The proposition with which I begin is to refund our six per cent. Five-Twenties of 1862, amounting to upward of five hundred millions, in five per cent. Ten-Forties. In taking the term “Ten-Forties,” I adopt the description of a bond well known and popular at home and abroad, whose payment “in coin” is expressly stipulated by the original Act authorizing the issue.[211] The bond begins with a good name, which will commend it. The interest which I propose is larger than I would propose for any late bond. It is important, if not necessary, in order to counteract the suspicion which has been allowed to fall upon our national credit. Even our sixes are now below par in Europe. But they will unquestionably share the elevation of the new fives substituted. Our first attempt should be with the latter. Let these be carried to par, and we shall have par everywhere.
In this process the first stage is the conviction that all our bonds will be paid in the universal money of the world. All bonds, whether fives or sixes, will then advance. I know no way in which this conviction can be created so promptly and easily as by redeeming in gold some one of our six per cent. loans; and that most naturally selected is the first, which is already so noted from the discussion to which it has been subjected. But this can be done only by offering to holders the option of coin or a satisfactory substitute bond. With a new issue of five per cent. Ten-Forties, limited in amount to about the aggregate of the six per cent. Five-Twenties of 1862,—say five hundred millions,—I cannot doubt that every foreign holder of such sixes will accept the fives in lieu of coin; and so much of that loan as is held at home may be paid in coin, if preferred by the holders, from the proceeds of an equal amount of fives placed in Europe at par for coin.
Then will follow the advantage of this positive policy. The national credit will be beyond question. Nobody will doubt it. The public faith will be vindicated. The time will have come, which is the condition-precedent named by the Secretary of the Treasury, when “the want of faith in the Government” will be removed, and the door will be open to cheap loans. This will be of course: it cannot be otherwise, if we only do our duty. Our fives, being limited in amount, after being taken at par in preference to coin, will advance in value, so that the investment will become popular. People will desire more, but there will be no more; so that, without difficulty or delay, we may hope to refund five hundred millions of our subsequent sixes, or so much as may be desirable, at four and a half per cent. in Fifteen-Fifties, if not at four per cent. in Twenty-Sixties.
In this operation the initial point is the national credit. With this starting-point all is easy. Our fives will at once ascend above par, while a market is opened for four and a half or four per cents. The stigma of Repudiation, whether breathed in doubt or hurled in taunt, will be silenced. There are other fields of glory than in war, and such a triumph will be among the most important in the annals of finance. But to this end there must be no hesitation. The offer must be plain,—“Bonds or coin,”—giving the world assurance of our determination. The answer will be as prompt as the offer,—“Bonds, and not coin.”
In the process of Financial Reconstruction we cannot forget the National Banks, which have already done so much. The uniform currency which they supply throughout the country commends them to our care. Accustomed to the facilities this currency supplies, it is difficult to understand how business was conducted under the old system, when every bank had its separate currency, taking its color, like the chameleon, from what was about it, so that there were as many currencies, with as many colors, as there were banks.
Two things must be done for the national banks: first, the bonds deposited by them with the Government must be reduced in interest; and, secondly, the system must be extended, so as to supply much-needed facilities, especially at the West and South.
I doubt if the national banks can expect to receive in the future more than four per cent. from the bonds deposited by them with the Government; and considering the profits attributed to their business, it may be that there would be a reluctant consent even to this allowance. Here it must be observed, that the whole system of national banks is founded upon the bonds of the nation; so that, at the rate of liquidation now adopted for the national debt, the system will be without support in the lapse of twelve or fifteen years. The stability of the banks, which is so vital alike to the national currency and to the pecuniary interests involved in the business, can be assured only by an issue of bonds for a longer term. Of course, the longer the period, the more valuable the bond. To reduce the interest arbitrarily on the existing short bonds of the banks, without offering compensation in some form, would be positively unjust, besides being an infringement of the guaranties surrounding such bonds, and therefore a violation of good faith. A substitute Twenty-Sixty bond will be assurance of stability for this length of time, while the additional life of the bond will be a compensation for the reduction of interest. As it is not proposed to issue such bonds immediately, except for banking purposes, they will not fall below par, and this par will be coin, which, I need not say, the sixes now held by the banks will not command. If, through the failure or winding-up of any bank, an amount of the substituted bonds should be liberated, there will be an instant demand for them at par by new banks arising to secure the relinquished circulation.
The extension of bank-notes from three to five hundred millions, which I propose, will extend the banking system where it is now needed. This alone is much. How long the Senate debated this question at the last session, without any practical result, cannot be forgotten. That debate certifies to the necessity of this extension. The proposition I offer shows how it may be accomplished and made especially beneficent. The requirement from all the banks of new four per cent. bonds, at the rate of one hundred dollars for eighty dollars of notes issued and to be issued, would absorb six hundred and twenty-five millions of the national debt into four per cents., while the withdrawal of one dollar of greenbacks for each additional dollar of notes will go far to extinguish the outstanding greenbacks, thus quietly, and without any appreciable contraction, removing an impediment to specie payments. Naturally, as by a process of gestation, will this birth be accomplished: it will come, and nobody can prevent it.