpetuity and calculated to promote their financial interests. They acted upon the idea that the credit of the country could never be so far advanced that a four per cent bond would be worth par.

The success of the five per cent loan of 1871, of which I give a full account elsewhere, should have ended the contest in regard to the credit of the United States. A five per cent bond had been sold at par in the London market. The princ.i.p.al of the Public Debt was undergoing a monthly reduction and the gain in the interest account was sufficient to guarantee the payment of the princ.i.p.al in half a century. From that time forward, the leading bankers of Europe and American were ready to co-operate in placing the remaining five per cents, and then the four and a half and four per cents.

From that time forward the credit of the Government has been improving constantly. It was no longer difficult to borrow money at the rate of five per cent, and with the adjustment of our controversy with Great Britain there remained no reason to question the rapid progress of the United States in wealth and population. Indeed, it was then entirely feasible for the Government to have resumed specie payments, as any demand upon the Treasury for gold could have been met with proceeds of bonds sold in Europe. It was my opinion, however, that it would be wiser to delay resumption until the balance of trade should be so much in our favor that specie payments could be maintained by our own resources. And this was accomplished in less than six years. It is with a state as it is with an individual. With an established credit, or with a credit improving constantly and an income in excess of expenditures, there is no difficulty in meeting all liabilities as they mature. Such was the condition of the Treasury when I left it in March, 1873. In March, 1869, the Government was paying interest, measured at the gold value of its securities at the rate of seven per cent. In 1873 the rate was five per cent or less. In that time the net Public Debt had been reduced in the sum of three hundred and sixty- four million dollars, and the interest account had been reduced about thirty million dollars.

When I was engaged in placing bonds in Europe, a discussion arose among bankers in regard to the conflict of statements as to the amount of the Public Debt. By the reports of the Treasurer, which were the basis of the monthly statements, the debt was represented by the securities actually issued after deducting those which had been redeemed. By the report from the Registrar's Office which once each year corresponded in time to the monthly report, the balance was widely different. These facts impaired our standing financially. Upon the register's books the Government was charged with every issue that pa.s.sed out of his office, and it was days, usually, and not infrequently it was weeks, before the securities pa.s.sed from the Treasury into the hands of creditors or purchasers of securities. On the other hand the Treasurer would be ent.i.tled to credit for redemptions made days or weeks before the evidence of such payments would appear on the register's books. An a.n.a.logous fact exists in the discrepancy between a depositor's account with his bank and the account at the bank as long as there are outstanding checks. The books would not agree and yet each might be accurate. As it was a necessity of the situation that the business of the Treasury should proceed day by day without interruption and it was difficult to explain the discrepancy to the many inquirers, I ordered Mr. Allison, the register, to accept for his annual reports the statement of the Treasurer, as his statements conformed to the existing facts on the days when the statements were made. The register protested that the order was not justified by the law, and that was the truth although there was no law forbidding such an act. The transaction, including my order, was brought before a committee of the House of Representatives, but as far as I know, the question of the legality of the proceedings, was not canva.s.sed, or if attention was directed to the subject the committee may have treated it as an act in the public interest and from which no injury had arisen. Upon these facts, Senator Henry G. Davis, of West Virginia, made the charge that the books of the Treasury had been altered by my direction and that it was possible that some great fraud had been perpetrated which might be discovered if a committee were appointed to investigate the Treasury.

A committee was granted, of which Senator Davis was a member. The investigation was a failure from his standpoint. Indeed, the alteration of the books of the Treasury would required the collusive co-operation of many persons, and evidence of the fact of the alteration would, of necessity, become known to hundreds of clerks.

Mr. Davis and some other Democrats implicated me in an a.n.a.logous matter which they tried to understand but did not. The Loan Accounts of the Treasury Department showed that the payments on the Public Debt exceeded the receipts from loans in the enormous sum of one hundred and sixteen million dollars. I appointed a committee of clerks to examine the account in detail for the purpose of ascertaining whether the discrepancy was real or only apparent. The fact of the discrepancy was reported to Congress and the progress made in the investigation was noted in the appendix to the Annual Reports. It is probable, however, that these reports were never seen by Mr. Davis, and hence his suspicion that an investigation into the accuracy of the Treasury accounts would show an alteration of Treasury books, and of course, for some improper purpose.

The error began in Mr. Hamilton's time, and in consequence of the a.s.sumption of the State debts. Bonds were issued for those debts but there were no receipts paid into the Treasury, and consequently the debit side of the account was a blank. When the bonds were paid the payment became a credit on the loan account. In after times bonds were issued and sold below par. The account was charged with the receipts and upon payment the loan account was credited with the full amount paid. In some cases the discrepancy was augmented by the purchase of bonds and the payment of a premium, as was done in the second term of General Jackson. The investigation showed that the discrepancy was only apparent, and the criticisms and complaints ceased.

During my administration of the Treasury Department, the government of the Territory of Alaska was in my hands. The legislation of Congress was brief and indefinite and the only officers were collectors of customs, treasury agents and the revenue cutter officials. The princ.i.p.al topics of thought were the exclusion of liquors and firearms and the protection of the fur seal fishery. During the session of the Forty-first Congress a bill was pa.s.sed which required the Secretary to lease the seal fishery to the best bidder, with a preference to the company which was then engaged in the fishery. On the question of the nature of the preference I took the opinion of the Attorney-General in advance of the contract. At that time I was opposed to any system of leasing and I so advised the House of Representatives in a report upon the subject. Congress, however, adopted the system of leasing and upon experience that system was shown to be more advantageous to the country. The value of the fur seal fishery depends upon the market for the dressed furs, and the value of the dressed furs depends upon the fashions, and the fashions are manipulated by the producers of the varied competing goods. The Government could never engage in the business of promoting fashions and training the markets. Fur seal skins have only a moderate commercial value when the fashion is not with them.

The question of the claim on Behring Sea was not then much considered.

By the law of nations it is difficult to maintain the position that that vast body of salt water can be treated as a closed sea, but there are peculiarities which distinguish it from other bodies of water as the Mediterranean Sea and the Gulf of Mexico, which are partially enclosed.

Russia for a long time was the possessor of the adjacent mainland and of the islands which mark the limits and in a degree enclose the sea.

That country claimed jurisdiction over the water. That claim was known and its validity was not disputed seriously. By the treaty Russia ceded about one half of the sea to the United States. Russia and the United States are the countries directly interested. England has no territorial rights and therefore she has no interest that is not common to other nations. The United States and Russia are interested in the seal fishery which can be preserved only by the protection of the animals in Behring Sea. It may be claimed fairly that Russia and the United State have property in these animals due to the fact that they gather upon the territory of the countries at certain seasons of the year. At other seasons they roam over the water as other animals roam over the land. They are, at least, partially domesticated. They are accustomed to the presence of the inhabitants of the islands which they occupy as breeding grounds and which they visit annually. Moreover, England has an interest in the preservation of the fishery. The skins are dressed in London, and thus far no one has been found, either in Europe or in the United States, who can compete with the London workmen. For the purpose of protecting and preserving the seal fishery, Behring Sea ought to be treated as a closed sea. For general commercial purposes it may be used as other parts of the ocean are used.

At a time, while I was Secretary of the Treasury, when I was detained at my lodgings by a slight illness, I received a visit from William E.

Dodge a New York merchant and an importer of tin, whom I had known some years before when I was a member of Congress. He said that he had called to see me in regard to charges against his house preferred by the revenue officers relating to the importation of tin. I said, what was true, that I had not heard of the charges and that I had never suspected his house of any wrong-doing in their business. His statement in reply was a great surprise to me. He said that if there was anything which appeared to be wrong, or that was in fact a violation of law, the error or wrong was unintentional--that he and his partners intended to act always in good faith. He then stated that the claim amounted to more than two hundred thousand dollars, and he proposed then and there to pay the amount claimed, coupled, however, with the condition that the payment should be kept secret. I replied that I could not take the money upon such terms and that secrecy was impossible. Upon his statement there were three persons besides ourselves who had knowledge of the existence of the charges and the payment of money must come to the knowledge of the Treasury officials.

I then said:

"Mr. Dodge, you cannot afford to pay this money. If you are innocent you should contest the matter in the courts, and if you convince the judge, even if you are technically wrong, that there was no intent to defraud the Government the Secretary can remit all the penalty, leaving you to pay the duty." His counsel, if they were competent, must have given him similar advice and yet he paid voluntarily, about two hundred and seventy-six thousand dollars to the officials in New York, of which he and his friends proceeded to complain. There was a suit, but it was the duty of the firm to contest the claim of the Government, if they had a defence. And if they had had a defence they were in no danger even if they had violated the law ignorantly, for no Secretary would have allowed honest men to suffer for an ignorant violation of the revenue laws. Senator Edmunds placed upon the records of the Senate a full statement of the case.

x.x.xIV THE MINT BILL AND THE "CRIME OF 1873"

Of the many measures of my administration of the Treasury Department, the Mint Bill of 1873 is the only one which has been made a party issue, and which has entered permanently into the policy of the country.

In the month of March, in the year 1869, I came to the head of the Treasury Department. At an early day my attention was directed to the disordered condition of the mint service, which was then, as it ever had been, without a responsible head. The proceedings at the mints were unsystematic, and I resolved upon an attempt to codify the laws and to place the administration in the hands of a recognized, responsible officer. President Grant appointed John Jay Knox comptroller of the currency. For many years Mr. Knox had held the office of deputy comptroller. He had been a careful, constant student, and he was already a recognized authority in financial matters.

I appointed Mr. Knox commissioner to codify the mint laws and to suggest alterations. He was a.s.sisted by Dr. Linderman, then an eminent expert in the theory and practice of coinage, by Mr. Patterson, superintendent of the mint at Philadelphia, and by others.

When the codification of the laws relating to the mint service had been completed the statute, as pa.s.sed, contained seventy-one sections, including a number of new provisions. The political and personal controversy of twenty years and more was directed to a single section, which was in these words: "No coins, either of gold, silver, or minor coinage, shall hereafter be issued from the mints other than those of the denominations, standards and weights herein set forth." The coinage of the silver dollar piece was discontinued in the bill as prepared by the commissioners and the purpose to discontinue its coinage was thus announced in the report that was made to Congress:

"The coinage of the silver dollar piece, the history of which is here given, is discontinued in the proposed bill. . . . The present gold dollar piece is made the dollar unit in the proposed bill, and the silver piece is discontinued."

In 1873 I had come to believe that it was wise for every nation to recognize, establish, and maintain the gold standard. I was of the opinion then, as I am of the opinion now, that nations cannot escape from the gold standard in all inter-state transactions. The value of every article is resolved finally by the ascertainment of its value in gold. Silver or paper may be used for domestic purposes, but the value of that silver or paper is determined by its value in gold.

In America, as in England, all the attempts to fix a ratio between gold and silver coins and to maintain that ratio in business had failed, and hence it was that I determined to abandon the idea of a double standard, reserving in mind, however, the possibility that an agreement by commercial countries might overcome the difficulty. That possibility has now disappeared. The history of the United States is an instructive history. The coin ratio between gold and silver was fixed in Mr. Hamilton's time and with the concurrence of Mr. Jefferson.

In 1870 silver was at a premium upon the legal ratio between gold and silver coins, and such had been the fact from the year 1837, and probably from the year 1792. Indeed, there has never been a day, from the organization of the government, when the actual standard was silver. Until the act of 1878 was pa.s.sed, silver coins had had no appreciable influence upon the volume of currency or the business of the country. The total coinage of silver dollars had been 8,000,000 pieces only. The coinage was suspended in 1805 or 1806, and the silver dollars had been exported or they had disappeared in melting pots.

Such was the commercial demand for American silver coins that in 1853 Congress authorized the debas.e.m.e.nt of the subsidiary silver coins as the only means of securing their circulation.

It is quite doubtful whether in the year 1860 there was a person living who had seen an American silver dollar doing duty in the channels of trade. From 1806 to 1873 the business standard of the country was the gold standard. Silver had been recognized in the Coinage Act, but practically it had not played any part in the financial policy or fortunes of the country.

The choice of gold as the standard was not due to hostility to silver or to the silver mining interests, but to the well grounded opinion that gold was a universal currency, while in some countries, as in England and Germany, silver coins were not a debt-paying currency.

These--within the limits of a statement--are the reasons for the demonetization of the silver dollar and the adoption of the single gold standard. The measure was in accord with my policy, and it was in accord with the unbiased judgment of the commission.

It is a singular instance in legislative proceedings that a measure that had no active support and that was free from opposition at its enactment should be a.s.sailed vigorously after the lapse of years and through a long period of time. The measure was soon followed by the depreciation of silver and coincident with that change came the attacks upon the Mint Bill, and the denunciation of the "Crime of 1873."

The charges were two:

First: The authors of the change had been corrupted by English gold through one Ernest Seyd, a writer on economic topics. It was alleged that Seyd came to this country at the time when the measure was under consideration. Seyd was not living when the charges were made, but the fact of a visit to this country was denied by his son. Hon. Samuel Hooper was chairman of the Committee on Coinage. In the search for information Mr. Hooper invited Mr. Seyd to give him his opinion. Seyd was a writer, a man of good reputation, and a bimetallist. In a letter to Mr. Hooper, which is still in existence, and which is printed in the _Congressional Record,_ Seyd condemned the demonetization of the silver dollar. His letter was dated at London, February 17, 1872.

The second charge was secrecy. The answer to this charge was to be found in historical facts.

The evidence is this: Mr. Knox's report contained two specific statements that it was a purpose of the bill to prohibit the coinage of the silver dollar; the report of the Secretary of the Treasury for the year 1872 made a specific recommendation to that effect; the bill was printed six times; it was considered in each House during the Forty-first and Forty-second Congresses; the precise question in controversy was the subject of discussion, and two years and ten months were given to the consideration of the bill.

The bill was discussed in the House of Representatives. Mr. Reed has stated that the report of the debate covers one hundred and ninety-six columns of the _Congressional Record_. Senator Jones, in his report of 1876, as chairman of the Silver Commission, refers to the debate in these words: "In the brief discussion on the bill in the House of Representatives, the princ.i.p.al reason a.s.signed in favor of those sections which interdicted the future coinage of the silver dollar was that its value was three per cent greater than the value of the gold dollar." Thus Senator Jones admits that the debate in the House of Representatives was upon the question of the abolition of the silver dollar, and he recognizes his knowledge of the fact of the debate.

Finally the bill pa.s.sed the Senate without one dissenting vote.

The downfall of silver has not been due to any legislation in America or Europe, nor to any decrees or despotic policy in Asia, but to the inventive faculties of one Charles Burleigh, of Fitchburg, Ma.s.sachusetts, the inventor of the power drill.

If through him many silver mines have been rendered valueless, so it is to him that the world is indebted for a new application of force by which mountains are penetrated and mining in all its forms is carried on at one fourth part of the former cost. Every step in civilization, every advance movement that we call progress, is a peril to many and a ruin to some. By one stroke of genius, and limiting our thoughts to one only of its many consequences we may say that Burleigh has made gold so abundant and cheap that all subst.i.tutes for a currency from wampum to silver must soon disappear.

There is historical evidence tending to show that the representatives of the silver mining interest had sufficient and worthy reasons for a.s.senting to the suspension of the silver dollar. In 1872 silver was at a slight premium as compared with gold. Therefore the privilege of coinage of the dollar was of no advantage to the owners of bullion.

The Mint Bill had a new and attractive feature. It provided for the coinage of a dollar that was to contain 420 grains of standard silver, and was to be known as the trade dollar.

This pa.s.sage may be found in my report to Congress for the year 1872:

"Therefore, in renewing the recommendations heretofore made for the pa.s.sage of the Mint Bill, I suggest such alterations as will prohibit the coinage of silver for circulation in this country, but that authority be given for the coinage of a silver dollar that shall be as valuable as the Mexican dollar and to be furnished at its actual cost."

The dollar was coined and it was known as the Trade Dollar. It contained 420 grains of standard silver.

The Mexican dollar which contained about 416 grains, was then sold at a premium, and it was used extensively in the China and India trade.

It was my expectation and the expectation of all concerned, that the trade dollar, from its added value, would take the place of the Mexican dollar in the immense trade of the East. My own confidence was great.

Indeed, the thought of failure never occurred to me. Unfortunately, the stolidity of the Chinese and the force of habit among that people were not considered by us. From long use they had become accustomed to the Mexican dollar. They refused our trade dollar, notwithstanding its greater weight.

We coined and put into circulation, at home and abroad, about 36,000,000 pieces, many of which were afterwards recoined as legal tender dollars under a special act of Congress.

With the failure of that undertaking came the crusade against the act of 1873. Whether the two events sustained to each other the relation of cause and effect, I cannot say.

The suggestion that Senator Stewart of Nevada was a.s.senting to the demonetization of the silver dollar derives support from the fact that, in the month of February, 1874, he indorsed the gold standard in two speeches, delivered, respectively, on the 11th and 20th days of that month. On the 11th he said: "I want the standard gold, and no paper money not redeemable in gold." On the 20th he added: "Gold is the universal standard of the world. Everybody knows what a dollar in gold is worth."

It is certain that in the month of February, 1874, when the contents of the Mint Bill were in the public statutes, the demonetization of the silver dollar, and the recognition of the gold dollar as the unit of value, had not affected the judgment nor disturbed the sensibilities of the advocates of silver.

I dismiss this branch of the subject with the observation that the act of 1873 placed the United States in a commanding position in regard to the use of silver. If that metal had continued to maintain its supremacy upon the ratio then established between gold and silver coin, there could have arisen no demand for the coinage of silver. If, on the other hand, silver should depreciate, the government might, at its pleasure, use, or it might decline to use, that metal as coin.

I now pa.s.s to a part of the history of the controversy not heretofore considered in public discussions, from which it will appear that the trusted representatives of the silver interest put aside the most inviting opportunity, if not the only opportunity, for the adoption of the bimetallic system by the commercial nations of the world.