Reminiscences of Sixty Years in Public Affairs, Vol. 2

by George S. Boutwell

At the time I entered the Treasury the price of gold was at about forty per cent premium and when I left the Treasury it was at about twelve per cent premium. In the summer of 1869 I entered upon the policy of selling gold and buying bonds. The sales and purchases were made by the Assistant Treasurer in New York, but the bids were reported to me and by me accepted or rejected. A leading criticism was this: It was claimed that the simple method was to buy bonds in gold and thus to secure the bonds by one transaction.

This policy would have limited the number of purchasers of gold to those who could command bonds. By the policy pursued the sales of gold were open to anyone who had money. The gold was sold for currency, and the bonds were purchased with currency. When the Treasury announced its purpose to purchase bonds the price advanced in the market. The President remarked to me jocularly that he had suffered by not knowing what the department was about to do, inasmuch as he had sold bonds a few days too early and at a price below their then present value. During my service as Secretary of the Treasury I carried two questions only to the Cabinet discussions—and I have forgotten one of the questions, but it had some political significance. The other arose in this manner: My method of negotiating the sale of new bonds under the Funding Act of July, 1870, had been severely criticized. The Government was compelled to give ninety days' notice of its purpose to redeem five-twenty bonds, and as we could not with safety make a call until we had the funds, and as our chief source was the proceeds of new bonds we could not call until a sale was made. As a consequence the Government was a loser of interest on all called bonds for the period of ninety days. I arranged with the subscribers for new bonds, that they should have the interest for the ninety days upon a deposit of old bonds as security for the new ones subscribed and taken. The Government lost nothing, and the subscribers were benefitted greatly, and thus the subscriptions were increased.

During the campaign of 1872 I had an opportunity to negotiate a new loan upon the same basis. Knowing that the proceeding would renew criticism, I thought it proper to lay the case before the President and Cabinet. Upon their advice the negotiations were suspended.

Governor Fish on more than one occasion complained that the Cabinet were as ignorant of the proceedings and purposes of the Treasury as was the outside world. His complaints were well founded. Much of the business aside from routine matters was secret. For example my orders for the sale of gold and the purchase of bonds were never issued at any other time than Sunday evening, and then always by myself. The orders were sent to the Sub-Treasurer at New York, and given to the Associated Press at the same time. Consequently, on Monday morning all the country was informed, and under such circumstances that the chance of some to speculate upon the ignorance of others were reduced to the minimum. Moreover, the members of the Cabinet might divide. I should then be compelled to act upon my own judgment, and against the views of some of my associates. Again, if I had the support of the President and Cabinet, I could not have used the fact as an excuse for myself. The public knew no one but the Secretary. I chose to act upon my own judgment knowing that there was no one else to share the responsibility in case of failure.

In my report to Congress, in December, 1869, I set forth a system for refunding the Public Debt. I had unfolded the scheme in a speech in the House of Representatives, July 1868. I had already taken two steps preparatory to the undertaking. First, in May, 1869, I established the Sinking Fund under the Act of February 25, 1862. Second, by the purchase of bonds the world had assurance that the debt would be paid. The effect of these two measures was seen in the increasing market value of the bonds. In other words the credit of the country was improving. When the President was preparing his message of December, 1869, he called upon me for my views in regard to the Treasury, and I furnished him with a synopsis of my plan which he embodied in his message. I retained a copy of the synopsis and that copy is in the hands of my daughter. Simultaneously I prepared a bill upon the basis of the report and caused the same to be printed upon the Treasury press. Upon an examination of the papers on file in the archives of the Senate I find that cuttings from my printed bill form a part of the bill which was printed by the Finance Committee of the Senate of which Senator Sherman was chairman. The bill was changed in details but not in principle. The loan was in three parts as my bill was prepared. A portion at 5 per cent, a portion at 4½ per cent, and a third portion at 4 per cent. The division was retained in the statute, but the amount of the loan at each of the several rates was changed. By my bill the interest could be made payable in Europe. This feature was stricken out by the committees in the House or the Senate. This change I overcame or avoided ultimately by a rule of the department by which interest on registered bonds could be made payable in checks of the Treasurer. These checks are now sent to all parts of the world and through the banking facilities they are everywhere as good as gold, subject only to the natural rates of exchange between different countries. Since that time railroad companies and other business corporations have accepted the system. My plan of making the interest on the bonds payable in Europe was rejected under the lead of gentlemen who thought it involved some sort of national degradation. My object was to make the loan more negotiable in Europe and thus to extend the demand, and consequently, to increase the value of our securities.

The records of the Treasury Department show that on the 23rd day of December, 1869, I sent to General Schenck of the House, a draught of a bill for refunding the Public Debt. The same records show that on the 19th of January, 1870, I sent to Senator Sherman eight copies of a bill. These bills were framed in conformity to the plan marked out in my report of December, 1869. Previous to the preparation of that report I had not any conference with any member of Congress nor with any other person in regard to the details of the scheme.

On the 12th of July, 1870, Mr. Sumner introduced a bill for refunding the Pubic Debt (Sen. S. 80). As might have been expected it was not a practical measure, and on the 3rd day of the following February Mr. Sherman reported the bill of Mr. Sumner in a new draught. A single copy of that bill is on file in the office of the secretary of the Senate, and no other copy can be found.

This bill conforms to my report, and upon my recollection it is the bill as prepared by me. The division of the loan conforms to my recommendation in the report, and it provides that the interest may be made payable abroad. Subsequently these provisions were changed. General Schenck had then recently returned from Europe and he was of the opinion that the loan could all be negotiated at four or four and one half per cent and it was this opinion on his part which led to delays. The bill was not passed till July, 1870, at the very moment when the Franco-Prussian War opened. Had the bill been passed in March, quite large negotiations could have been made in April of that year. But the sale of the new five per cent bonds was an undertaking of great difficulty. It is now impossible to realize that a six per cent bond was not worth par in 1869-'70. At that time the leading bankers of the world were unwilling to engage in the undertaking. The Rothschilds and Barings stood aloof. The Amsterdam bankers wrote letters of inquiry, but they did nothing more. Mr. Morton, of the firm of Morton, Bliss & Co., New York, was inclined to engage in the business, but his partner, Mr. Bliss was doubtful of the success of the scheme, and they therefore stood aside when the first negotiations were attempted. Finally an arrangement was made with Jay Cooke & Co., by which they advertised what was called a popular loan, asking for a subscription to the five per cent bonds.

Subsequently I advised Congress to issue four per cent fifty year bonds as a basis of the banking system, coupled with an offer to the existing banks of a preference, but in case any bank should refuse to exchange the bonds then held by such bank, its charter after one year should be annulled and its banking privileges should be open to any other association that would purchase the four per cent bonds. This proposition aroused the hostility of the national banks and forthwith the city was invaded by bank officers and agents who succeeded in defeating the bill.

I had early foreseen that the Public Debt could be paid without much delay, and without a system of oppressive taxation. In July, 1863, in the introduction to my volume on the tax system of the country, I had predicted that the revenues would be equal to the payment of interest on a debt twice as large as the Public Debt then was, together with large annual payments of principal. I predicted also that these payments would menace the national banking system. My scheme looked for the perpetuation of that system for fifty years at least. The banks looked upon the scheme as a hostile project and they were therefore led to defeat a measure which in fact was liberal in the extreme. At that time the capital of all the national banks was limited to three hundred million dollars. Thus did the banks defeat a measure which was designed to secure their perpetuity and calculated to promote their financial interests. They acted upon the idea that the credit of the country could never be so far advanced that a four per cent bond would be worth par.