"Deposits of coin in the treasury will, no doubt, continue to be made after the 1st of January, as heretofore. Both gold and silver coin, from its weight and bulk, will naturally seek a safe deposit, while notes redeemable in coin, from their superior convenience, will be circulated instead. After resumption the distinction between coin and United States notes should be, as far as practicable, abandoned in the current affairs of the government; and therefore no coin certificates should be issued except where expressly required by the provisions of law, as in the case of silver certificates. The gold certificates hitherto issued by virtue of the discretion conferred upon the secretary will not be issued after the 1st of January next. The necessity for them during a suspension of specie payments is obvious, but no longer exists when by law every United States note is, in effect, a coin certificate. The only purpose that could be subserved by their issue hereafter would be to enable persons to convert their notes into coin certificates, and thus contract the currency and hoard gold in the vaults of the treasury without the inconvenience or risk of its custody. For convenience, United States notes of the same denomination as the larger coin certificates will be issued.
"By existing law, customs duties and the interest of the public debt are payable in coin, and a portion of the duties was specifically pledged as a special fund for the payment of the interest, thus making one provision dependent upon the other. As we cannot, with due regard to the public honor, repeal the obligation to pay in coin, we ought not to impair or repeal the means provided to procure coin. When, happily, our notes are equal to coin, they will be accepted as coin, both by the public creditor and by the government; but this acceptance should be left to the option of the respective parties, and the legal right on both sides to demand coin should be preserved inviolate.
"The secretary is of the opinion that a change of the law is not necessary to authorize this department to receive United States notes for customs duties on and after the 1st day of January, 1879, while they are redeemable and are redeemed on demand in coin. After resumption it would seem a useless inconvenience to require payment of such duties in coin rather than in United States notes. The resumption act, by clear implication, so far modifies previous laws as to permit payments in United States notes as well as in coin. The provision for coin payments was made in the midst of war, when the notes were depreciated and the public necessities required an assured revenue in coin to support the public credit. This alone justified the refusal by the government to take its own notes for the taxes levied by it. It has now definitely assumed to pay these notes in coin, and this necessarily implies the receipt of these notes as coin. To refuse them is only to invite their presentation for coin. Any other construction would require the notes to be presented to the assistant treasurer in New York for coin, and, if used in the purchase of bonds, to be returned to the same officer, or, if used for the payment of customs duties, to be carried to the collector of customs, who must daily deposit in the treasury all money received by him. It is not to be assumed that the law requires this indirect and inconvenient process after the notes are redeemable in coin on demand of the holder. They are then at a parity with coin, and both should be received indiscriminately.
"If United States notes are received for duties at the port of New York, they should be received for the same purpose in all other ports of the United States, or an unconstitutional preference would be given to that port over other ports. If this privilege is denied to the citizens of other ports, they could make such use of these notes only by transporting them to New York and transporting the coin to their homes for payment; and all this not only without benefit to the government, but with a loss in returning the coin again to New York, where it is required for redemption purposes.
"The provision in the law for redemption in New York was believed to be practical redemption in all parts of the United States. Actual redemption was confined to a single place from the necessity of maintaining only one coin reserve and where the coin could be easily accumulated and kept.
"With this view of the resumption act, the secretary will feel it to be his duty, unless Congress otherwise provides, to direct that after the 1st day of January next, and while United States notes are redeemed at the treasury, they be received the same as coin by the officers of this department, in all payments in all parts of the United States.
"If any further provision of law is deemed necessary by Congress to authorize the receipt of United States notes for customs dues or for bonds, the secretary respectfully submits that this authority should continue only while the notes are redeemed in coin. However desirable continuous resumption may be, and however confident we may feel in its maintenance, yet the experience of many nations has proven that it may be impossible in periods of great emergency. In such events the public faith demands that the customs duties shall be collected in coin and paid to the public creditors, and this pledge should never be violated or our ability to perform it endangered.
"Heretofore, the treasury, in the disbursement of currency, has paid out bills of any denomination desired. In this way the number of bills of a less denomination than five dollars is determined by the demand for them. Such would appear to be the true policy after the 1st of January. It has been urged that, with a view to place in circulation silver coins, no bills of less than five dollars should be issued. It would seem to be more just and expedient not to force any form of money upon a public creditor, but to give him the option of the kind and denomination. The convenience of the public, in this respect, should be consulted. The only way by which moneys of different kinds and intrinsic values can be maintained in circulation at par with each other is by the ability, when one kind is in excess, to readily exchange it for the other. This principle is applicable to coin as well as to paper money. In this way the largest amount of money of different kinds can be maintained at par, the different purposes for which each is issued making a demand for it. The refusal or neglect to maintain this species of redemption inevitably effects the exclusion from circulation of the most valuable, which, thereafter, becomes a commodity, bought and sold at a premium. . . .
"When the resumption act passed, gold was the only coin which by law was a legal tender in payment of all debts. That act contemplated resumption in gold coin only. No silver coin of full legal tender could then be lawfully issued. The only silver coin provided was fractional coin, which was a legal tender for five dollars only. The act approved February 28, 1878, made a very important change in our coinage system. The silver dollar provided for was made a legal tender for all debts, public and private, except where otherwise expressly stipulated in the contract.
"The law itself clearly shows that the silver dollar was not to supersede the gold dollar; nor did Congress propose to adopt the single standard of silver, but only to create a bimetallic standard of silver and gold, of equal value and equal purchasing power. Congress, therefore, limited the amount of silver dollars to be coined to not less than two millions nor more than four millions per month, but did not limit the aggregate amount nor the period of time during which this coinage should continue. The market value of the silver in the dollar, at the date of the passage of the act, was 93¼ cents in gold coin. Now it is about 86 cents in gold coin. If it was intended by Congress to adopt the silver instead of the gold standard, the amount provided for is totally inadequate for the purpose. Experience not only in this country, but in European countries, has established that a certain amount of silver coin may be maintained in circulation at par with gold, though of less intrinsic bullion value. It was, no doubt, the intention of Congress to provide a coin in silver which would answer a multitude of the purposes of business life, without banishing from circulation the established gold coin of the country. To accomplish this it is indispensable either that the silver coin be limited in amount, or that its bullion value be equal to that of the gold dollar. If not, it use will be limited to domestic purposes. It cannot be exported except at its commercial value as bullion. If issued in excess of demands for domestic purposes, it will necessarily fall in market value, and, by a well-known principle of finance, will become the sole coin standard of value. Gold will be either hoarded or exported. When two currencies, both legal, are authorized without limit, the cheaper alone will circulate. If, however, the issue of the silver dollars is limited to an amount demanded for circulation, there will be no depreciation, and their convenient use will keep them at par with gold, as fractional silver coin, issued under the act approved February 21, 1853, was kept at par with gold.
"The amount of such coin that can thus be maintained at par with gold cannot be fairly tested until resumption is accomplished. As yet paper money has been depreciated, and silver dollars, being receivable for customs dues, have naturally not entered into general circulation, but have returned to the treasury in payment of such dues, and thus the only effect of the attempt of the department to circulate them has been to diminish the gold revenue. After resumption these coins will circulate in considerable sums for small payments. To the extent that such demand will give employment to silver dollars their use will be an aid to resumption rather than a hindrance, but, if issued in excess of such demand, they will at once tend to displace gold and become the sole standard, and gradually, as they increase in number, will fall to their value as bullion. Even the fear or suspicion of such an excess tends to banish gold, and, if well established, will cause a continuous drain of gold until imperative necessity will compel resumption in silver alone. The serious effect of such a radical change in our standards of value cannot be exaggerated; and its possibility will greatly disturb confidence in resumption, and may make necessary large reserves and further sales of bonds.
"The secretary, therefore, earnestly invokes the attention of Congress to this subject, with a view that either during the present or the next session the amount of silver dollars to be issued be limited, or their ratio to gold for coining purposes be changed.
"Gold and silver have varied in value from time to time in the history of nations, and laws have been passed to meet this changing value. In our country, by the act of April 2, 1792, the ratio between them was fixed at one of gold to fifteen of silver. By the act of June 28, 1834, the ratio was changed to one of gold to sixteen of silver. For more than a century the market value of the two metals had varied between these two ratios, mainly resting at that fixed by the Latin nations of one to fifteen and a half.
"But we cannot overlook the fact that within a few years, from causes frequently discussed in Congress, a great change has occurred in the relative value of the two metals. It would seem to be expedient to recognize this controlling fact—one that no nation alone can change—by a careful readjustment of the legal ratio for coinage of one to sixteen, so as to conform to the relative market values of the two metals. The ratios heretofore fixed were always made with that view, and, when made, did conform as near as might be. Now, that the production and use of the two metals have greatly changed in relative value, a corresponding change must be made in the coinage ratio. There is no peculiar force or sanction in the present ratio that should make us hesitate to adopt another, when, in the markets of the world, it is proven that such ratio is not now the true one. The addition of one-tenth or one-eighth to the thickness of the silver dollar would scarcely be perceived as an inconvenience by the holder, but would inspire confidence, and add greatly to its circulation. As prices are now based on United States notes at par with gold, no disturbance of values would result from the change.
"It appears, from the recent conference at Paris, invited by us, that other nations will not join with us in fixing an international ratio, and that each county must adapt its laws to its own policy. The tendency of late among commercial nations is to the adoption of a single standard of gold and the issue of silver for fractional coin. We may, by ignoring this tendency, give temporarily increased value to the stores of silver held in Germany and France, until our market absorbs them, but, by adopting a silver standard as nearly equal to gold as practicable, we make a market for our large production of silver, and furnish a full, honest dollar that will be hoarded, transported, or circulated, without disparagement or reproach.
"It is respectfully submitted that the United States, already so largely interested in trade with all parts of the world, and becoming, by its population, wealth, commerce, and productions, a leading member of the family of nations, should not adopt a standard of less intrinsic value than other commercial nations. Alike interested in silver and gold, as the great producing country of both, it should coin them at such a ratio and on such conditions as will secure the largest use and circulation of both metals without displacing either. Gold must necessarily be the standard of value in great transactions, from its greater relative value, but it is not capable of the division required for small transactions; while silver is indispensable for a multitude of daily wants, and is too bulky for use in the larger transactions of business, and the cost of its transportation for long distances would greatly increase the present rates of exchange. It would, therefore, seem to be the best policy for the present to limit the aggregate issue of our silver dollars, based on the ratio of sixteen to one, to such sums as can clearly be maintained at par with gold, until the price of silver in the market shall assume a definite ratio to gold, when that ratio should be adopted, and our coins made to conform to it; and the secretary respectfully recommends that he be authorized to discontinue the coinage of the silver dollar when the amount outstanding shall exceed fifty million dollars.
"The secretary deems it proper to state that in the meantime, in the execution of the law as it now stands, he will feel it to be his duty to redeem all United States notes presented on and after January 1, next, at the office of the assistant treasurer of the United States, in the city of New York, in sums of not less than fifty dollars, with either gold or silver coin, as desired by the holder, but reserving the legal option of the government; and to pay out United States notes for all other demands on the treasury, except when coin is demanded on coin liabilities.
"It is his duty, as an executive officer, to frankly state his opinions, so that if he is in error Congress may prescribe such a policy as is best for the public interests.
"The amount of four per cent. bonds sold during the present year, prior to November 23, is $100,270,900, of which $94,770,900 were sold under the refunding act approved July 14, 1870. Six per cent. bonds, commonly known as 5-20's, to an equal amount, have been redeemed, or will be redeemed as calls mature. This beneficial process was greatly retarded by the requirement of the law that subscriptions must be paid in coin, the inconvenience of obtaining which, to the great body of people outside of the large cities, deterred many sales. This will not affect sales after resumption, when bonds can be paid for with United States notes. The large absorption of United States securities in the American market, by reason of their return from Europe, together with the sale of four and a half per cent. bonds for resumption purposes, tended to retard the sale of four per cent. bonds. As, from the best advices, not more than $200,000,000 of United States bonds are now held out of the country, it may be fairly anticipated that the sale of four per cent. bonds, hereafter, will largely increase.
"Prior to May, 1877, United States bonds were mainly sold through an association of bankers. Experience proves that under the present plan of selling to all subscribers on terms fixed by public advertisement, though the aggregate of sales may be less, their distribution is more satisfactory. Under a popular loan the interest is paid at home, and the investment is available at all times, without loss, to meet the needs of the holder. This policy has been carefully fostered by other nations, and should be specially so in ours, where every citizen equally participates in the government of his country. The holding of these bonds at home, in small sums well distributed, is of great importance in enlisting popular interest in our national credit and in encouraging habits of thrift, and such holding in the country is far more stable and less likely to disturb the market than it would be in cities or by corporations, where the bonds can be promptly sold in quantities.
"The three months' public notes required by the fourth section of the refunding act, to be given to holders of the 5-20 bonds to be redeemed, necessarily involve a loss to the government by the payment of double interest during that time. The notice should not be given until subscriptions are made or are reasonably certain to be made. When they are made and the money is paid into the treasury, whether it is kept there idle during the three months or deposited with national banks under existing law, the government not only pays interest on both classes of bonds during the ninety days, but, if the sales are large, the hoarding of large sums may disturb the market. Under existing law this is unavoidable; and, to mitigate it, the secretary deemed it expedient during the last summer to make calls in anticipation of subscriptions, but this, though legal, might, in case of failure of subscriptions, embarrass the government in paying called bonds. The long notice required by law is not necessary in the interest of the holder of the bonds, for, as the calls are made by public notice and the bonds are indicated and specified by class, date, and number, in the order of their numbers and issue, he, by ordinary diligence, can know beforehand when his bonds in due course will probably be called, and will not be taken by surprise.
"The secretary therefore recommends that the notice to be given for called bonds be, at his discretion, not less than ten days nor more than three months. In this way he will be able largely to avoid the payment of double interest, as well as the temporary contraction of the currency, and may fix the maturity of the call at a time when the interest of the called bonds becomes due and payable."
Soon after the passage of the act authorizing the coinage of the standard silver dollar, and an attempt being made to procure the requisite bullion for its coinage to some extent at the mints on the Pacific coast, it was found that the producers and dealers there would not sell silver to the government at the equivalent of the London rate, but demanded in addition thereto an amount equal to the cost of bringing it from London and laying it down in San Francisco. These terms, being deemed exorbitant, were rejected, and arrangements were immediately made to bring the capacity of the mint at Philadelphia to its maximum, with a view to meet the provisions of law, which required two millions of silver dollars to be coined in each month, and the available supplies of silver from domestic sources being entirely insufficient for the coinage of this amount, the foreign market was indirectly resorted to and an amount sufficient to meet the requirements of law secured.
In July, 1878, the principal holders of bullion on the Pacific coast receded from their position and accepted the equivalent of the London rate, at which price sufficient bullion was purchased to employ the mints of San Francisco and Carson on the coinage of the dollar.
At the date of my report, United States notes were practically at par with gold. The public mind had settled into a conviction that the parity of coin and currency was assured, and our people, accustomed to the convenience of paper money, would not willingly have received coin to any considerable amount in any business transactions. The minor coins of silver, were received and paid out without question at parity with gold coin, because the amount was limited and they were coined by the government only as demanded for the public convenience. The silver dollar was too weighty and cumbersome and when offered in considerable sums was objected to, though a legal tender for any sum, and coined only in limited amounts for government account. Every effort was made by the treasury department to give it the largest circulation, but the highest amount that could be circulated was from fifty to sixty millions, and much of this was in the southern states. All sums in excess of that were returned to the treasury for silver certificates. These were circulated as money, like United States notes and bank bills. This was only possible by the guarantee of the government that all forms of money would be maintained at parity with each other. If this guarantee had been doubted, or if the holder of silver bullion could have had it coined at his pleasure and for his benefit at the ratio of sixteen to one, the silver dollar would, as the cheaper coin, have excluded all other forms of money, and the purchasing power of silver coin would have been reduced to the market value of silver bullion.
On the 3rd of December, 1878, I wrote the following letter:
"Hon. Thomas Hillhouse,
"United States Assistant Treasurer, New York."Sir:—I have this day telegraphed you as follows:
'After receipt of this you will please issue no more gold certificates.'
"In compliance with the above instructions you will not, until further advised, issue gold certificates either in payment of interest on the public debt or for gold coin deposited.
"It is desired that you issue currency in payment of coin obligations to such an amount as will be accepted by public creditors.
"Very respectfully,"John Sherman, Secretary."
After resumption, United States notes were in fact gold certificates, being redeemable in coin. On the 4th, I again wrote to General Hillhouse as follows:
"Your letter of yesterday is received. The necessity of the recent order about coin certificates became apparent to the department, and the only doubt was as to the date of issuing it. After full consideration, it was deemed best to make it immediate, so that no more certificates could be asked for. By the 21st of this month the large denominations of greenbacks will be ready for issue to you, and after the 1st of January they will be received for customs duties and paid out for gold coin deposited with you. I am led to suppose that considerable sums of gold coin will be deposited with you soon after that date. It is important that the business men of New York should see the propriety of such a course, with a view to aid in popular opinion the process of resumption.
"I would be pleased to hear from you as to whether any additional force in your office will be necessary in view of resumption. Every reasonable facility should be given to persons who apply for coin, and we should be prepared for a considerable demand during the first month.
"I will be in New York some time this month, and will confer with you as to any matters of detail."
I received the following reply:
"Office of United States Assistant Treasurer,} "New York, December 5, 1878. } "Sir:—I have received your letter of the 4th instant. The issue of gold certificates, however convenient to the public, had long ceased to be of any advantage to the government, and in view of resumption it had become a positive injury, by enabling speculators to carry on their operations without the risk and expense of handling the actual coin. So far as I have discovered, the banks and the business community generally regard the withdrawal of the certificates as a wise measure. They may be put to some temporary inconvenience thereby, but they cannot fail to see that, in the use of this and all other legitimate means of making the great scheme of resumption a success, the secretary is really promoting their interests, and that in the end they will be greatly benefitted by the establishing of a sound and stable currency, which is the object in view.
* * * * *
"Very respectfully,"Thomas Hillhouse,"Assistant Treasurer United States."
On the 5th I wrote him as follows:
"In reply to your letter of the 4th instant, inquiring whether you are at liberty to pay out the standard silver dollars in exchange for gold coin, you are authorized to pay out the standard silver dollars to any amount which may be desired in exchange for gold coin.
* * * * *
"In reply to your letter of yesterday, I have to advise you that it was the purpose of the order referred to to prohibit the issue of gold coin certificates for any purpose, including the redemption of called bonds. It is believed that the reasons for issuing such certificates have ceased to exist, and that those outstanding should be redeemed and not reissued.
"No public end is subserved by receiving coin deposits for private parties to be held for their benefit, but gold will be received in exchange for United States notes of any denomination desired, and such exchange is invited."
On the 18th I wrote him:
"I have concluded to direct the prepayment of the coupons maturing January 1, in coin or United States notes,as desired by the holder, and interest on registered stock, as soon as you can receive the schedules, which will be about the 28th. While I wish no hesitation about paying gold to anyone desiring it, it is better to get people in the habit of receiving currency rather than coin."
On the 18th General Hillhouse wrote me:
"Since my letter of yesterday gold has sold at par, the prevailing rate being one sixty-fourth to three sixty-fourth premium. The indications now are that the combinations which were presumed to be operating to keep up the premium have failed so far in their object, and that, unless unlooked for circumstances should intervene, the premium will be more likely to fall below the present rate than to advance."
On the 27th I sent the following instructions to the treasurer:
"Treasury Department, December 27, 1878."Hon. James Gilfillan, Treasurer United States.
"Sir:—In connection with the department's circular of the 14th instant concerning the resumption of specie payments, you are directed, on and after the 1st proximo, to keep no special account of coin with any public disbursing officer, and to close any account of that description at that time standing on your books, keeping thereafter but one money of account in your office.
"Similar instructions have this day been sent to the several independent treasury officers.
"Very respectfully,"John Sherman, Secretary."
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 embarrass 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."
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 classes 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 class 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 substitute 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, assistant 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 passed; 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 passed, 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, nobody 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 entitled 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 entitled 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 assured 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 advertisement 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 advertisement 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.
"It is needless to say to you that the statement is entirely erroneous from beginning to end.
"In the department's circular of the first instant, a copy of which is hereby inclosed for your information,allnational banks are invited to become financial agents, and depositaries of public moneys received on account of the sale of these bonds, and the commissions allowed on subscriptions are plainly stated therein. Over one hundred (100) national banks have been thus designated as depositaries for the purpose mentioned, and all are treated precisely alike, both as to commissions allowed and balances held.
"The First National Bank of New York enjoys, as a United States depositary, no special privileges whatever from the department. It has, however, thus far, subscribed for a larger amount of four per cent. bonds than any other bank, and has, consequently, received a larger amount for commissions. But any other bank subscribing for the same amount of bonds would, of course, receive the same amount for commissions.
"Very respectfully,"John Sherman, Secretary."
"Treasury Department, }"Washington, D. C., January 14, 1879.}"H. C. Fahnestock, Esq., New York.
"Dear Sir:—Your note of the 13th instant is received.
"In buying the fours thrown upon the market, you are rendering as much service to the government as if you bought directly. Indeed, I am glad you are buying from the market rather than from the department. I do not wish to force this refunding operation too much, lest it may embarrass resumption. I only fear that some eager parties may subscribe for more than they can sell and pay for by called bonds or coin within the running of the call. This is the only contingency that disturbs me.
"Very respectfully,"John Sherman."
My published correspondence shows that with all the efforts and strength of the department it was impossible to keep up with the subscriptions for bonds pouring in from all parts of the United States and from Europe. Over sixty millions were subscribed for in the first two weeks of January. Offers made by me in December, though not accepted at the time, were made the grounds of demands in January, when conditions had greatly changed. As the money received for four per cent. bonds could not be applied to the payment of six per cent. called bonds until interest on such bonds ceased, ninety days after the call, I feared that the enormous deposits would create a serious stringency in the money market, and perhaps cause a panic after the first of April. The banks and bankers in New York, as well as in other large cities of the United States, were actively competing to swell these subscriptions, so as to get the larger commission offered for the greater amount of bonds sold. Such a contest occurred between the First National Bank of New York, and Seligman & Co., and their associates. In ended in a contract made on the 21st of January, between the Secretary of the Treasury and the former syndicate, by which the latter subscribed for $10,000,000 of four per cent. bonds, on the terms stated in my circular of January 1, and $5,000,000 a month thereafter, the secretary reserving the power to terminate the contract.
On the same day a call was made for $20,000,000 of six per cent. bonds. Another call for a like amount was made on the 28th. The aggregate call for six per cent. bonds in January was $120,000,000.
Charles F. Conant was again appointed as the funding agent of the treasury department, and directed to assume the general management and supervision of all business in London arising from the funding of bonds. He was instructed to advise me frequently as to the condition of the business intrusted to him.
The object of this sale of bonds in London was stated in the public prints, and also in the following letter:
"Treasury Department, January 22, 1879."Charles M. Fry, Esq.,"President Bank of New York, National Banking Association, NewYork."Sir:—Your telegram was received yesterday.
"The syndicate arrangement was confined to the sale of bonds in Europe, where it is deemed important to sell bonds partly to cover called bonds held abroad; and a contract has been made with bankers having houses in London, on precisely the same terms as were extended to all in this country. It was thought that this would be best for the domestic loan. No contract of arrangement will be made to interfere in any way with the free, open, popular subscriptions in the United States.
"I am glad to notice your success and will give you every facility that is extended to anyone else.
"Very respectfully,"John Sherman, Secretary."
The sale in London was fully justified when the called bonds matured, and those held abroad were paid for without the exportation of coin. It was my desire to secure the exchange of four per cent. bonds directly with the holders of the six per cents. For this purpose I invited, by a department order widely circulated, such an exchange, allowing to the holder of any six per cent. bond, whether called or uncalled, the same commission and allowance for interest granted to banks and bankers. By these expedients I hoped for, and succeeded in conducting, the change of bonds without disturbing the ordinary current of business.
The process of refunding the 5-20 six per cent. bonds, by the sale of four per cent. bonds, went on with some fluctuations until the 4th of April, 1879, when all the six per cent. bonds then redeemable were called for payment. This period in the magnitude of business done was far the most active and important while I was Secretary of the Treasury. The struggle between banks and bankers, not only in the United States but in London also, gave rise to many questions which had to be promptly acted upon, chiefly by cable or telegram. The amount involved were so large as to induce caution and care. The principal difficulty in refunding arose out of the provision in the act of Congress that ninety days' notice should be given, to the holder of bonds, by the government, when it exercised its option to pay, after five years, any portion of the bonds known as the 5-20 bonds, payable in twenty years but redeemable after five years. Prudence required the actual sale of four per cent. bonds before a call could be made or notice given to the holders of the 5-20 bonds, designated by description and numbers, of the intention of the government to pay them. When sales were made the money received was deposited in the treasury of the United States, or with national banks acting as public depositaries, which were required to give security for such deposits.
The necessary effort of the deposit of large amount involved in refunding operations was to create a stringency in the money market. I early called the attention of Congress to this difficulty, but had doubts whether the government would be justified in repealing the law requiring ninety days' notice. This provision was a part of the contract between the government and the bondholder, and could only be changed by the consent of both parties. Congress failed to act upon my suggestion. The interest accruing for ninety days at six per cent., or one and a half per cent. on the great sums involved, was a loss to the government but a gain to the banks or bankers that sold the bonds. The syndicate of bankers engaged in the sale of bonds chose the First National Bank of New York as their depositary. The department was indifferent where the deposits were made so that they were amply secured. Other banks and bankers engaged in the sale of bonds chose their own depositaries, and thus an active competition was created in which the department took no part or interest.
This struggle led to charges of favoritism on the part of the department, but they were without the slightest foundation. Every order, ruling and letter was fully discussed and considered by the Secretary and other chief officers of the treasury, and also by General Hillhouse, assistant treasurer at New York, and is in the printed report of the letters, contracts, circulars and accounts relating to resumption and refunding made to Congress on the 2nd of December, 1879.
The charge was especially made that favor was shown the First National Bank of New York, of which George F. Baker was president and H. C. Fahnestock was vice president. It was said that I was a stockholder in that bank, and that I was interested in the syndicate. It is scarcely necessary for me to say, as I do, that these charges and imputations were absolutely false. This bank and the associated bankers sold larger amounts of four per cent. bonds than any others and received a corresponding commission, but, instead of being favored, they were constantly complaining of the severity of the treasury restrictions. Rothschild, the head of the great banking house in London and the chief of the syndicate, especially complained of what he called the "stinginess" of the treasury department. I can say for all the officers of the treasury that not one of them was interested in transactions growing out of resumption or refunding, or did or could derive any benefit therefrom.
The rapid payment of the 5-20 bonds had a more serious effect upon the English market than upon our own. Here the four per cent. bonds were received in place of the six per cent. bonds, no doubt with regret by the holders of the latter for the loss of one-third of their interest, but accompanied by a sense of national pride that our credit was so good. In London the process of refunding was regarded with disfavor and in some cases by denunciation. On the 4th of March Secretary Evarts wrote me the following letter:
"Department of State, }"Washington, March 4, 1870.}"Hon. John Sherman, Secretary of the Treasury.
"Sir:—I have the honor to transmit herewith, for your information, a copy of a dispatch No. 928, dated February 12, from the consul general at London, in which the department is advised that there exists dissatisfaction, among certain holders of the 5-20 bonds of the issue of 1867, with the rapidity with which the government is refunding its debt at a lower rate of interest, and that it is the purpose of such holders to demand payment of their called bonds in coin. I have to honor to be, sir, your obedient servant.
"Wm. M. Evarts."
This demand was easily met by the sale of four per cent. bonds in London, and the balance of trade in our favor was increasing. The anticipated movement of gold did not occur.
Congress, by the act approved January 25, 1879, extended the process of refunding to the 10-40 bonds bearing interest at the rate of five per cent., amounting to $195,000,000 as follows:
"Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Secretary of the Treasury is hereby authorized, in the process of refunding the national debt under existing laws, to exchange directly at par the bonds of the United States bearing interest at four per centum per annum, authorized by law, for the bonds of the United States commonly known as 5-20's, outstanding and uncalled, and, whenever all such 5-20 bonds shall have been redeemed, the provisions of this section, and all existing provisions of law authorizing the refunding of the national debt, shall apply to any bonds of the United States bearing interest at five per centum per annum or a higher rate, which may be redeemable. In any exchange made under the provisions of this section interest may be allowed, on the bonds redeemed, for a period of three months."
On the 26th of February the following act was passed:
"Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Secretary of the Treasury is hereby authorized and directed to issue, in exchange for lawful money of the United States that may be presented for such exchange, certificates of deposit, of the denominations of ten dollars, bearing interest at the rate of four per centum per annum, and convertible at any time, with accrued interest, into the four per centum bonds described in the refunding act; and the money so received shall be applied only to the payment of the bonds bearing interest at a rate of not less than five per centum in the mode prescribed by said act, and he is authorized to prescribe suitable rules and regulations in conformity with this act."
On the 4th of March, 1879, the amount of uncalled 5-20 six per cent. bonds outstanding was $88,079,800. Anticipating that sales of four per cent. bonds would continue, I gave the following notice:
"Notice is given that when the 5-20 six per cent. bonds of the United States are covered by subscriptions to the four per cent. consols, the latter will be withdrawn from sale upon the terms proposed by department circular of January 1, 1879, and upon the terms stated in the contract with the Messrs. Rothschild and others, of the date of January 21, 1879. The amount of 5-20 six per cent. bonds outstanding and embraced in calls to this date is $88,079,800. When this sum is covered by subscriptions under the existing circular and contract, all further sales of four per cent. consols, to provide for the refunding of the 10-40 five per cent. bonds, will be made upon terms which will probably be less favorable to the purchaser, and in accordance with new proposals and contracts. This notice is given so that all parties wishing to subscribe for consols upon the terms stated in the circular and contract may have an opportunity to do so until the 5-20 bonds are called."
In giving this notice I had in view a change in the mode of refunding which would save to the government the whole or large part of the three months' interest pending the call. This notice gave an additional spur to the market for four per cent. bonds. Copies of it were sent to Mr. Conant and to all parties interested in pending operations, and due notice was given to all persons and corporations engaged in the sale of bonds that all existing contracts would terminate when the 5-20 bonds were covered by subscriptions.
At this time there was a good deal of anxiety as to the effect of the large sale of four per cent. bonds. If these could be exchanged, par for par for six per cent. bonds, the operation would be easy, but many holders of called bonds would not accept the lower rate of interest and invested the principal of their bonds in other securities. General Hillhouse, on the 8th of March, expressed the common feeling as follows:
"There is a good deal of speculation in the papers, as well as in business circles, as to the probable effect on the money market of the settlements to be made in April, during which month, if I am not mistaken, about $150,000,000 of calls will mature. It is now seen, however, that investment demand for the fours is much larger than was anticipated by many; and the subscribing banks will be, therefore, likely to find themselves loaded with large amounts which they cannot dispose of. It would not be strange, in the closing of such vast transactions, if there should be some stringency, but with the favorable indications, that the public are taking the bonds freely, and with the power of the secretary in various ways to facilitate the settlements, it can hardly be more than temporary."
Mr. Conant wrote me, on March 8, from London:
"I have called on all the members of the syndicate several times within the past few days, and have urged them very strongly to push the sales of the bonds here. I have persistently tried to persuade them that they ought to conduct the business with far more energy, and I have said to them that, at the time the contract was entered into, representations were made to you that $50,000,000 of the four per cent. consols could be disposed of on this side of the Atlantic, and that as they had undertaken the business they should not disappoint you. I have represented to them the importance of preventing the shipments of gold from New York, and that you supposed that the sales of bonds which you expected they would make would prevent such shipments. . . .
"The feeling which I alluded to in my last letter, that when the time arrives for the settlement of the large subscriptions made in New York and elsewhere at home the market will be found overloaded, and that a fall in price will take place, still exists here, and has the effect of causing certain classes of investors to delay making purchases, which they will ultimately make. I have not hesitated to say to the associates here that when refunding operations shall have been completed the four per cent. consols will soon thereafter go to a premium, and good reasons can be given why such should be the case."
Soon after I commenced receiving prophecies of stringency and disaster. A long letter from Fisk & Hatch, of New York, said that general apprehension had been growing up in financial circles, and was rapidly gaining ground, that the settlements by the national banks with the treasury department, in April and May, for the large subscriptions of four per cent. bonds made in January and February, would occasion serious disturbance and embarrassment in the money market. They advised me to pursue a course that, whether proper or not, was not in accordance with law. Mr. L. P. Morton., on the same date, took a milder view of it, but still suggested a remedy not within my power.
On the 13th, General Hillhouse, in referring to the apprehensions of my correspondents in regard to the settlements in connection with refunding, said that they might be caused in some instances by the suspicion, if not by the conviction, that their subscriptions had been carried beyond the point of absolute safety, "and now that settlement day is approaching they are naturally desirous of ascertaining how far they can count on the forbearance of the government."
This was the same view I had taken of the matter. I did not feel myself officially bound to do anything but to require prompt payment for the bonds subscribed. The treasury, however, was well prepared for any probable stringency, and I was convinced that the settlements would not cause any serious disturbance. The advices from London continued to be unfavorable. The bonds were offered in the market in some cases at a less price than the syndicate were to pay for them.
In the process of selling the four per cent. bonds I had frequently been written to by persons of limited means, who wished to invest their savings in government bonds of small denominations bearing four per cent. interest. I called the attention of the proper committee of each House to the expediency of issuing notes or certificates of that description, and the act of February 26, 1879, already quoted, was passed.
On the 26th of March I issued a circular relative to these certificates, prescribing the manner in which they should be sold, and stated the purpose and probable effect of their issue, as follows:
"The primary purpose of these certificates is to enable persons of limited means to husband small savings as they accrue, and place them where they will draw interest and become the nest egg for future accumulation. The form of certificate seems better adapted for the purpose than the Frenchventesor the English savings bank system. The objection to a national savings bank is that, in a country so extensive as ours, the agencies would necessarily be scattered, and the cost and delay of correspondence and transferring money to Washington would be considerable; but, more than all, the United States cannot undertake the risk of repaying deposits at any time when called for. The necessary reserve for that purpose would make the system burdensome. The certificate, as issued, may, at the expense of the subscriber, be either to bearer, or, by being registered, only transferable by assignment on the books of the treasury. It combines, in the cheapest form, all the benefits of any system of savings banks that has been devised. No doubt these certificates, when first issued, will, by voluntary consent of parties, be used as currency; but, after they shall have run a short time, the accruing interest on them will induce their sorting and holding, and thus, like the compound-interest notes, they will cease to be a currency and become an investment. Their possible use as currency is certainly no objection to them; for, though I adhere as strictly as anyone to a specie standard of value, I think that, it being constantly maintained by ample reserves and prompt redemption, current money in different forms should be provided for daily use. Diversity of the currency, if it is always redeemable, is no objection. These certificates will always be redeemable in the bonds stipulated for, and can, with profit, be issued, while the money received for them can be used in redeeming bonds bearing a higher rate of interest. They are of as low a denomination as can be conveniently issued and bear interest. The issue of this certificate is a safe experiment. I have confidence that it will be beneficial to the holder, in begetting habits of saving, and to the treasury, in aiding refunding; but its great benefit will be that the people themselves will in this way have a direct interest in preserving and maintaining the public faith."
On the same date I wrote a note for publication to the treasurer of the United States, to facilitate the payment of called bonds, as follows:
"As it is desirable to make payment of called bonds in the mode that will least disturb the market, you will draw from the depositary banks the proceeds of four per cent. bonds only when required to make payment of called bonds, and in proportion from the several depositaries to the amounts held by them, as near as may be, in sums of $1,000. Money in the treasury received from four per cent. bonds should be applied to the payment of called bonds before such drafts are made.
"When practicable, drafts upon depositary banks, for transfers of deposits on account of proceeds of four per cent. bonds, may be so drawn as to be payable at the option of the bank, through the New York clearing house.
"Drafts on depositary banks in cities other than New York should be drawn a sufficient time in advance to meet payments there.
"Payment by called bonds should be treated as payment in money as of the date when it would, under this order, be required."
On the 27th I received from Conant the following cablegram:
"Would be pleased to know if subscriptions to be settled duringApril can be expected without disturbing market in New York."
I answered on the same day as follows:
"Entirely confident subscriptions during next month will be settled without disturbing market. Order of the treasury department yesterday will facilitate greatly."
The following correspondence with Conant, the syndicate and myself then took place:
"London, March 28, 1879."Sherman, Washington.
"Rothschild & Sons request me to say they do not consider contract of January 21, 1879, requires subscription two million to be made April 1. On account of market price below par at present time they desire delay subscription few days. Hope you will consent.
"Conant."
"Treasury Department, March 28, 1879."Conant, London.
"I think contract of January 21, 1879, very plain, subscription should be made April 1, but, if they desire, time will be extended to April 8.
"Sherman."
"Treasury Department, March 28, 1879."August Belmont & Co., New York.
"Gentlemen:—In confirmation of my two telegrams of to-day to you, copies of which are inclosed, I have to inform you that the proper legal officers of the department, as well as myself, consider it very clear that, under the contract of January 21, your option to make the second subscription expires on the 1st of April, but I am not at all desirous of raising the question, and therefore am willing to extend the time a week, within which I am quite confident the anxiety about the April payments will begin to subside. Thus far this week, over $17,000,000 called bonds have been redeemed by credit on subscriptions, and $450,000 only paid by draft. Called bonds are rapidly coming in for credit. The subscriptions in excess of bonds called now amount to $6,600,000. With an assurance of a subscription of $2,000,000 from you, by the 1st, or even the 8th, of April, I would immediately issue a call for $10,000,000, and may do so without waiting for your subscription.
"I would prefer that the parties to the contract should not avail themselves of the extension offered, but leave that entirely to your good judgment.
"Very respectfully,"John Sherman, Secretary."
(Telegram.)"Treasury Department, March 28, 1879."August Belmont & Co., New York.
"The contract is very plain that the first subscription should be made by April 1. The stipulation for five million each month would have made the second subscription in February or March, but, by the agreement, it need not be made before April 1.
"John Sherman, Secretary."
"New York, March 28, 1879."Hon. John Sherman, Secretary of the Treasury, Washington, D. C.
"Dear Sir:—We received this morning a telegram from Messrs. Rothschild about the next subscription under the contract of the 21st of January, and telegraphed its contents to you, as follows:
'London associates telegraph consider according contract have all month April to make next subscription. Please telegraph whether you agree they are right'
"In reply we received your telegrams reading:
'The contract is very plain that the next subscription should be made by April 1. The stipulation for five million each month would have made the second subscription in February or March, but by agreement it need not be made before April 1.'
"and—
'Have cabled Conant to extend option, if desired, to April 8.'
"contents of which we have communicated to our London friends.
"Yours, very respectfully,"ProAugust Belmont & Co."W. Suttgen."W. Beuter."
The explanation of these cablegrams is given in the following letter:
"New Court, St. Swithin's Lane, } "London, E. C., England, March 29, 1879.} "Dear Mr. Secretary:—On the 27th instant I had the honor to make an inquiry of you by cable dispatch, as follows: 'Would be pleased to know if subscriptions to be settled during April can be effected without disturbing market in New York.' The constant decline in the price of all descriptions of our bonds in New York, the strenuous efforts being made by certain parties to sell American bonds here at low rates on home account, particularly the four and four and a half per cent. stock, the advancing rates of interest, and the condition of the exchanges, together with the rumors concerning scarcity of money in New Orleans and elsewhere, gave rise to apprehension, in the minds of many, that refunding operations had been carried to too great an extent; that too many bonds had been subscribed for on speculative account, and that any forced settlement of the subscriptions falling due in April would produce a panic. Private telegrams sent here conveyed information to the effect that arrangements would be made between yourself and the banks, by which the deposits in them would not be drawn upon until absolutely necessary. The answer, however, which I received from you a few hours later was highly gratifying and reassuring, and I gave it as much publicity as possible without, of course, publishing it. It reads as follows: 'Entirely confident subscriptions during the next month will be settled without disturbing the market. Order treasury department yesterday will facilitate greatly.'
"The question of obligation to make a subscription on the 1st day of April to continue the contract has been under consideration by the syndicate during the past week, and in fact ever since the beginning of the decline in the price of the four per cent. stock. The associates claim that they are only required to take five millions of the bonds during the month of April, and that having already taken three-fifths of the amount in advance, they should, in view of the impossibility of disposing of the stock at present prices, be allowed the balance of the month in which to subscribe for the remaining two millions. They argue that it cannot be expected that they can afford to take the bonds and pay the government one and a half per cent. above the market prices, and they add that they do not think you would wish to have them do so. They also say that if they wanted the bonds forspeculative purposes onlythey should give up the contract and purchase in the open market; but their policy is to keep the price at par and not to buy or sell when it is below par. Bonds will sell more rapidly when they are at par than when below it. It is the speculators and not the investors, as a rule, who deal in stocks when they are cheap. If the price of the bonds had remained at par, I have no doubt but that all the bonds I have here would already have been disposed of, and that the parties would have been ready and willing to make the subscription for five millions on April 1.