In presenting this series of measures, I am penetrated by the conviction, that, if adopted, they cannot fail to bring all the national obligations to a par with coin, and then specie payments will be resumed without effort. Our bonds will be among the most popular in the market. No longer below par, they will continue to advance, while the national credit lifts its head unimpeached, unimpeachable. Under this influence the remainder of our outstanding debt may be refunded in Fifteen-Fifties at four and a half per cent., if not in Twenty-Sixties at four per cent. There will then be sixteen hundred and twenty-five millions refunded at an average of less than four and a half per cent., and the whole debt, including the irredeemable sixes of 1881, at an average of less than five per cent., while all will be within our control five years earlier than in the maximum period proposed by the Secretary of theTreasury.
One immediate consequence of these measures would be the relief of the people from eighty to one hundred millions of taxation, while there would remain a surplus revenue of two millions a month applicable to the reduction of the debt, being more than enough to liquidate the whole prior to the maturity of the new obligations, if it were thought advisable to complete the liquidation at so early a day. The country will breathe freer, business will be more elastic, life will be easier, as the assurance goes forth that no heavy taxation shall be continued in order to pay the debt in eleven years, as is now proposed, nor in fifteen years, nor in twenty years. By the present measures, while retaining the privilege of paying the debt within twenty years, we shall secure the alternative of sixty years, and at a largely reduced interest,—leaving the opportunity of paying it at any intermediate time, according to the best advantage of the country. With diminished taxation and resources increasing immeasurably, the national debt will cease to be a burden,—becoming “fine by degrees and beautifully less” until it gradually ceases to exist.
In making this statement, I offer my contribution to the settlement of a great question. If I am wrong, what I have said will soon be forgotten. Meanwhile I ask for it your candid attention, adding one further remark, with which I shall close. I never have doubted, I cannot doubt, the ease with which the transition to specie payments may be accomplished, especially as compared with the ominous fears which this simple proposition seems to excite in certain quarters. We are gravelywarned against it as a period of crisis. I do not believe there will be anything to which this term can be reasonably applied. Like every measure of essential justice, it will at once harmonize with the life of the community, and people will be astonished at the long postponement of an act so truly beneficent in all its influences, so important to the national character, and so congenial with the business interests of the country.
The bill was ordered to be printed, and referred to the Committee on Finance.January 25th, a bill from the Committee on Finance, “to provide a national currency of coin notes and to equalize the distribution of circulating notes,” being under consideration, Mr. Sumner moved an amendment embracing the provisions of his bill, with the exception of the first, second, and seventh sections, as a substitute,—in support of which he the next day spoke as follows:—
The bill was ordered to be printed, and referred to the Committee on Finance.
January 25th, a bill from the Committee on Finance, “to provide a national currency of coin notes and to equalize the distribution of circulating notes,” being under consideration, Mr. Sumner moved an amendment embracing the provisions of his bill, with the exception of the first, second, and seventh sections, as a substitute,—in support of which he the next day spoke as follows:—
Mr. President,—Some things seem to be admitted in this debate as starting-points,—at least if I may judge from the remarks of the Senator from Ohio [Mr.Sherman]. One of these is the unequal distribution of the bank-note currency, and another is that to take from the Northern and Eastern banks circulation already awarded to them would disturb trade. I venture to add, that the remedy would be worse than the disease.
The Senator from Wisconsin [Mr.Howe] and the Senator from Kentucky [Mr.Davis] justly claim for the West and South a fair proportion of bank circulation. The Senator from Indiana [Mr.Morton] demands more. While neither asks for expansion, neither is ready for contraction. The last-named Senator argues, that at this time the currency is not too much for the area of country and the amount of business,which, from the new spaces opened to settlement and the increase of commerce, require facilities beyond those that are adequate in thickly settled and wealthy communities. His premises may be in the main sound; but he might have made a further application of them. If, in the absence of local banks and banking facilities, a larger amount of circulation is needed,—and I do not mean to question this assertion,—would it not follow that the establishment of such local banks and banking facilities, with new bank credits, checks of depositors, and other agencies of exchange, and with the increase of circulation, would more than counterbalance any slight contraction from the withdrawal of greenbacks, and that thus we should be tending toward specie payments?
The Senator from Kentucky said aptly, that, if we wait until all are ready, we shall never resume. If the Senator from Indiana is right in saying that prices have already settled down in the expectation of an early resumption, then to my mind the battle is half won and we have only to proceed always in the right direction.
A simple redistribution of the existing currency cannot be made without serious consequences to the business of the country, while it will do nothing to correct the evils of our present financial condition. It will do nothing for Financial Reconstruction, nor will these consequences be confined to any geographical section. They will affect the South and West as well as the North and East. I need only add that disturbance in New York means disturbance everywhere in our country.
Nor is it easy to see how any redistribution can be made, which, however just to-day, may not be unjust to-morrow. As business develops and population extends there will be new demand, with new inequalities and new disturbances.
The original Banking Act[212]authorized a circulation of $300,000,000, a large part of which went to the Northern and Eastern States. All this was very natural; for at that time there was no demand at the South, and comparatively little at the West. With the supply of capital at the East banks were promptly formed, even before the State banks were permitted to come into the new system. Subsequently the State banks were not only permitted to come into the new system, but their circulation was taxed out of existence. Here, then, was banking capital idle. It was reasonable that the circulation which was not demanded in other parts of the country should be allotted to these banks. This I state in simple justice to these banks. I might remind you also of the patriotic service rendered by the banks of New York, Boston, and Philadelphia, which in 1861 furnished the means by which our forces were organized against the Rebellion. One hundred and fifty millions in gold were furnished by these banks, of which less than fifty millions were subsequently subscribed by the people;[213]and this was at a moment when the national securities had received a terrible shock. Not from the South, not from the West, did financial succor come at that time.
In considering briefly the questions presented by the pending measure I shall take them in their order. They are two: first, to enlarge the national bank currency;and, secondly, to create a system of free banking founded on coin notes. This leaves out of view the question of refunding and consolidating the national debt; nor does it touch the great question of specie payments.
I begin with the proposed enlargement of the currency. The object is excellent, as is admitted by all; but the practical question arises on the way it shall be done.
If you look at the bill now before the Senate, you will see that it authorizes an enlargement to the extent of $45,000,000, and the withdrawal to that amount of what are called three per cent. temporary loan certificates, of which little more than this amount exists. The extinction of this debt will accomplish an annual saving of about $1,366,000. So far, so good. This amount of $45,000,000 is allotted to banks organized in States and Territories having less than their proportion under the general Banking Act. This is right, and it removes to a certain extent objections successfully urged at the last session of Congress against a measure for the redistribution of currency.
But, plainly and obviously, the measure of relief proposed is not sufficient to meet the just demands of the South and West; nor is it sufficient to prevent taking from the North and East a portion of the currency now enjoyed by them. Therefore in one part of the country it will be inadequate, while in another it is unjust. Inadequacy and injustice are bad recommendations.
When a complete remedy is in our power, why propose a partial remedy? When a just remedy is in our power, why propose an unjust remedy? There is another question. I would ask also, Why unnecessarily disturb existing and well-settled channels oftrade?—for such must be the effect of a new apportionment, as proposed, under the census of this year. Why not at once provide another source from which to draw the new supplies under the new apportionment? I open this subject with these inquiries, which to my mind answer themselves.
The proposition of the Committee is further embarrassed by the provision for the cancellation each month of the three per cent. certificates to an amount equal to the aggregate of new notes issued during the previous month. In order to judge the expediency of this measure we must understand the origin and character of these certificates.
The Secretary of the Treasury, desiring to avoid the further issue of greenbacks, conceived the idea of a note which could be used in the payment of Government obligations, but in such form as not to enter into and inflate the currency. This resulted in an interest-bearing note payable three years after date, with six per cent. interest compounded every six months and payable at the maturity of the note in its redemption. This anomalous note was made legal-tender for its face value only.[214]It was not doubted that such notes, on the accumulation of interest, would be withdrawn as an investment. Being legal-tender, if they were allowed to be used by the banks as part of their reserves, they would become, contrary to the original purpose, part of the national circulation, while the Government would be paying interest on bank reserves, which no bank could demand. But theipse dixitof the Secretary could not prevent their use by the banks as part of the reserves. The interventionof Congress was required, which, by the second section of the Loan Act of June 30, 1864, provided as follows:—
“Nor shall any Treasury note bearing interest, issued under this Act, be a legal tender in payment or redemption of any notes issued by any bank, banking association, or banker, calculated or intended to circulate as money.”[215]
“Nor shall any Treasury note bearing interest, issued under this Act, be a legal tender in payment or redemption of any notes issued by any bank, banking association, or banker, calculated or intended to circulate as money.”[215]
From this statement it seems clear that neither the Secretary originating these compound-interest legal-tender notes, nor the Act of Congress authorizing them, nor the banks receiving them, contemplated their employment as part of the bank reserves. How they reached this condition remains to be told.
The whole issue of the compound-interest legal-tender notes amounted to upward of two hundred and seventeen millions.[216]These were funded at or before maturity, except some fifty millions, which as they matured were exchanged for certificates to that amount bearing three per cent. interest, and constituted part of the bank reserves.[217]Here was an innovation as improvident as new, being nothing less than bank reserves on interest. This improvidence was increased by the manner of distribution, which, instead of being ratable, seems to have been according to the rule of “Who speaks first?” Of course the banks within easy access of Washington had peculiar opportunities, by which they were enabled to secure these notes, and thus obtain interest on part of their reserves, while banks at a distance, and especially in the country, were not equal in opportunity. Besidesits partiality, this provision operates like a gratuity to the banks having these notes.
Obviously these three per cent. certificates ought to be withdrawn; but I do not like to see their withdrawal conditioned on the extension of banking facilities. Their case is peculiar, and they should be treated accordingly. Nor should their accidental amount be made the measure of banking facilities. They constitute a part of the national debt, and should be considered in the refunding and consolidation of this debt, and not on a bill to provide banking facilities.
I think I do not err, if I conclude that the first part of the pending measure is inadequate, while the cancellation of the three per cent. certificates in the manner proposed is inexpedient. All this is more observable when it is considered that there is another way, ample and natural.
From the first part of the pending measure I pass to the second part, being sections three, four, and five, which, if I am not mistaken, authorize free banking, with coin notes as a declared basis of coin. This is plausible, but to my mind illusory and impracticable. The machine will not work; but if it does work, its first and most obvious operation will be to create a new currency, adding a third to the greenbacks and bank-notes already existing, besides creating a new class of banks. Here I put the practical question, Can any national bank issue and maintain a circulation of coin notes with a reserve of only twenty-five per cent., so long as gold commands a premium? How long would the reserve last? It is easy to see that until specie payments this idea is impracticable. It will not work. In proportion to the premium on gold would be the run on the banks, until their outstanding notes were redeemed or their vaults emptied.
But the measure is not only impracticable,—it is inexpedient, as multiplying, instead of simplifying, the forms of currency. We have now two paper currencies, distinct in form and with different attributes. Everybody feels that this is unfortunate; and yet it is now proposed to add another. Surely it is the dictate of wisdom, instead of creating a third paper currency, to disembarrass the country of one of those now existing and make the other convertible into coin, so that we may hereafter enjoy one uniform currency. I confess my constant desire for measures to withdraw our greenbacks and to make our present bank-notes coin notes. Coin notes should be universal. Under any circumstances the conclusion is irresistible, that the proposed plan, if not utterly impracticable, is a too partial and timid experiment, calculated to exercise very little influence over the great question of specie payments.
If I am right in this review, the bill of the Committee does not deserve our support. But I do not confine myself to criticism. I offer a substitute. Could I have my way, I would treat the whole financial question as a unit, providing at the same time for all the points involved in what I have called Financial Reconstruction. This I have attempted in the bill which I have already introduced. But on the present occasion I content myself with a substitute for the present measure. The amendment of which I have given notice has the twofold object of the pending bill: first, to enlarge the currency; and, secondly, to change the existing bankingsystem, so as to provide practically for free banking and to enlarge banking facilities.
If you will look at my amendment, you will see that it enlarges the limit of bank-notes from $300,000,000 to $500,000,000. This is practically a provision for free banking, at least for some years. Practically it leaves the volume of currency to be regulated by legitimate demand, with a proviso for the withdrawal of legal-tender notes to an amount equal to the new issues. The amendment then proceeds to provide bonds to be deposited with the Government as the basis of the new banks. And here is a just and much-needed economy,—just to the Government, and not unjust to the banks. It is proposed for the future to allow but four per cent. interest on the bonds deposited by the banks. Thus far the banks have enjoyed large benefits, and in part at the expense of the Government. Under the operation of my amendment these profits would be slightly reduced, but not unduly, while the Treasury would receive an annual benefit of not far from six million dollars in coin. In this respect the proposition harmonizes with the idea, which is constantly present to my mind, of diminishing our taxes.
Sir, in the remarks submitted by me on a former occasion I ventured to say that the first great duty of Congress was to mitigate the burdens now pressing upon the energies of the people and upon the business of the country, and, as one means of accomplishing this important result, to extend these burdens, in a diminishing annual ratio, over a large population entering upon the enjoyment of the blessings which the present generation at such enormous cost has assured to the Republic.[218]Upon the assumption that the national revenues and the national expenditures would continue relatively the same as now, a sum extending from eighty to one hundred millions would be the measure of relief that might be accorded at once, without arresting the continuous reduction of the debt at the rate of $2,000,000 a month.
In proposing this large reduction of taxation at this time, with the hope of larger reductions in the near future, it was necessary to keep in view the possibility of increased expenditure or of decreased receipts. To guard against such contingency we must keep strict watch over the expenditures, and, if possible, diminish the positive annual obligations of the nation. And here the mind is naturally and irresistibly attracted to the prodigious item of interest. Cannot this be reduced at an early day by a large amount, and then subsequently, though contingently, by a much larger amount? And should not this result be one of our first endeavors? Is it not the first considerable stage in the reduction of taxation?
The credit of the country is injured by two causes: first, the refusal to redeem past-due obligations, being so muchfailed paper, which condition must necessarily continue so long as we deliberately sanction an inconvertible currency; and, secondly, the menace of Repudiation, with slurs upon the integrity of the people uttered in important quarters. These two causes are impediments to the national credit. How long shall they continue? Loyally and emphatically has Congress declared that all the obligations of the nation shall be paid according to their spirit as well as letter.But this is not enough. More must be done. And here Congress must act, not partially, nor timidly, nor in the interests of the few only, but impartially, comprehensively, firmly, and in the interests of the many. It must help the recognized ability of the nation by removing its disabilities.
Nearly five years have now passed since the Rebellion sheathed its sword. But the national expenditures did not cease at once when the sword no longer plied its bloody work. They still continued, sometimes under existing contracts which could not be broken, sometimes in guarding the transition from war to peace. Meanwhile the national faith was preserved, while the people carried the unexampled burden willingly, if not cheerfully. The large unliquidated debt, thedébrisof the war, has been paid off or reduced to a form satisfactory to the creditor, and the world has been assured that the people are ready for any sacrifices according to the exigency. Is more necessary? Should these sacrifices be continued when the exigency has ceased?
These sacrifices are twofold, being direct and indirect. The direct are measured by the known amount of taxation. The indirect are also traced to existing taxation, and their witnesses are crippled trade, unsettled values, oppressive prices, and an inconvertible currency, which of itself is a constant sacrifice. Therefore do I say again,Down with the taxes!
Bills relating to taxation do not originate in the Senate; but Senators are not shut out from expressing themselves freely on the proper policy which is demanded at this time. On the finances and the banks the Senate has the same powers as the other House. Here it may take the initiative, as is shown by the present bill. But what it does should be equal to the occasion; it should be large, and not petty,—far-reaching, and not restricted in its sphere. The present bill, I fear, has none of these qualities which we desire at this time. It is a patch or plaster only, when we need a comprehensive cure.
To my mind it is easy to see what must be done. The country must be relieved from its heavy burdens. Taxation must be made lighter,—also less complex and inquisitorial. Simplification will be a form of relief. Our banking system is ready to adapt itself to the wants of the country, if you will only say the word. Speak, Sir, and it will do what you desire. But instead of this we are asked by the Committee to begin by making the system more complex, without adding to its efficiency; we are asked to construct a third currency, which so long as it continues must be a stumbling-block; we are asked to establish discord instead of concord.
Now, Sir, in order to bring the Senate to a precise vote on what I regard as the fundamental proposition of my amendment, I shall withdraw the amendment as a whole, and move to strike out the first two sections of the Committee’s bill, and to insert as a substitute what I send to the Chair.
The proposed substitute, being Section 5 of Mr. Sumner’s bill, having been read, he continued:—
The proposed substitute, being Section 5 of Mr. Sumner’s bill, having been read, he continued:—
On that proposition I have one word to say. It is brief: that you will admit. It is simple: that you will admit. It enlarges the existing national bank circulation by $200,000,000: that is ample, as I believe you will admit. Practically it is a system of free banking: that is, it is such until the enlarged circulation is absorbed,—that is, for some time to come. But free banking is what, as I understand, Senators desire.
Then, again, it has in it no element of injustice. There is no injustice to the North or to the East. All parts of the country are equally accommodated and equally protected. But this cannot be said of the pending measure.
Then, again, it is elastic, adapting itself everywhere to the exigencies of the place. If banking facilities are needed, and the capital is ready, under that amendment they can be enjoyed. Unlike the proposition of the Committee, it is not of cast-iron, but is so as to adapt itself to all the conditions of business in every part of the country.
Then, again, in the final provision, that for every bank-note issued a greenback shall be withdrawn, you find the great highway to specie payments. All your greenbacks will speedily be withdrawn. You will have then only the bank-notes, making one paper currency; and then speedily, within a brief period, you will have specie payments. The banks must have their reserves; there will be no greenbacks for them; they must find them in specie. The banks, then, and every stockholder, will find a motive to press for specie payments, and you will have that great result quietly accomplished, absolutely without shock, while the business interests of the country will rejoice.
February 1st, in further advocacy of this amendment, Mr. Sumner said:—
February 1st, in further advocacy of this amendment, Mr. Sumner said:—
Mr. President,—As it is understood that the Senate is to vote to-day on the bill and all pending propositions, I seize this moment to say a last word for the proposition which I have had the honor of moving, and which is now pending. But before I proceed with the discussion, allow me to say, that, while sitting at my desk here, I have received expressions of opinion from different parts of the country, one or two of which I will read. For instance, here is a telegraphic dispatch from a leading financial gentleman in Chicago:—
“Your views on Currency Question much approved here. Authorize new bank circulation to extent named, retiring greenbackspari passu.”
“Your views on Currency Question much approved here. Authorize new bank circulation to extent named, retiring greenbackspari passu.”
This is the very rule which I seek to establish.
At the same time I received a communication from Circleville, Ohio, dated January 25th, the first sentences of which I will read:—
“Please pardon me for this intrusion. I desire to ask, if you are willing to indicate, what will likely be the result of your financial bill. I think I only utter the sentiment of three fourths of all the commercial men through our great and growing West, when I say it should become a law, and thereby secure to us our equal share of the national banking capital, which we now need so much.”
“Please pardon me for this intrusion. I desire to ask, if you are willing to indicate, what will likely be the result of your financial bill. I think I only utter the sentiment of three fourths of all the commercial men through our great and growing West, when I say it should become a law, and thereby secure to us our equal share of the national banking capital, which we now need so much.”
This, again, is what I seek to accomplish.
At this stage, I hope I may have the indulgence of the Senate, if I ask one moment’s attention to the bill of the Committee. On a former occasion I ventured to say that it was inadequate.[219]The more I reflect upon it, the longer this debate is continued, the more I amimpressed with its inadequacy. It does not do what should be done by the first measure of legislation on our finances adopted by the present Congress. It is incomplete. I wish I could stop there; but I am obliged to go further, and say that it is not only incomplete, but it is, in certainly one of its features, to which I shall call attention, mischievous. I take advantage of this moment to present this point, because it has not been mentioned before, and because at a later stage I may not have the opportunity of doing so. It is this provision at the end of the first section:—
“But a new apportionment shall be made as soon as practicable, based upon the census of 1870.”
“But a new apportionment shall be made as soon as practicable, based upon the census of 1870.”
At the proper time I shall move to strike out these words, and I will now very briefly assign my reasons.
The proposition is objectionable, first, because it is mischievous,—and, secondly, because it is difficult, if not impracticable, in its operation; and if I can have the attention of the Senate, unless figures deceive me, and unless facts are at fault, I think that the Senate must agree in my conclusion.
We are told by the Comptroller of the Currency that $45,000,000 is a large allowance of currency at this moment for the South and West; indeed, I believe he puts the limit at $40,000,000. Now suppose only $40,000,000 are taken up during the coming year,—that is, till the completion of the census; that would leave $5,000,000 still outstanding, which might be employed for the benefit of the South and West. That circumstance indicates to a certain extent the financial condition of those parts of the country. Do they need larger facilities, and, if so, to what extent? Can you determine in advance? I doubt it. But, Sir, in the face of this uncertainty, this bill steps in and declares positively that “a new apportionment shall be made as soon as practicable, based upon the census of 1870.” What will be the effect of such a new apportionment? Even according to the census of 1860, such new apportionment would transfer some sixty million dollars from banks that enjoy it to other parts of the country; it would take away from those banks what they want, and transfer it where it is not wanted. The language is imperative. But, Sir, it is not to be under the census of 1860, but under the census of 1870; and unless figures deceive, by that census the empire of the great West will be more than ever manifest. And if the transfer is made accordingly, it will take some ninety or one hundred million dollars from where it now is, and is needed, and carry it to other places where certainly it will not be needed in the same degree. What will be the effect of such a transfer?
Mark, Sir, the statute is mandatory and unconditional. There is no chance for discretion; it is to be done; the transfer is to be made. And now what must be the consequence? A derangement of business which it is difficult to imagine, a contraction of currency instantaneous and spasmodic to the amount of these large sums that I have indicated.
I do not shrink from contraction. I am ready to say to the people of Massachusetts, “If the Senate will adopt any policy of contraction that is healthy, well-considered, and with proper conditions, I would recommend its acceptance.” But a contraction like that proposed by this bill, which arbitrarily takes from North and East this vast amount, and transfers it to another part of the country, where it may not be needed, such a contraction I oppose as mischievous. I see no good in it. I see a disturbance of all the channels of business; and I see a contraction which must be itself infinitely detrimental to the financial interests of the Republic.
But then, Sir, have you considered whether you can do it? Is it practicable? I have shown that it is mischievous: is it practicable? Can you take this large amount of currency from one part of the country and transfer it to another? Have you ever reflected upon the history of the bank-note after it has commenced its travels, when it has once left the maternal bank? It goes you know not where. I have been informed by bank-officers, and by those most familiar with such things, that a bank-note, when once issued, very rarely returns home. I have been assured that it is hardly ever seen again. The banks, indeed, may go into liquidation, but their notes are still current. The maternal bank may be mouldering in the earth; but these its children are moving about, performing the work of circulation. Why? The credit of the nation is behind them; and everybody knows, when he takes one of them, that he is safe. Therefore, I ask, how can the proposed requirement be carried into execution? how can you bring back these runaways, when once in circulation on their perpetual travels?
There is but one way, and that is by the return to specie payments. Hold up before them coin, and they will all come running back to the original bank; but until then they will continue abroad. The proposed requirement seems to go on the idea that bank-notes, like cows, return from pasture at night; whereas we all know, that, until specie payments, they are more like the wild cattle of the prairies and the pampas; you cannot find them; they are everywhere. Surely I am not wrong, when I suggest that the proposed requirement is impracticable as well as mischievous; and at the proper time I shall move to strike it out.
The amendment which I have moved has been under discussion for several days. It has had the valuable support of the Senator from Michigan [Mr.Chandler], who brings to financial questions practical experience. It has been opposed by other Senators, and with considerable ardor by my excellent friend from Indiana [Mr.Morton].
On Thursday last, the Senator from Indiana, addressing himself to me, and inviting a reply, which I was then prevented from making, took issue with me directly upon the position I have assumed, that the withdrawal of legal-tender notes would materially assist the effort for specie payments; and he further declared that the two currencies of bank-notes and United States notes were kept together because one was redeemable with the other. I do not quote his precise words, but I give the substance.[220]
Under the policy we are now pursuing, it seems to me, that, with $356,000,000 of legal-tender notes in circulation, the Government will not for many years, if ever again, pay specie. With that amount of United States notes, under the actual policy, the bank currency will forever remain inconvertible. And the correctness of these positions I will endeavor briefly to demonstrate.
A convertible currency is nothing more nor less than the servant of coin. If there is no coin, it can neither be servant nor representative, though it may attempt to perform the functions of coin. Presenting itself under false pretences, it but partially succeeds in this attempt; and the discredit attaching to it compels it to pay more for any property than would be the price of such property in coin, or the acknowledged representative of coin,—just as doubtful people must submit to ten, fifteen, or twenty per cent. discount, when what is known as “gilt-edged” commercial paper is discounted at five, six, or seven per cent. Thus far we have had no coin in the Treasury appropriated to the stability of the United States notes,—and under our present policy, dictated by the restrictive laws that hedge the Secretary of the Treasury and confine his liberty of action, we never shall have, until the whole bonded debt of the country is extinguished,—while at the same time the banks are excused under the law from all attempts to fortify their notes with coin.
And what is it that successfully discourages us from direct steps toward specie payments?
In the first place, it is the mistrust of the people in our ability to resume, and to maintain resumption. In the next place, the monthly publication of the Treasury discloses precisely our weakness as well as our strength; and the great element of our weakness is the volume of our past-due and demand obligations. In ordinary times,—that is, when the people have confidence in the ability of the banks to redeem their demand obligations in coin,—a reserve of twenty to twenty-five per cent. in coin is more than sufficient to meet any probable demand that may be made. Let mistrust arise in relation to the solvency of any bank or of the system of banks, and the reserve of twenty-five per cent. will vanish as the dew before the sun, and the individual bank or all the banks must close their doors to all demands for specie.
In our present legislation we encounter this mistrust wide-spread among the people; and so long as we ourselves exhibit so great timidity in our attempts at legislation upon this subject, just so long do we minister to and strengthen this mistrust.
The amount of demand obligations which the Treasury must be prepared to meet upon a moment’s notice, including three per cent. certificates and fractional currency, is more than four hundred and forty million dollars. With the existing mistrust, measured by the premium on gold, a reserve of twenty-five per cent. of coin in the Treasury appropriated to these demands would be totally insufficient. This reserve must bear a proportion to the aggregate of liabilities so large as to remove mistrust, and this can be accomplished only by presenting as in the vaults of the Treasury an amount of coin nearly equal to the sum of liabilities.
If during the last three years we had retained the surplus of coin that has reached the Treasury, we should now have enough; but, as a consequence of such accumulation, speculation would have run riot,—and I fear, if we should now by legislative enactment decree that course for the future, we should aggravate the situation.
What, then, is left for us to do? What but to lessen our liabilities?—which, as the laws now stand, must remain the same to-morrow as to-day, and one, two, or five years hence immutably as now.
Difficulties beset the contraction of those liabilities, as there are difficulties that impede the accumulation of coin in sufficient amount to meet our purpose; but the former may be neutralized, if not removed, by judicious compensations that will not in any serious degree retard the object for which I would legislate.
Sound financial authorities unite in declaring, that, if the Government resumes specie payments, the banks of New York can resume; and when the banks of New York resume, the whole country can resume. Evidently, then, our care is the Government.
And what is the first step? To my mind we must lessen the demand obligations of the Government, while the Secretary of the Treasury at the same time strengthens the reserves in the national vaults. Neither should be done suddenly or violently, but gradually, judiciously, and wisely. As the statutes now stand, the obligations cannot be reduced. With the present volume of obligations, the laws of trade prevent the Secretary of the Treasury from sufficiently strengthening his reserves. It therefore devolves upon the National Legislature to take the initiative in the effort to resume specie payments.
The difficulties that impede the reduction of the national liabilities lie in the fact that such obligations are a part, and a large part, of the currency of the country. To withdraw that currency without giving a substitute is to create stringency, burden trade, and invite chaos: at least, so it seems. These obligations, so far as they relate to the currency, are larger in amount than those of the national banks combined; and furthermore, they are the head and front of all. They are so large as to be beyond the point of manageability, and I would therefore reduce them within control. It is their volume that puts them beyond control, and it is our want of control that causes them to be depreciated. Thus, Sir, I would offer inducements to fund them, or part of them, in bonds that would be sought after because of their valuable uses beyond a mere investment, and to neutralize the evils of contraction of Treasury liabilities by authorizing their assumption, with the consent of the people, by various parties in different sections of the country, each one of whom would be fully equal to the task thus voluntarily assumed. I would issue a bank-note for every dollar of Treasury obligation cancelled; but I would issue no bank-note that did not absorb an equal obligation of the Treasury. By this distribution of a portion of the demand obligations you restore to the Government the full ability to meet the remainder; and at the same time the people know, that, so far as the currency goes,—and it is of this only we are treating,—every promise of any bank has its ultimate recourse in the Treasury of the United States.
The absorption of one hundred and fifty or two hundred millions cannot fail to enhance the remaining legal-tender nearly, if not quite, to par with gold. The volume of currency in the channels of trade and in the hands of the people will be about the same as now. The aggregate of United States notes and national bank-notes outstanding will be precisely the same. Therefore the indirect contraction so much dwelt upon will scarcely be felt. The volume of greenbacks will be ample for the reserves of the banks, and their growing scarcity will cause them to become more and more valuable; and as they approach the standard of gold, so will they sustain with golden support the bank-notes into which they are convertible.
The demand by the people for legal-tender will not be appreciably increased, as the bank-note is receivable by the Government for all dues except customs, and those demands are necessarily localized. While the growing scarcity of greenbacks, because of their replacement by bank-notes fulfilling all the requirements of general trade, will not be noticed by the people, the banks will take heed lest they fall, and at an early day begin to strengthen themselves. Legal-tender reserves they must have, and, with the honest eyes of our Secretary of the Treasury to detect any deficiency, they will begin their strengthening policy at once. Instead of putting gold received as interest forthwith on the market for sale, they will put it snugly away in their vaults. The gold which comes to them in the course of banking operations will be added thereto; and almost imperceptibly the country banks will arrive at the condition of the city banks, whose reserves in coin and legal-tender notes are now far beyond the requirements of law. In the mean time, and without derangement of business, the Treasury may strengthen its reserve,—while, on the other hand, the quiet reduction of its liabilities advances the percentage of the reserve to the whole amount of liabilities in almost a compound ratio. With this strengthening of the condition of the Treasury, made manifest to all the world by its monthly publications, the mistrust of the people will be gradually, but surely, dissipated, and as surely be replaced by confidence that all demand obligations will be redeemed at an early day,—a confidence as wide-spread and deep-seated as is that now prevailing in relation to our bonded debt, that it will be paid according to the spirit as well as the letter of the law.
It will thus be seen that just in proportion to the strengthening of the legal-tender do we strengthen the bank-note. Strike out of existence in a single day the legal-tender notes, and I fear that the bank-note would for a time fall in comparative value: so would everything else. But I advocate no such violent measure.
The Senator from Indiana in his remarks appeared to forget that we have in the country two or three hundred millions of another legal-tender,—being coin, now displaced, of which no legitimate use is made in connection with the currency,—that should resume its proper position in the paper circulation of the country. Here are two or three hundred millions of money, now by force of law demonetized, which I would have relieved of its disabilities. I would change the relation of master it now occupies to that of servant, where it properly belongs; and I would inflate the currency with it to the extent that we possess it. Inflation by coin is simply specie payment, or very near it.
I have endeavored, Mr. President, thus briefly to respond to the questions propounded to me. I do not know that I have entered sufficiently into detail to explain clearly my convictions as to the necessity for reducing the volume of legal-tender obligations, and to prove, as I desire to prove, that their gradual withdrawal will enhance not only the value of the remainder, but also the value of the bank-note. Both will ascend in the scale. This enhancement of the whole paper currency will tend to draw the coin of the country from its seclusion. As in the early period of the war, before the present currency was created, we were astonished at the positive, but hidden, money resources of the people, so will the outflow of hidden coin confound the calculations of those who suppose that its volume is to be measured by the amount in the Treasury and in the New York banks.
Mr. President, I am not alone in asking for the reformation of our currency as the first stage of our financial efforts. I read from the “Commercial and Financial Chronicle”[221]of New York, an authoritative paper on this subject, as follows:—