American politics (non-partisan) from the beginning to date

by Thomas V. Cooper; Hector T. Fenton

The Three Per Cent. Funding Bill.

The 3 per cent. Funding Bill passed the House March 2, and was on the following day vetoed by President Hayes on the ground that it dealt unjustly with the National Banks in compelling them to accept and employ this security for their circulation in lieu of the old bonds. This feature of the bill caused several of the Banks to surrender their circulation, conduct which for a time excited strong political prejudices. The Republicans in Congress as a rule contended that the debt could not be surely funded at 3 per cent.; that 3½ was a safer figure, and to go below this might render the bill of no effect. The same views were entertained by President Hayes and Secretary Sherman. The Democrats insisted on 3 per cent., until the veto, when the general desire to fund at more favorable rates broke party lines, and a 3½ per cent. funding bill was passed, with the feature objectionable to the National Banks omitted.

The Republicans were mistaken in their view, as the result proved. The loan was floated so easily, that in the session of 1882 Secretary Sherman, now a Senator, himself introduced a 3 per cent. bill, which passed the Senate Feb. 2d, 1882, in this shape:—

Be it enacted, &c. That the Secretary of the Treasury is hereby authorized to receive at the Treasury and at the office of any Assistant Treasurer of the United States and at any postal money order office, lawful money of the United States to the amount of fifty dollars or any multiple of that sum or any bonds of the United States, bearing three and a half per cent, interest, which are hereby declared valid, and to issue in exchange therefore an equal amount of registered or coupon bonds of the United States, of the denomination of fifty, one hundred, five hundred, one thousand and ten thousand dollars, of such form as he may prescribe, bearing interest at the rate three per centum per annum, payable either quarterly or semi-annually, at the Treasury of the United States. Such bonds shall be exempt from all taxation by or under state authority, and be payable at the pleasure of the United States. “Provided, That the bonds herein authorized shall not be called in and paid so long as any bonds of the United States heretofore issued bearing a higher rate of interest than three per centum, and which shall be redeemable at the pleasure of the United States, shall be outstanding and uncalled. The last of the said bonds originally issued and their substitutes under this act shall be first called in and this order of payment shall be followed until all shall have been paid.”

The money deposited under this act shall be promptly applied solely to the redemption of the bonds of the United States bearing three and a half per centum interest, and the aggregate amount of deposits made and bonds issued under this act shall not exceed the sum of two hundred million dollars. The amount of lawful money so received on deposit, as aforesaid, shall not exceed, at any time, the sum of twenty-five million dollars. Before any deposits are received at any postal money office under this act, the postmaster at such office shall file with the Secretary of the Treasury his bond, with satisfactory security, conditioned that he will promptly transmit to the Treasury of the United States the money received by him in conformity with regulations to be prescribed by such secretary; and the deposit with any postmaster shall not at any time, exceed the amount of his bond.

Section 2. Any national banking association now organized or hereafter organized desiring to withdraw its circulating notes upon a deposit of lawful money with the Treasury or the United States as provided in section 4 of the Act of June 20, 1874, entitled “An act fixing the amount of United States notes providing for a redistribution of National bank currency and for other purposes,” shall be required to give thirty days’ notice to the Controller of the Currency of its intention to deposit lawful money and withdraw its circulating notes; provided that not more than five million of dollars of lawful money shall be deposited during any calendar month for this purpose; and provided further, that the provisions of this section shall not apply to bonds called for redemption by the Secretary of the Treasury.

Section 3. That nothing in this act shall be so construed as to authorize an increase of the public debt.

In the past few years opinions on the rates of interest have undergone wonderful changes. Many supposed—indeed it was a “standard” argument—that rates must ever be higher in new than old countries, that these higher rates comported with and aided the higher rates paid for commodities and labor. The funding operations since the war have dissipated this belief, and so shaken political theories that no party can now claim a monopoly of sound financial doctrine. So high is the credit of the government, and so abundant are the resources of our people after a comparatively short period of general prosperity, that they seem to have plenty of surplus funds with which to aid any funding operation, however low the rate of interest, if the government—State or National—shows a willingness to pay. As late as February, 1882, Pennsylvania funded seven millions of her indebtedness at 3, 3½ and 4 per cent., the two larger sums commanding premiums sufficient to cause the entire debt to be floated at a little more than 3 per cent., and thus floating commands an additional premium in the money exchanges.