Twenty Years of Congress, Volume 2 / From Lincoln to Garfield, with a Review of the Events Which Led to the Political Revolution of 1860

by James Gillespie Blaine

CHAPTER XIII.

The financial experience of the Government of the United States in the years following the war is without precedent among nations. When Congress first met after the close of hostilities (December, 1865), it was as a ship sailing into dangerous and unknown seas without chart of possible channels. The Reconstruction problem before the country seemed at the time to be less difficult than the financial problem. Other nations had incurred great expenditures for war purposes, but had always left them in chief part as a heritage for the future. Great Britain will probably never pay the total principal of her public debt. France will be burdened perhaps as long as her nationality endures by the debts heaped upon her through the ambition of her sovereigns, and in her own struggles to enlarge the liberty of her people. But in this country the purpose was early formed, not simply to provide for the interest upon the debt incurred in the war for the Union, but to begin its payment at once, and to arrange for its rapid liquidation. In view of the magnitude of the sum involved this was a new undertaking in the administration of Government finances.

The difficulties of the situation were undoubtedly aggravated and complicated by the questions which arose from the condition of the Southern States. Could Congress expect at once that the populations in those States would begin to contribute to the revenue, would cease to require large expenditures for the maintenance of the National authority, would again add to the volume of our exports, to our commerce, and our general prosperity? Serious re-action had in other lands followed the financial expansion created by great wars, even without complications similar to those which the disturbed condition of the South seemed to render unavoidable. Ought Congress to accept such a re-action as the necessary condition of the restoration of our currency, of return to a normal situation, of adjustment of expenditure to revenue on a peace footing? Could the possibility be entertained of such a return and such an adjustment, without panic, without paralysis of industry, without temporary interruption and prostration of commerce? Grave apprehensions were felt as to the possible effect upon production and trade of the legislation required to maintain the National credit. These apprehensions derived force and peculiar seriousness from the growing conflict between President Johnson and Congress upon measures of Reconstruction and upon removals from office.

In spite however of all suggested fears and doubts, a feeling of confidence pervaded the country, and was fully shared by Congress, that the power which had saved the Union could re-establish its credit without panic and without dangerous and prolonged depression. Faith in the resources which had equipped and supported the National armies, now embraced the plainer and less exciting duties of funding and paying the debt and of protecting the notes of the United States. The loans had been placed, the money borrowed, under the excitement of war,—sometimes under the pressure of defeat, sometimes in the exaltation of victory. Without this pressure, without this exaltation, could money be secured at a rate adequate to build up a National credit worthy to be compared with that of the older and richer nations beyond the Atlantic?

The intrepidity with which Congress met its task will always compel the admiration of the student of American history. While the war lasted, the contributions by taxes and by loans had been on a munificent scale. The measures adopted at the close of the Thirty-eighth Congress, after four years of desperate struggle and on the very eve on National victory, showed as great readiness to make sacrifices, as little disposition to count the cost of saving the Union, as had marked previous legislation. Less than six weeks before the surrender of Lee the internal taxes were increased, the duties on imports were adjusted to that increase, and a new Loan Bill was enacted. The bill provided for borrowing, in addition to the authority given by previous Acts, any sum not exceeding $600,000,000 in bonds, or treasury notes convertible into bonds, at six per cent interest in coin or seven and three-tenths per cent interest in currency. This provision was found to be so comprehensive that it not only provided a strong instrumentality for meeting the immense demands incident to the disbanding of the armies and the final settlement of claims connected with that momentous change in our affairs, but also laid the foundation for the policy of funding the debt at a reduced rate of interest. These results testify to the magnificent proportions of the financial legislation during the period of hostilities.

When the Thirty-ninth Congress met in December, 1865, gold stood at 147-7/8 @ 148½. A month later, on the 1st of January, 1866, the legal-tender notes and fractional currency amounted to $452,231,810; notes bearing 7-3/10 per cent interest, to $830,549,041; compound-interest notes payable three years from date (a considerable proportion of which time had elapsed), to $188,549,041; certificates of indebtedness, payable at various dates within the current year, to $50,667,000; and the temporary loan, practically payable on demand, had reached the large sum of $97,257,194. These might all be called floating and pressing obligations, and their grand aggregate was $1,618,705,045. At the same time the amount represented by bonds (6's of 1861, 5-20's, and 10-40's) was $1,120,786,700,—showing a total National debt on New-Year's Day, 1866, of $2,739,491,745. If the National credit was to be maintained these sixteen hundred millions of floating obligations must be promptly placed on a basis that would give time to the Government to provide means for their ultimate redemption. President Johnson, in his message at the opening of the session, spoke of the debt not as a public blessing, but as a heavy burden on the industry of the country, to be discharged without unnecessary delay. This was the popular sentiment in all sections of the country, although in financial circles arguments were frequently heard in favor of creating interminable obligations and of adjusting the debt on a basis of permanency, after the European fashion. The reduction had indeed already begun, since the maximum of debt had been attained in the preceding August.

The Secretary of the Treasury, Mr. Hugh McCulloch, estimated that for the fiscal year ending with June, 1867 (for which Congress was about to provide), the revenue would exceed the expenditures by $111,682,818, and that the whole of our vast debt could be liquidated by annual payments within thirty years. Mr. McCulloch's plans were to take from the compound-interest notes their legal-tender quality, from the date of their maturity, and to sell six per cent bonds, redeemable at the pleasure of the Government, for the purpose of retiring both the compound-interest notes and the plain legal-tenders. He believed that the entire debt might be funded at five per cent, while the average of the annual interest now stood at 6-62/100 per cent. He pointed to harmony between the different parts of the Union and to the settlement of the relations of labor in the Southern States, as essential conditions to the best management of the National obligations.

The leading feature of Mr. McCulloch's financial policy was the immediate and persistent contraction of the currency. His argument in support of the policy, as given in his annual report, was not accepted by the country or by Congress without serious reservation; but his belief in the theory was strong and determined, and so far as the laws permitted he went on reducing the volume of paper in circulation until on the 12th of April, 1866, the sum of legal-tenders was brought down to $421,907,103. Financiers of the Eastern cities favored the policy of contraction, although the logical plea was urged against them that the country would grow up to the volume of currency if not harried and disturbed by new legislation. Manufacturers and the holders of their products, and many who had incurred pecuniary obligations in the expanded currency, took alarm at the rapidity with which the Treasury notes were withdrawn. The argument was urged that the heavy taxes could not be met if the withdrawal were so rapid, and that industry and trade would in consequence be paralyzed by the enforced fall in prices.

These opinions and apprehensions were developed in the debate which led to the passage of the Act of April 12, 1866. The subject was first introduced by Mr. Alley of Massachusetts. On the 18th of December (1865) he offered a resolution concurring in the views of the Secretary of the Treasury, in relation to the necessity for a contraction of the currency, with a view to as early a resumption of specie payment as the business interests of the country would permit. Under a suspension of the rules, without debate, 144 voted for the resolution, 6 against it, and 32 were not recorded. Two months later, on the 21st of February, 1866, Mr. Morrill, from the Committee on Ways and Means, reported a bill which, as he explained, would expand the authority provided by the Act of March 3, 1865, for funding interest-bearing obligations, so as to include non-interest-bearing obligations. The measure authorized the Secretary to exchange the bonds prescribed by the Act for notes or certificates, and power was given to negotiate them and make them payable either in the United States or elsewhere, but if beyond the sea at not over five per cent interest.

—Mr. Thaddeus Stevens declared that the bill put over sixteen hundred millions of Government paper under the absolute and uncontrolled discretion of the Secretary of the Treasury. "This is a tremendous bill," said he. "It proposes to confer more power upon Mr. McCulloch than was ever before conferred upon any one man in a government claiming to have a constitution."

—Mr. Hooper of Massachusetts magnified the financial achievements of the Government, urged the policy embodied in the bill, and insisted on the importance of restoring the currency to a sound condition at the earliest practicable moment. He controverted the suggestion which had been made to increase United-States notes to $1,000,000,000, on the ground that the value of that dollar would be constantly fluctuating. A minority of the commissioners appointed by the preceding Congress to inquire into the state of trade and commerce had presented a specious argument in favor of debasing the coinage, but Mr. Hooper dismissed the proposition summarily and argued strongly for a contraction of legal-tender notes.

—Mr. Hulburd of New York maintained that taxation could not be increased to meet the existing and maturing obligations of the Government. He held that under the Acts of June, 1864, and March, 1865, the Secretary had power to sell at home or abroad six per cent coin bonds in any amount to meet short obligations of the Government. "Under the proposed measure," he said, "authority is specifically asked to withdraw the fractional currency and legal-tender notes, in whole or in part, and to substitute bonds for them. The like power was never asked for Neckar or for Pitt. As a principle the proposition is dangerous." He protested vigorously against making any part of the public debt payable in foreign countries.

—Mr. John Wentworth of Illinois argued in favor of contraction, maintaining that the purpose of the pending bill was to make the Secretary of the Treasury master of the situation. "If we expect him to compete successfully with the most desperate body of men in the world we must confer upon him the necessary powers. The real question is, Shall our Government pay its pensions and all its employees and creditors in depreciated paper, when by borrowing a little money at six per cent it can bring its paper to par?" He charged that an immense lobby against the bill had thronged the hall, and was surprised to find importers among them. "But the importers have found," said he, "that a bloated currency bloats the fashions." He earnestly indorsed Mr. McCulloch as a cautious man, who would not be precipitate, no matter what power might be conferred upon him: "If we adopt his policy we shall wake up some morning and find the paper of our country at par."

—Mr. Pike of Maine doubted the necessity of enforced contraction; but if contraction was necessary, he was for taxing the circulation of national banks out of existence, and afterwards retiring greenbacks. "Once upon a specie basis," said he, "let the business of the country regulate itself." He proposed also to allow the States to tax the bonds of the United States.

—Mr. Price of Iowa asked: "Would any prudent and sensible business man who had given his note payable at his own option, without interest, be likely to give for it another note for the same amount payable at a certain time, with interest at six per cent semi-annually, in gold coin?"

—Mr. Scofield of Pennsylvania asked if the legal-tender notes were not, upon their face, payable on demand.

—Mr. Allison of Iowa insisted that "the Secretary of the Treasury does not propose to return to specie payments immediately, but he expresses the opinion that the reduction of greenbacks by the sum of one hundred million dollars will secure that result."

—Mr. Boutwell of Massachusetts was content to try the experiment of converting the interest-bearing obligations into long bonds, but was unwilling to go farther.

—Mr. Sloan of Wisconsin proposed an amendment to make "bonds and all other obligations of the United States hereafter issued payable in lawful money," but the suggestion met with no favor.

—Mr. Roscoe Conkling maintained that "in the first place, the Secretary of the Treasury has now the power, under the Act of March 3, 1865, to exchange any securities of the Government which bear interest for any other securities which bear interest. In the second place, he has the power to call in, to cancel, to annihilate, so that it shall never go out again, every particle of currency issued prior to June 30,1864; and the truth is, that substantially if not literally the whole of the currency was issued previous to that time." . . . "Only one power," said Mr. Conkling, "remains to be conferred upon him; and that is, the power to put his bonds upon the market when he pleases, where he pleases, as he pleases, sell them for money, and with that money purchase the outstanding obligations of the Government."

—Mr. Garfield argued that "under existing law, the Secretary can issue compound-interest notes and 7-30 bonds to meet current indebtedness; but these are the most expensive forms of government obligations, and therefore he ought not to use the power." He thought the proposed bill was necessary in the interest of the Government. He would "trust the Secretary to proceed cautiously in the path required by honor, to place our currency on a sound basis. . . . We have travelled one-third of the way since Congress met. Gold was then 148. It is now 130. Defeat this bill, and there will be a jubilee on Wall Street."

—Mr. Lawrence of Ohio opposed the bill, and presented a letter from Mr. Freeman Clarke, then Comptroller of the Currency, saying, "We have full power to fund every dollar of the floating debt without any legislation, and with no occasion for making any loan whatever."

—Mr. Morrill closed debate on the 16th of March; and the bill coming to a vote, was defeated,—ayes 65; noes 70. But on a motion to reconsider, it was again brought before the House on the 19th of March, and after brief debate was recommitted. When it re-appeared, four days later, it contained a proviso "that the Secretary of the Treasury shall not retire more than ten million dollars of legal-tender notes in the first six months after the passage of the Act, and not more than four million dollars a month afterwards; and shall make a report to Congress of his action under this provision." Mr. Morrill submitted a letter from Mr. McCulloch, expressing the opinion that "it will be a national calamity if Congress shall fail to grant additional powers to the Secretary." He added, that "the apprehension which exists, that if power is given to the Secretary to retire legal-tender notes the circulation will be ruinously contracted, is without any special foundation." The effect of the discussion was to strengthen the bill in the House where it was passed by ayes 83; noes 53.

The bill was favorably reported to the Senate from the Finance Committee, and came up for consideration on the 9th of April, under the charge of Mr. Fessenden.

—Mr. Sherman re-affirmed the objections made in the House, that the power conferred was greater than had ever been granted to any Secretary of the Treasury since the foundation of the Government. "The power," said he, "is absolute. The Secretary may sell securities of any form at any time and fund the whole debt. No present necessity exists for such grant of authority. The proviso for restricting contraction is not adequate for that purpose. By retaining a large balance in the Treasury, the Secretary can contract the currency without violating the proviso." He deemed it unwise "to place in the hands of any mortal man this absolute and extreme control over the currency."

—Mr. Fessenden said the true principle of this bill was, "that as soon as it can be done with safety, Congress means that we shall get back to the old system of specie payments. That is about all there is of it. The effect of rejecting the measure will be to say to everybody that the Government intends to keep depreciated paper in the financial market."

—Mr. Chandler of Michigan believed the measure "to be evil, and evil only; containing dangerous powers which should not be conferred, and which no man should be willing to accept." Mr. Howe of Wisconsin agreed with him.

—Mr. Guthrie of Kentucky (Secretary of the Treasury under President
Pierce) pronounced it "necessary and proper to give this power to the
Secretary." And Mr. Morgan of New York, agreeing with him, declared
that he desired the bill "just as it is."

—An amendment to strike out the words authorizing the sale of the bonds elsewhere than in the United States was overwhelmingly defeated, ayes 7, noes 35. The bill was then passed by ayes 32, noes 7, and by the President's signature became a law on the 12th of April, 1866.

The discussion of this important financial measure illustrates the various phases of opinion prevailing both in Congress and in the country. The desire to return to a specie basis was general, and yet not a few clung to the legal-tender notes as a permanent and standard currency. While the argument in favor of contraction was prosecuted with great force, the possibility of going too fast, even in the right direction, was conceded by the wisest financiers. The natural disinclination of the American people to entrust unrestricted power to any officer was frequently and forcibly expressed. The policy of funding the obligations bearing interest was admitted on all hands, and for this purpose the sale as well as the direct exchange of bonds was approved. But the repugnance to accepting less than par, or allowing the possibility of such a rate, had its origin and support in the patriotic instincts and in the sound judgment of the people. The requirement of a report from the Secretary and the limitation of the extent of contraction, were the essential changes which made the measure acceptable.

The enactment of this bill presents in an instructive light the character of our financial legislation and the methods by which it is accomplished. As originally presented the bill had the approval of the Secretary of the Treasury and came before the House with the favorable report of the Committee on Ways and Means. Yet it had no such standing as in the British Parliament is given to a financial project of the Government. There, such a proposition would be definitely framed at the Treasury, and its details would be elaborated when first presented. The Chancellor of the Exchequer would state the full character of the measure and the reasons for asking its adoption. Opposition or question would be expected only from the benches of the rival party. Here, on the other hand, after the House, using its own judgment, had modified the bill, criticism and hostility came from the Treasury that had originally proposed it. Several prominent members of the dominant party were pronounced in opposition. Saved by parliamentary strategy when once defeated, the bill was started into new life by the adoption of restrictions upon the power and the action of the Secretary of the Treasury. These restrictions were shown to be necessary in the progress of the debate. Individual judgment asserted itself and the Act became the harmonious resultant of the conflicting opinions of the entire House.

Congress therefore did not enact anybody's theory. It put into the statute the prudent, cautious sense of the people. Recognizing the principle of funding the floating obligations, and of contraction as a means to resumption, Congress only responded to the common sense of its great constituency, in forbidding reckless haste, and in defining the rate of speed. The purpose of keeping in Congress the control of the rate of contraction was only a part of the general determination that the representatives of the people and of the States shall prescribe the methods of conduct as well as the principles and broad measures of administration. Every Government finds by practice the system of legislation and administration best adapted to its own wants. While ministerial power and a trained following, such as obtain in England, may possess advantages under the circumstances existing in the British Empire, it is the settled judgment of this country that a perfectly free discussion, enlightened but not restrained by departmental recommendation or by dictation of committees, is best adapted to the varied and conflicting wants of the whole people. And this was never better illustrated than in the financial bill whose important provisions have been under consideration.

The revenue laws received careful attention during this session. The chief measure was the Act of July 13, 1866. It came before the House with the assurance from the Ways and Means Committee that it would steadily and materially reduce internal taxes. The system of internal revenue which had been so elaborately and intelligently constructed for war purposes, yielded $310,906,984 for the fiscal year ending June 30, 1866. Reduction were now made in the taxes on several hundred articles of manufacture, on savings banks, on the gross receipts of certain corporations; and the income tax was in some degree mitigated. The total reductions were estimated at $75,684,000, but an increase was proposed on raw cotton amounting to nearly one-third of this sum. Prolonged discussion arose over this tax and resulted in a disagreement between the two Houses. The bill was finally perfected in a conference committee and ended by reducing the total internal revenue to $265,920,474 per annum—with all allowance made for the growth of the country and the elasticity of Government receipts.

Not satisfied with the large reduction of taxes made at the first session after the close of the war, Congress resumed the subject at the second session. Early in February, 1867, Mr. Morrill, from the Committee of Ways and Means, reported a bill for the further reduction of taxes, which became a law on the 2d of March. The taxes removed were returning a yearly revenue of more than $36,000,000 to the National Treasury. The principal reductions were $19,500,000 from the income tax; $4,000,000 from clothing; $3,500,000 from woolens; $3,250,000 from leather; $1,000,000 from engines; $600,000 from sugar-refiners; $600,000 from tinware; $500,000 from castings; $500,000 from doors, sashes and blinds; with many others yielding less sums. All these formed a part of what were termed war taxes, and the steady purpose of Congress was to remove them as rapidly as the obligations of the Treasury would permit. As matter of fact they were removed long before such action was expected by the people, and before the special interests subjected to the burden had time to petition for relief or even to complain of hardship.

During the winter of 1866-67 there was a prolonged discussion in Congress over an Act finally passed March 2, 1867, authorizing the Secretary of the Treasury to exchange three per cent certificates of indebtedness for compound-interest notes, and allowing these certificates to be counted as a part of the reserve of National Banks. The first proposition was to allow interest at 3-65/100 per cent. The exchange of notes not bearing interest for those bearing compound interest was proposed by Mr. Stevens, and at first supported by a majority, but on reconsideration it was defeated. Objections was made to the bill that it was a scheme for giving to the banks interest on their reserves, which they could not otherwise receive when the compound-interest notes should be retired. Of these notes the banks held $90,000,000 and the limit proposed for the certificates was $100,000,000. Congress finally limited the amount of certificates to $50,000,000 at three per cent, and allowed them to stand for two-fifths of the reserve of any bank.

While this arrangement was an obvious advantage to the National banks, no such motive inspired Congress in passing the bill. Quite another object was aimed at in its enactment. The influence of contraction, which had gone into operation by the Act of the preceding summer, was already felt in the business of the country. The real significance of the Act just passed was that to a certain degree it checked and even neutralized the operation of the statute which ordered contraction. The compound-interest notes served the National banks as a part of their reserve, and as rapidly as they were cancelled, legal-tender notes were to be held in their stead. Their withdrawal from circulation for this purpose led therefore to a direct and forcible contraction of the actual currency of the country. By substituting the certificates of indebtedness as available for reserve this contraction was prevented, and by the concession of interest, even at three per cent, the banks were induced to surrender the securities which cost the Government a higher rate. The limit of these certificates was subsequently raised to $75,000,000,—a limit which in fact was often reached,—but as legal-tenders were needed the certificates were surrendered to the Treasury.

This is substantially the history of contraction, or of attempts at contraction made by the Thirty-ninth Congress. The successful effort to parry its effect, as already described, shows how unwelcome it had proved to the business community, and how Congress, without resorting at once to an absolute repeal of the act, sought an indirect mode of neutralizing its effect. Mr. McCulloch, in trying to enforce the policy of contraction, represented an apparently consistent theory in finance; but the great host of debtors who did not wish their obligation to be made more onerous, and the great host of creditors who did not desire that their debtors should be embarrassed and possibly rendered unable to liquidate, united on the practical side of the question and aroused public opinion against the course of the Treasury Department. An individual, by an effort of will, can bring himself to endure present inconvenience and even suffering, for a great good that lies beyond, but it was difficult for forty millions of people to adopt this resolve. Nor were the cases quite similar in motive and influence, for although it might be admitted that the entire nation would be benefitted by the ultimate result, the people knew that the process would bring embarrassment to vast numbers and would reduce not a few to bankruptcy and ruin. It was easy to see, therefore, that as each month the degree of contraction was made public, the people more and more attributed their financial troubles to its operation. Perhaps, in large degree, this was the result of imagination, and of that common desire in human nature to ascribe one's faults and misfortunes to some superior power. The effect nevertheless was serious and lasting. In the end, outside of banking and financial centres, there was a strong and persistent demand for the repeal of the Contraction Act.

The process of funding and paying the National debt, and of contracting the currency, went on with vigor and persistency during the summer and autumn of 1867. The Treasury statements for the year showed that up to November 1, 1867, the long obligations of the Government had been increased to $1,781,462,050; while the short obligations, other than currency, had been reduced to $441,655,120.63, and the currency in greenbacks, fractional notes and certificates of deposit for gold, to $402,385,677.39. The Treasury held $133,998,398.02; so that the National debt, less this cash, stood at $2,491,504,450. It thus exhibited an average reduction of the debt from its maximum, August 31, 1865, to November 1, 1867, of more than $10,000,000 per month.

Gold was lower than it had been, but great disappointment was felt because the premium, which had ranged in January, 1867, at 32-1/8 @ 37-7/8, was in November 37½ @ 48-5/8, and the latter figure was higher than the quotation at the beginning of the first session of the Thirty-ninth Congress. The charge was current, and was believed by many, that the premium had been advanced by speculators to compel Congress to enforce the policy of contraction. On the other hand, it was declared to be demonstrably true that the reduction of the volume of paper did not lower the premium on gold. It only depressed production and placed the markets of every kind under the control of reckless operators. Surely, it was argued, the contraction had been severe enough to satisfy the advocates of the most stringent Procrustean policy. The short obligations had been cut down nearly one-half since January, 1866. If account were taken of compound-interest notes the reduction in currency ought to be reckoned at $100,000,000, and even at twice that sum, since the cash held by the Treasury had been taken from the circulation of the country.

The Secretary of the Treasury still adhered to the policy of contraction, and yet was charged with putting into circulation legal-tender notes that had been once withdrawn, in order to affect the market. Thus in August, 1866, between the 8th and the 23d inclusive, he had withdrawn and destroyed $12,530,111, and of the 31st of that month he issued $12,500,000. He had again in October, 1866, cancelled $500,000 on the 24th, and issued anew the same sum on the 25th. On the 31st of January, 1867, he had issued anew $4,000,000, May 31 $2,500,000, and during December, 1867, $1,842,400. In answer to remonstrance against this practice the Secretary maintained that the authority to contract and to cancel the legal-tender notes did not require him to do it, but left it within his discretion. This was unquestionably the law of the case.

Mr. McCulloch in his official report insisted on the funding or payment of the balance of interest-bearing notes, and upon a continued contraction of the currency, as the first measure for promoting the National prosperity; and he presented a strong argument in favor of permanent specie payment. He reported that he had not always retired notes in each month to the extent permitted, but he declared that the effect of the policy as carried out had been salutary and that its continuation would be obviously wise. Yet he feared that financial views were inculcated, which if not corrected might lead to its abandonment. The truth was that the Secretary's policy was counter to the popular wish, and evidence was accumulating that Congress would not sustain him in its continued enforcement. The Secretary had confidently relied upon the bankers and commercial men of the country; but the serious fact was now developed, that many of the most prudent financiers had concluded that the changes in the volume of the currency were causing mischief, and that the process of contraction had been carried as far as was desirable.

The Secretary argued bravely and wisely in his report, in favor of paying the principal and interest of the Government bonds in coin. His argument was designed to meet heresies which had found favor in unexpected quarters. The plea was urged by the new and short-lived school of finance that the notes of the National banks should be withdrawn and greenbacks substituted for them, that all payments by the Government on the principal of the bonds should be in its own paper. It was admitted by these novel theorists that the bonds on their face promised coin for interest; but they maintained that the bonds had been issued in large part when gold was at a heavy premium for paper, and could rightfully be liquidated in paper at its advanced value. Propositions were frequently presented to stop the issue of bonds and to pay out notes for any obligations of the Government offered at the Treasury on becoming due in any form. The pressure of rapid contraction secured a hearing for every extravagant proposition. Prejudice against speculators in gold, who during the war had grown rich on the disasters of the Union, was added to the discussion, especially while the premium was maintained and the National credit charged with odium on its account.

At the opening of the second session of the Fortieth Congress (December, 1867) numerous resolutions and bills demanding the stoppage of contraction were referred to the Committee on Ways and Means. Five days afterwards Mr. Schenck reported a bill of four lines, by which the "further reduction of the currency by retiring and cancelling United-States notes is prohibited." It had the unanimous approval of the Committee on Ways and Means, and was passed by the House,—ayes 127, noes 32. The minority included a goodly number of leading Republicans. In the Senate Mr. Sherman, in supporting the bill, stated the amount of contraction since August 1, 1866, at $140,122,168. He argued from these figures that "contraction should go no farther while industry is in a measure paralyzed, and that Congress ought to resume control of the currency, which should not be delegated to any single officer." He declared that the measure was entirely preliminary to other legislation, "which must include the banking system, the time and manner of resuming specie payments, the payment of the debt and the kind of money in which it may be paid, and the reduction of expenditures and taxes." Debate was somewhat prolonged, and a conference committee gave final form to the measure, which failed to receive the President's signature, but became a law without it. It is known as the "Act of February 4, 1868, prohibiting any further reduction of the currency, and authorizing the replacing of mutilated notes." By this Act the minimum limit of legal-tender notes was fixed at $356,000,00,—the volume then afloat after Mr. McCulloch's policy of contraction had done its work.

The actual legislation of the second session of the Fortieth Congress included also the repeal of the tax on raw cotton, and the further reduction of internal revenue, by the Acts of March 31 and July 20 (1868). Great relief was given to manufactures by the abolition of the five per cent tax on a variety of products. The surrender of revenue was estimated at $23,000,000 on cotton at $45,000,000 on manufactures. These concessions were much needed, for the producers of cotton were crippled by the condition of their States, and manufacturers found that prices did not justify the payment of these war charges.

In his annual message to Congress in December, 1868, President Johnson argued "that the holders of our securities have already received upon their bonds a larger amount than their original investments, measured by the gold standard. Upon this statement of fact it would seem but just and equitable that the six per cent interest now paid by the Government should be applied to the reduction of the principal, in semi-annual installments, which in sixteen years and eight months would liquidate the entire National debt." This bold and shameless advocacy of repudiation was less mischievous than it would have been if Mr. Johnson had held a longer lease of power, and if the people had not in the Presidential election pronounced so clear and positive a verdict in favor of the maintenance of the National credit. The Senate deemed it worth while to put on record a resolution condemning this part of Mr. Johnson's message. Mr. Hendricks of Indiana moved a substitute indorsing the statement in the message, and closing with the words of the Democratic National Convention in favor of paying the bonds in lawful money. Only seven senators supported his substitute, while forty-five opposed it; and President Johnson's proposal for repudiation was, by the action of the Senate, "utterly disapproved and condemned," —ayes 43, noes 6. In the House of Representatives a similar resolution was passed by a vote of 155 ayes to 6 noes, 60 not voting. No Democratic member in that body seemed willing to assume the objectionable position taken by Mr. Hendricks in the Senate, and a declaration "that all forms of repudiation are odious to the American people" was adopted without a division.

The financial achievement of the National Government herein reviewed, for the four years following the war, may be briefly summarized. The National debt was reduced by the sum of nearly $300,000,000, while at the same time the Government reduced its revenue to the amount of $140,000,000 per annum by the repeal of a long series of internal taxes. During this period more than $35,000,000 had been paid from the Treasury towards the construction of the Union and Central Pacific Railroads, and $7,200,000 was paid to the Russian Government on account of the purchase of the Territory of Alaska. It is also to be noted that within this period were embraced all the expenses incident to the disbandment of the Union army, and also a very large addition to the pension-list. Notwithstanding all these enormous expenditures the business interests of the country continued prosperous, and the fact that so large a reduction had been made in internal taxes gave promise that within a comparatively short period the Government would be able to remove all levies that were in any degree oppressive or even vexatious to private interests.

By reason of his official and personal connection with the President, Mr. McCulloch had failed to secure cordial support from Congress, and had moreover given offense by his obvious sympathy with the free-traders, who were already beginning to assault the protective tariff which the necessities of war had led the country to adopt. The Secretary had also gone far beyond the popular wish and the best business judgment of the country in regard to the rapid contraction of the currency. But while his politics and his policies were not acceptable to Congress or to the people, he is entitled to high credit for his direct, honest, intelligent administration of the Treasury Department. In the peculiar embarrassments to the administration of the Government, caused by the course of President Johnson, it was a matter of sincere congratulation that a Secretary of the Treasury, so competent and trustworthy as Mr. McCulloch had approved himself, was firmly in place before the serious political disturbances began—a congratulation in which his most ardent Republican opponents were ready to join, knowing how fatal it might prove if President Johnson had the opportunity to nominate his successor.

Throughout the more difficult period of his administration of the department, Mr. McCulloch was aided by two most intelligent and efficient officers. Mr. William E. Chandler, though only twenty-nine years of age, was appointed First Assistant Secretary in March, 1865, and exhibited great aptitude, discrimination, and ability in his position. He developed an admirable talent for details, a quick insight into the most difficult problems that came before the Department, and at all times an honorable devotion to public duty. The Bureau of Internal Revenue, the most important of the Treasury Department, was under the direction of another citizen of New Hampshire, Edward Ashton Rollins. The Bureau for a time collected more than half the revenue of the United States, and required in its Commissioner integrity, administrative talent, and singular skill in providing against every form of fraud. No department of the Government had to contend against so many corrupt combinations to rob the Government, and the slightest relaxation of vigilance on the part of the Commissioner might involve at any time a loss of millions to the National Treasury. In the complex and difficult duties of this station, Mr. Rollins proved himself equal to every requirement.

The purchase of Alaska was completed by the Act of July 27, 1868, which appropriated the amount agreed upon in the treaty of March 30, 1867,— negotiated by Mr. Seward on behalf of the United States, and by Baron Stoeckl representing the Emperor of all the Russias. The Russian Government had initiated the matter, and desired to sell much more earnestly than the United States desired to buy. There is little doubt that a like offer from any other European government would have been rejected. The pressure of our financial troubles, the fact that gold was still at a high premium, suggested the absolute necessity of economy in every form in which it could be exercised; and in the general judgment of the people the last thing we needed was additional territory. There was, however, a feeling of marked kindliness towards Russia; and this, no doubt, had great weight with Mr. Seward when he assented to the obvious wishes of that government. But while there was no special difficulty in securing the ratification of the treaty by the Senate, a more serious question arose when the House was asked to appropriate the necessary amount to fulfill the obligation. Seven million two hundred thousand dollars in gold represented at that time more than ten million dollars in the currency of the Government; and many Republicans felt, on the eve, or rather in the midst, of a Presidential canvass, that it was a hazardous political step (deeply in debt as the Government was, and with its paper still at a heavy discount) to embark in the speculation of acquiring a vast area of "rocks and ice," as Alaska was termed in the popular and derisive description of Mr. Seward's purchase.

When the bill came before the House, General Banks, as Chairman of the Committee on Foreign Affairs, urged the appropriation with great earnestness, not merely because of the obligation imposed upon the Government by the treaty, which he ably presented; not merely by reason of the intrinsic value of the territory, which he abundantly demonstrated; but especially on account of the fact that Russia was the other party to the treaty, and had for nearly a century shown a most cordial disposition towards the United States. General Banks maintained that at every step of our history, from 1786 to the moment when he was speaking, Russia had been our friend. "In the darkest hour of our peril," said he, "during the Rebellion, when we were enacting a history which no man yet thoroughly comprehends, when France and England were contemplating the recognition of the Confederacy, the whole world was thrilled by the appearance in San Francisco of a fleet of Russian war vessels, and nearly at the same time, whether by accident or design, a second Russian fleet appeared in the harbor of New York. Who knew how many more there were on their voyage here? From that hour France, on the one hand, and England on the other, receded, and the American Government regained its position and its power. . . . Now, shall we flout the Russian Government in every court in Europe for her friendship? Whoever of the representatives of the American people in this House, on this question, turns his back, not only upon his duty, but upon the friends of his country, upon the Constitution of his Government, and the honor of his generation, cannot long remain in power."

Mr. Cadwalader C. Washburn answered the speech of General Banks on the succeeding day (July 1, 1868). He assumed the leadership of the opposition to the treaty. He proposed to demonstrate to the satisfaction of the House five distinct propositions: "First, that at the time the treaty for Alaska was negotiated, not a soul in the whole United States asked for it; second, that it was secretly negotiated, and in a manner to prevent the representatives of the people from being heard; third, that by existing treaties we possess every right that is of any value to us, without the responsibility and never-ending expense of governing a nation of savages; fourth, that the country ceded is absolutely without value; fifth, that it is the right and duty of the House to inquire into the treaty, and to vote or not vote the money, according to its best judgment." Mr. Washburn made an able speech in support of his radical propositions.

General Butler sustained Mr. Washburn's position in a characteristic speech, especially answering General Banks's argument that we should pay this amount from a spirit of friendship for Russia. "If," said General Butler, "we are to pay this price as usury on the friendship of Russia, we are paying for it very dear indeed. If we are to pay for her friendship, I desire to give her the seven million two hundred thousand dollars in cash, and let her keep Alaska, because I think it may be a small sum to give for the friendship if we could only get rid of the land, or rather the ice, which we are to get by paying for it." He maintained that it was in evidence before the House officially, "that for ten years the entire product of the whole country of Alaska did not exceed three million dollars."

—Mr. Peters of Maine pronounced the territory "intrinsically valueless; the conclusive proof of which is found in the fact that Russia is willing to sell it." He criticised the action of the Senate in negotiating the treaty. "If the treaty-making power can buy, they can sell. If they can buy land with money, they can buy money with land. If they can buy a part of a country, they can buy the whole of a country. If they can sell a part of our country, they can sell the whole of it!"

—Mr. Spalding of Ohio, on the other hand, maintained that "notwithstanding all the sneers that have been cast on Alaska, if it could be sold again, individuals would take it off our hand and pay us two or three millions for the bargain."

—General Schenck thought the purchase in itself highly objectionable, but was "willing to vote the money because the treaty has been made with a friendly power; one of those that stood by us,—almost the only one that stood by us when all the rest of the powers of the world seemed to be turning away from us in our recent troubles."

—Mr. Stevens supported the measure on the ground that it was a valuable acquisition to the wealth and power of the country. He argued also in favor of the right of the Senate to make the treaty.

—Mr. Leonard Myers was sure that if we did not acquire Alaska it would be transferred to Great Britain. "The nation," said he, "which struggled so hard for Vancouver and her present Pacific boundary, and which still insists on having the little island of San Juan, will never let such an opportunity slip. Canada, as matters now stand, would become ours some day could her people learn to be Americans; but never, if England secures Alaska."

—Mr. Higby of California answered the objections relating to climate. "I do not know," said he, "whether the people of the East yet believe what has been so often declared, that our winters on the Pacific are nearly as mild as our summers, and yet such is the fact. In my own little village, situated over fourteen hundred feet above the level of the ocean, I have seen a plant growing in the earth green through all the months from October to April."

—Mr. Shellabarger opposed the purchase. He said those nation which had been compact and solid had been the most enduring, while those which had the most extended territory lasted the least space of time.

—Mr. Price of Iowa thought that it was "far better to expend the $7,200,000 in improving the Mississippi River, in order that bread-stuffs may be transported cheaply from the West to the seaboard." He had no faith in the value of the territory proposed to be purchased.

—Mr. McCarthy of New York rejected the plea that we should purchase Alaska because Russia is a friendly power. "I ask this House," said he, "whence this friendship comes. It comes from self-interest. She is the absorbing power of the Eastern continent, and she recognizes us as the absorbing power of the western continent; and through friendship for us she desires to override and overbalance the governments of Europe which are between her and us."

—General Butler moved a proviso, that "the payment of $500,000 of said appropriation be withheld until the Imperial Government of Russia shall signify its willingness to refer to an impartial tribunal all such claims by American citizens against the Imperial Government as have been investigated by the State Department of the United States and declared to be just, and the amounts so awarded to be paid from said $500,000 so withheld."

—General Garfield, presiding at the time over the Committee of the Whole, ruled it out of order, and on an appeal being taken the decision was sustained by ayes 93, noes 27. After dilatory motions and the offer of various amendments, which were rejected, the bill was passed by ayes 113, noes 43.

—The House prefaced the bill by a preamble, asserting in effect that "the subjects embraced in the treaty are among those which by the Constitution are submitted to the power of Congress, and over which Congress has jurisdiction; and for these reasons, it is necessary that the consent of Congress should be given to the said stipulations before the same can have full force and effect." There was no mention of the Senate's ratification, merely a reference to the fact that "the President has entered into a treaty with the Emperor of Russia, and has agreed to pay him the sum of seven million two hundred thousand dollars in coin." The House by this preamble evidently claimed that its consent to the treaty was just as essential as the consent of the Senate,—that it was, in short, a subject for the consideration of Congress.

The Senate was unwilling to admit such a pretension, especially when put forth by the House in this bald form, and therefore rejected it unanimously. The matter was sent to a conference, and by changing the preamble a compromise was promptly effected, which preserved the rank and dignity of both branches. It declared that "whereas the President had entered into a treaty with the Emperor of Russia, and the Senate thereafter gave its advice and consent to said treaty, . . . and whereas said stipulations cannot be carried into full force and effect, except by legislation to which the consent of both Houses of Congress is necessary; therefore be it enacted that there be appropriated the sum of $7,200,000" for the purpose named. With this compromise the bill was readily passed, and became a law by the President's approval July 27, 1868.

The preamble finally agreed upon, though falling far short of the one first adopted by the House, was yet regarded as a victory for that branch. The issue between the Senate and the House, now adjusted by a compromise, is an old one, agitated at different periods ever since the controversy over the Jay treaty in 1794-95. It is simply whether the House is bound to vote for an appropriation to carry out a treaty Constitutionally made by the President and the Senate, without judging for itself whether, on the merits of the treaty, the appropriation should be made. After the appropriation required under the Jay treaty had been voted by the House, that body declared in a resolution which was adopted by ayes 57, noes 35, "that it is the Constitutional right and duty of the House of Representatives, in all such cases, to deliberate on the expediency or inexpediency of carrying such treaty into effect, and to determine and act thereon as in their judgment may be most conducive to the public good." But that was the declaration of the House only; whereas the preamble agreed to in the appropriation of money for the purchase of Alaska contained the assent of both branches.

Though the Constitutional principle involved may not be considered as one settled beyond a fair difference of opinion, there has undoubtedly been a great advance, since the controversy between the two branches in 1794, in favor of the rights of the House when an appropriation of money is asked to carry out a treaty. The change has been so great indeed that the House would not now in any case consider itself under a Constitutional obligation to appropriate money in support of a treaty, the provisions of which it did not approve. It is therefore practically true that all such treaties must pass under the judgment of the House as well as under that of the Senate and the President. Judge McLean of the Supreme Court delivered an opinion which is often referred to as embodying the doctrine upon which the House rests its claim of power.* "A treaty," said the learned Justice, "is the supreme law of the land only when the treaty-making power can carry it into effect. A treaty which stipulates for the payment of money undertakes to do that which the treaty-making power cannot do; therefore the treaty is not the supreme law of the land. To give it effect the action of Congress is necessary, and in this action the representatives and senators act on their own judgment and responsibility and not on the judgment and responsibility of the treaty-making power. A foreign government may be presumed to know that the power of appropriating money belongs to Congress. No act of any part of the Government can be held to be a law which has not all the sanctions to make it law."(2)

The territory which we thus acquired is of vast extent, exceeding in its entire area a half million square miles. Its extreme length is about eleven hundred miles; its extreme width about eight hundred. It stretches nearly to the seventy-second degree of north latitude, three hundred and fifty miles beyond Behring's Straits; and borders upon the Arctic Ocean for more than a thousand miles. The adjacent islands of the Aleutian group are included in the transfer, and reach two-thirds of the way across the North Pacific in the latitude of 60 degrees,—the westernmost island being within six hundred miles of the coast of Kamtchatka. The resources of the forests of Alaska are very great,—the trees growing to a good height on the mountain sides as far as two thousand feet above the tide level. The timber is of the character generally found in Northern climates: yellow cedar of durable quality, spruce, larch, fir of great size, and hemlock. In the world's rapid and wasteful consumption of wood, the forests of Alaska will prove not merely a substantial resource for the interests of the future, but a treasure-house in point of pecuniary value. To this source of wealth on land that of the water must be added, in the seal and food fish which are found in immeasurable quantities along the coast of the mainland and the islands.

From the time of the acquisition of Louisiana until the purchase of Alaska, the additions of territory to the United States had all been in the interest of slavery. Louisiana, stretching across the entire country from South to North, was of equal value to each section; but the acquisition of Florida, the annexation of Texas, the territory acquired from Mexico by the treaty of Guadalupe Hidalgo, with the addition of Arizona under the Gadsden treaty, were all made under the lead of Southern statesmen to strengthen the political power and the material resources of the South. Meanwhile, by the inexcusable errors of the Democratic party, and especially of Democratic diplomacy, we lost that vast tract on the north known as British Columbia, the possession of which, after the acquisition of Alaska, would have given to the United States the continuous frontage on the Pacific Ocean from the south line of California to Behring's Straits. Looking northward for territory, instead of southward, was a radical change of policy in the conduct of the Government,—a policy which, happily and appropriately, it was the good fortune of Mr. Seward to initiate under impressive and significant circumstances.

[(1) Turner vs. The American Baptist Missionary Union, 5 McLean, 544.]

[(2) Mr. Jefferson, more promptly than other great statesmen of his generation, appreciated the degree of power residing in the House of Representatives. In a private letter discussing the subject he expressed views in harmony with Justice McLean's opinion, long before that opinion was delivered. He wrote to Mr. Monroe: "We conceive the Constitutional doctrine to be, that though the President and Senate have the general power of making treaties, yet whenever they include in a treaty matters confided by the Constitution to the three branches of the Legislature, an act of legislation will be necessary to confirm these articles, and that the House of Representatives, as one branch of the Legislature, are perfectly free to pass the act or to refuse it, governing themselves by their own judgment whether it is for the good of their constituents to let the treaty go into effect or not. On this depends whether the powers of legislation shall be transferred from the President, Senate, and House of Representatives, to the President, Senate, and Piamingo, or any other Indian, Algerine, or other chief.">[