CHAPTER XXIV.
The course of President Grant's Administration in regard to the Finances had proved in all respects successful. The first bill which received his signature was the Act "to strengthen the public credit," approved March 18, 1869. It pledged the Government to the payment in coin, or its equivalent, of all obligations, notes, and bonds, except those where the law authorizing the issue stipulated that payment might be made in "lawful money," which simply meant legal-tender notes. The demand for this declaratory Act arose from a desire to undo the evil which had been caused by the resolution of the Democratic party in the preceding Presidential election in favor of paying all public debts in paper, except where coin was specifically named in the law. The position of each party was therefore precisely the reverse of the other: the Republicans held the normal law of payment of Government obligations to be in coin, unless payment in paper money had previously been agreed upon; the Democrats held that all Government obligations might be discharged in paper, unless payment in coin had previously been agreed upon. This was the division line in the Presidential canvass of 1868, and it was the division line among parties in the Forty-first Congress. In the House, where the Act had been reported by General Schenck, the vote on its passage was 98 ayes to 47 noes. No Democrat voted in the affirmative. A few Republicans, under the lead of General Butler, voted in the negative.
When the Act was reported to the Senate, Mr. Thurman offered an amendment declaring that "nothing in this Act shall apply to the obligations commonly called Five-twenty bonds." This would reserve three-fourths of the bonded debt from the operation of the law, and would effectively defeat its object. Every Democrat in the Senate who voted on the question, voted in favor of Mr. Thurman's amendment. Mr. Morton of Indiana and one or two other Republican senators voted with the Democrats, but the amendment was defeated by a decisive vote.
—Mr. Garrett Davis offered an amendment, "that the just and equitable measure of the obligation of the United States upon their outstanding bonds, is the value at the time in gold and silver coin of the paper currency advanced and paid to the Government on those bonds." Mr. Davis argued earnestly in favor of his amendment. He declared it to be "robbery and iniquity for this Congress to make the people of the United States pay nearly $900,000,000 more than by law and equity they are bound to pay."
—Mr. Bayard seconded the arguments of Mr. Davis. "Suppose, instead of issuing paper money," said Mr. Bayard, "it had pleased Congress to order a debasement of our National coinage. Suppose twenty-five per cent more of alloy or worthless metal had been injected into our currency, and with that base coinage men had come forward to buy your bonds, what would be thought of the man who, when the day of payment of those bonds arrived, should say, 'I gave you lead, or lead in certain proportions; but for all the worthless metal I handed you, you must give me back gold'? Whether he was more maddened or more dishonest would be the only question arising in men's minds." Mr. Bayard used this analogy to illustrate the wrong of paying the bonds of the Government in coin, and expressed the belief that the debasing of the coinage would have been "far more Constitutional and right than the power which Congress exercised when they issued paper money."
When President Grant sent his first annual message to Congress (December, 1869), the National debt, less cash in the Treasury, amounted to $2,453,559,735, the cash being $194,674.947. The aggregate obligations bearing interest in coin had risen to $2,107,938,000; while the three per cent certificates and the Navy pension-fund, which alone carried interest in currency, amounted to $61,195,000. The debt bearing no interest, composed of old demand-notes, legal-tenders, fractional currency, and certificates for gold deposited, had fallen to $431,861,763. The seven-thirty notes had disappeared from the financial statement, and the bonds authorized by the Act of March 3, 1865, amounted to $958,455,700. The rate of interest on the bonds still stood at six per cent, except on the old debt of 1858 and 1860, and upon $194,567,300 of the ten-forties issued under the Act of March 3, 1864. One of the chief recommendations in the President's message was the refunding of the debt in bonds, with interest not exceeding four and a half per cent. He urged legislation for redeeming the legal-tenders at their market value, at the option of the holder, increasing the rate from day to day or week to week. He believed "that immediate resumption, even if practicable, would not be desirable," but that "a return to a specie basis should be commenced immediately." He expressed the belief that the revenue might be at once reduced $60,000,000 or possibly $80,000,000 a year. In connection with this feature of the message, Secretary Boutwell submitted a well-matured plan for funding the debt and expressed entire confidence in its success.
The result was the refunding Act of July 14, 1870. It was a broad and effective measure. It was subsequently modified by the Act of Jan. 20, 1871, permitting the payment of interest quarterly, and increasing the amount of bonds bearing five per cent interest. The two laws for purposes of refunding, taken together, authorized the issue of $500,000,000 at five per cent, $300,000,000 at four and a half per cent, and $1,000,000,000 at four per cent,—all to be payable in coin, to be exempt from taxation, and to be issued without any increase of the debt. The fives were redeemable after ten years, the four-and-a-halfs after fifteen years, the fours after thirty years. The laws were not enacted without considerable legislative controversy. The exemption from taxation and the payment in coin were stubbornly though unsuccessfully resisted. A proposition to state the interest in sterling money and in francs, as well as in dollars, so that the bonds might be more easily negotiated abroad, was vigorously pressed, but was happily defeated.
Further reduction of the revenue was effected by the Act of July 4, 1870. There was an earnest effort to repeal the income tax, but it was retained for the year, and was to terminate at the end of 1871. The duties on tea, coffee, sugar, and some articles of iron and steel, were diminished. In presenting the conference report Mr. Schenck estimated that the reduction in customs charges by the Bill would be $27,000,000, and in the internal taxes more than $50,000,000. Many persons feared that the reduction of taxes was too rapid, but it was impossible to resist a movement so popular as the removal of the burdens left by the war. Under such a pressure it was probable that Congress might not have sufficient regard to the prospective needs of the Government.
The condition of trade, wise legislation, and the hope of refunding the debt with rapid reduction of interest, were producing beneficent results; but the expectations of the Secretary of the Treasury in regard to the prompt sale of the new bonds were rudely shocked by the war between France and Germany, which was declared immediately after Congress had clothed him with enlarged powers. At home, as well as in Europe, the money markets were so far disturbed that prudence forbade immediate action. After a necessary postponement and careful preparation Mr. Boutwell gave notice that on March 6, 1871, books would be opened in this country and in Europe for subscriptions to the bonds. Preference was awarded to subscribers for the five per cents within the limit of $200,000,000. On the anniversary of the passage of the Act, July 14, 1871, a proposition came from a syndicate of London bankers to take this whole amount of the five per cents. The National banks, with a few individuals in this country, subscribed for $117,518,950, and the residue was conceded to the foreign syndicate.
The leading arguments in the House for the policy of refunding were made by Mr. Dawes and by Mr. Ellis H. Roberts. The gain to the Government, as they proved, would be obvious and great. If the new bonds were exchanged for the whole amount of six per cents already issued, and were to run only till the time of redemption, the saving, without compounding interest, would amount to an enormous aggregate, certainly exceeding $600,000,000. The country was therefore disappointed that events beyond the sea had for a time suspended the operations of funding, and compelled the Treasury to maintain its high rate of interest. The suspension was not due to the neglect or mismanagement of any executive officer, or to lack of foresight on the part of Congress in providing the requisite legislation. It was simply a case in which the money market for the time prevented the Secretary of the Treasury from accomplishing any large proportion of the total funding operations contemplated by the Government.
When the Forty-second Congress met in December, 1871, the gold premium was 101-1/8 @ 110-3/8. The funding process was in its early stages. Specie was going to Europe at the rate of $66,000,000 per annum, and the balance of trade for that fiscal year was running against the United States to the amount of $183,000,000. It was a period of financial theories. The prejudice against National banks seemed to increase, and the fiat of a Government so rich and powerful as that of the United States would, it was maintained, suffice to make all the notes it might put out available for money, and the volume ought to be abundant enough to stimulate every nerve of production and trade.
Against such appeals the more conservative sentiment of the country held that honor and safety demanded the redemption of the United-States notes in coin at the earliest practicable day. The steps proposed to this end were extreme and therefore unwise. A large number of financiers urged the repeal of the legal-tender clause, the funding of the notes into bonds with some limitations, and further contraction of their volume by direct withdrawal. The argument was presented that if a man could not pay his overdue note he would deem it a privilege to give a new obligation to run on interest for a longer period, and the Nation ought to prove itself as honest as its citizens. This specious plea assumed that the legal-tender note was simply a promise to pay, with only the qualities of an individual obligation. It neglected to consider its different and essential character as a circulating medium. The advocates of the repeal of the legal-tender clause included many able lawyers, who however did not meet the objection that this clause was an element in the value of the currency, only less important than that of positive redemption. Nor did they seem to perceive that the abrogation of this feature in the contract between the Government and the note-holders would lead to confusion and distress in commercial circles, and would violate the obligations of common honesty.
The debate went on in Congress and in the press, but no general scheme of legislation could be agreed upon. Congress took up the tariff and the internal revenue, and passed the Acts of March 5, May 1, and June 6, 1872. By the first Act, all internal taxes were removed from fish, fruits, and meats. By the second, all duties on tea and coffee were absolutely removed after the first day of the ensuing July, reducing the revenue by this single Act to the extent of $20,000,000 per annum. The last Act (June 6) made a reduction of ten per cent in the customs duties on all importations of cotton, wool, iron, steel, paper, rubber, glass, and leather, with a number of specific changes in the tariff, and a large addition to the free list. The effect of the three Acts upon the revenue of the Government was a diminution of $44,000,000 in custom receipts and $20,650,000 in internal taxes. The machinery for collecting the internal revenue was greatly simplified and improved. A proposition introduced by Mr. Clinton L. Merriam of New York proved to be of great convenience and safety to the National banks. It permitted the Secretary of the Treasury to issue certificates of deposit in denominations of $5,000 without interest, in exchange for notes, and these certificates became available for the reserves of the banks and for settlements of clearing-house balances.
The Forty-third Congress met in a period of discouragement and disaster. The financial panic which swept over New York in the preceding September (1873) was followed by deep depression throughout the country. Wrecks of business enterprises were everywhere visible, the financial markets of the world were disturbed and alarmed, doubt and hesitation filled the minds of senators and representatives. A black flag seemed to overhand the finances of the Government as well as of individuals. Plans for funding the public debt were checked, the movement for resumption was weakened. The situation gave fresh arguments to the champions of the fiat dollar. It affected commerce and diminished the revenue by arresting production and by reducing imports. The division of opinion among senators and representatives was very pronounced, as was shown in the bills introduced, in the amendments submitted, and still more significantly in the debates upon the President's message. The first definite action was upon a currency bill introduced in the Senate. As reported from the Finance Committee, the first section fixed the maximum limit of United-States notes at $382,000,000. The limit was raised to $400,000,000 on motion of Mr. Wright of Iowa, and the Senate refused to allow any clause for future reduction. This was $44,000,000 beyond the amount of legal-tender notes then in circulation. An enlargement of the circulation of the National banks was made at the same time, by which in connection with the greenbacks there might be an addition of $100,000,000 to the paper currency of the country. The two Houses differed as to details, but soon agreed upon a bill containing the general provisions proposed in the Senate.
This action of Congress followed an earnest popular demand, resulting from the distrust which had become so general in consequence of the panic. A large proportion of the business men, especially in the West and South-West, believed that an increased circulation of notes would bring great relief. At the beginning of the session of Congress, President Grant had clearly intimated that he had come to the same conclusion. He said in his annual message: "In view of the great actual contraction that has taken place in the currency, and the comparative contraction continuously going on, due to the increase of manufactures and all the industries, I do not believe there is too much of it now for the dullest period of the year. Indeed, if clearing-houses should be established, thus forcing redemption, it is a question for your consideration whether banking should not be made free, retaining all the safeguards now required to secure bill-holders." But nearly five months had elapsed since the President had expressed these views, and during that time he had come to more conservative conclusions, and he now vetoed the bill, which did not seem so radical in its provisions as his own recommendation had been. To make National banking free before compelling the banks to redeem their notes in coin, would have proved a measureless inflation, and the President wisely receded from the position assumed in his annual message.
An important Act, changing the Customs laws, was reported from the Committee on Ways and Means by Mr. Ellis H. Roberts, who had made the investigation which led to it with great care and sagacity. It received the assent of both branches, though some amendments were added to it in the Senate. It was radical in its nature. It changed methods which had prevailed from the foundation of the Government, and it has withstood all criticism since its enactment. Instead of moieties and perquisites theretofore allowed to customs officers in the chief cities for the detection of frauds upon the revenue, specific salaries were established; and the modes of procedure against violators of the law were more clearly defined, and made more efficient.
The various propositions in this Congress fairly illustrate the conflicting views on financial matters held among the people. The business depression continued. The country looked to Congress for relief, and yet did not agree upon any measures of relief. The party in the majority was held responsible for the condition of industry and trade, and the elections in the autumn of 1874 showed how wide-spread and intense was the dissatisfaction with the existing order of things. The very freedom and breadth of discussion which were essential to secure unity of action were taken as ground of censure, and the failure to provide for a return to specie payment was brought as an indictment against the majority in Congress by those who had shown the least faith in the National credit and the least regard for the National honor.
For the first time since the organization of the Republican party and its accession to power in the Union, an opposition majority was elected to the House of Representatives. The Republican leaders took warning, and agreed that before losing control of the lower House they would secure the passage of an Act for the resumption of specie payment. President Grant and Secretary Bristow were earnest in recommending a measure of that character. Personal conferences to compare views, to consolidate Republican opinion, and to induce harmony of action were held early in the second session of the Forty-third Congress. Concessions were made, a middle ground was secured, and a measure was finally perfected. The long discussion had demonstrated the difficulties of the situation. But public necessity and party interest combined to induce a sacrifice of financial theories in order that practical results might be achieved.
The bill reported to the Senate by Mr. Sherman on the 21st of December (1874) embodied the conclusions which had been reached in private conference. The next day he gave notice that he would press it to an immediate vote. Mr. Thurman and Mr. Schurz spoke of it as a party measure agreed upon in caucus. The former argued at some length against the bill. The latter stated that "with the present volume of currency it is impossible to resume and maintain redemption," and he sought unsuccessfully to secure the cancellation of legal-tender notes at the rate of $2,000,000 per month. Mr. Bayard charged that the bill was rather adverse than favorable to resumption. The Senate passed the bill on the same day by a vote of 32 to 14. Not a single Democratic member of the Senate supported it. The negative vote was Democratic, with the exception of Sprague of Rhode Island and Tipton of Nebraska.
The House did not consider the bill until the 7th of January, directly after the holidays. It was then passed by 125 ayes to 106 noes, a much closer vote than had been anticipated. The Democrats were unanimous against it, and were strengthened by the accession of some twenty Republicans. These were of two classes. Judge Kelley stood as the representative of one, deeming it unwise and premature to force specie payment at that time; the other class was represented by Mr. Dawes and the Messrs. Hoar of Massachusetts, General Hawley of Connecticut, and some others from New England, who thought the measure that came from the Senate was incomplete, in that it did not provide for specie payment soon enough, or take means sufficiently energetic to secure it at the date named. With these exceptions the Act was a Republican measure, unanimously opposed by the Democratic party.
In approving the Act President Grant took the somewhat unusual step of sending to the Senate a special message. While declaring the measure a subject of congratulation, he suggested further legislation to make it more effective. His recommendations included first an increase of the revenue; second the redemption of legal-tender notes in coin, reckoned at a premium of ten per cent in the beginning and gradually diminishing until the date named in the Act for resumption; third an addition to the facilities for coinage, in one or more of the Western cities, so as to save to the miner the cost of transporting bullion to the principal mint at Philadelphia. Congress responded only to the first of the President's recommendations.
The policy of increasing the revenue became the subject of earnest discussion for the remainder of the Forty-third Congress. The rapid repeal of taxes, in which each session of Congress had vied with the one preceding it for a series of years, had produced its legitimate result in an impending deficiency in the Treasury. This was now remedied by the Act approved March 3, 1875, to protect the sinking-fund and provide for the exigencies of the Government. This Act repealed the provision for a reduction of ten per cent in certain customs duties under the Act of June 6, 1872, which had really been passed without full consideration or due appreciation of its probably effect. The Act also increased the duties on sugars and certain other articles, raised the tax on spirits from 70 to 90 cents a gallon, and on tobacco from 20 to 24 cents per pound, and modified in many respects the regulations concerning the collection of revenue from these products.
Such was the action as originally devised for resumption of specie payment. The most remarkable feature of the bill to that end was the promptness with which it was passed, after the long period of preparatory debate in both Houses of Congress on the subject. Nearly ten years had elapsed since the war closed, and although the subject was one which constantly engaged the attention of financiers and to a large extent enlisted the interest of the public, it had never been framed into a practical legislative measure. It had now been accomplished, as might well be said, in a day. The pressure upon the Republicans, caused by the Democratic victory of the preceding autumn, was very great. The Democratic senators and representatives, though recording themselves unanimously in opposition to the measure, were not willing to risk its defeat by the parliamentary strategy of delay, as they might easily have done. Their party leaders had no faith in the measure, but they knew how troublesome was the subject; they knew that it had proved the stumbling-block in the Republican policy for years, and they were more than willing that it should be taken out of the way on the eve of their accession to the control of the House of Representatives. If the Act should prove to be successful their hostility to it might be forgotten and they could well arraign their opponents for so long neglecting to enact it. If on the other hand it should prove unsuccessful, it would remain a standing reproach to the financial policy of the Republican party. Benefits as they well knew are soon forgotten, while injuries are tenaciously remembered; and this they believed was as true of parties as of persons. In short, as the leaders of the Democracy viewed it, the Resumption Act, passed over their combined vote, could do them no harm, while the chances were that it would inure to their advantage.
The Territory of Colorado, which was prevented by Andrew Johnson from entering the Union in 1866, was now, after the lapse of ten years, admitted as a State under a bill approved by General Grant in the closing year of his Presidency. The Territory had in the long interval developed great wealth in the precious metals, in rich deposits of iron and coal, and most surprising of all, in its agricultural resources. The two senators, Jerome B. Chaffee and Henry M. Teller, were kinsmen and were among the pioneers of the Territory who had been deeply concerned in its progress and development. Mr. Chaffee had represented the Territory in Congress for the six years immediately preceding its admission as a State, and had worked with energy and success for the interest of his constituents. He was somewhat impaired in health when he took his seat in the Senate, and did not desire to remain in public life. Mr. Teller continued in the Senate for a longer period, and acquired political leadership in his State.
Michael C. Kerr, who was elected Speaker of the Forty-fourth Congress, was prevented by ill-health from presiding for any considerable length of time. Owing to marked symptoms of pulmonary disease he was warned by friends that he should not accept a position so laborious and so exhausting as the Speakership. It was beyond his strength. He died during the Congressional recess on the 19th of August, 1876, in the fiftieth year of his age. At the meeting of Congress in the following December, Samuel J. Randall of Pennsylvania (who had been Mr. Kerr's competitor in the Democratic caucus) was chosen Speaker. He had represented a Philadelphia district for thirteen years and had acquired a thorough knowledge of the rules and methods of the House. He is a strong partisan, with many elements of leadership. He is fair-minded towards his political opponents, generous to his friends, makes no compromise with enemies, never neglects his public duties, and never forgets the interests of the Democratic party.