Reminiscences of Sixty Years in Public Affairs, Vol. 2

by George S. Boutwell

The success of the five per cent loan of 1871, of which I give a full account elsewhere, should have ended the contest in regard to the credit of the United States. A five per cent bond had been sold at par in the London market. The principal of the Public Debt was undergoing a monthly reduction and the gain in the interest account was sufficient to guarantee the payment of the principal in half a century. From that time forward, the leading bankers of Europe and American were ready to co-operate in placing the remaining five per cents, and then the four and a half and four per cents.

From that time forward the credit of the Government has been improving constantly. It was no longer difficult to borrow money at the rate of five per cent, and with the adjustment of our controversy with Great Britain there remained no reason to question the rapid progress of the United States in wealth and population. Indeed, it was then entirely feasible for the Government to have resumed specie payments, as any demand upon the Treasury for gold could have been met with proceeds of bonds sold in Europe. It was my opinion, however, that it would be wiser to delay resumption until the balance of trade should be so much in our favor that specie payments could be maintained by our own resources. And this was accomplished in less than six years. It is with a state as it is with an individual. With an established credit, or with a credit improving constantly and an income in excess of expenditures, there is no difficulty in meeting all liabilities as they mature. Such was the condition of the Treasury when I left it in March, 1873. In March, 1869, the Government was paying interest, measured at the gold value of its securities at the rate of seven per cent. In 1873 the rate was five per cent or less. In that time the net Public Debt had been reduced in the sum of three hundred and sixty- four million dollars, and the interest account had been reduced about thirty million dollars.

When I was engaged in placing bonds in Europe, a discussion arose among bankers in regard to the conflict of statements as to the amount of the Public Debt. By the reports of the Treasurer, which were the basis of the monthly statements, the debt was represented by the securities actually issued after deducting those which had been redeemed. By the report from the Registrar's Office which once each year corresponded in time to the monthly report, the balance was widely different. These facts impaired our standing financially. Upon the register's books the Government was charged with every issue that passed out of his office, and it was days, usually, and not infrequently it was weeks, before the securities passed from the Treasury into the hands of creditors or purchasers of securities. On the other hand the Treasurer would be entitled to credit for redemptions made days or weeks before the evidence of such payments would appear on the register's books. An analogous fact exists in the discrepancy between a depositor's account with his bank and the account at the bank as long as there are outstanding checks. The books would not agree and yet each might be accurate. As it was a necessity of the situation that the business of the Treasury should proceed day by day without interruption and it was difficult to explain the discrepancy to the many inquirers, I ordered Mr. Allison, the register, to accept for his annual reports the statement of the Treasurer, as his statements conformed to the existing facts on the days when the statements were made. The register protested that the order was not justified by the law, and that was the truth although there was no law forbidding such an act. The transaction, including my order, was brought before a committee of the House of Representatives, but as far as I know, the question of the legality of the proceedings, was not canvassed, or if attention was directed to the subject the committee may have treated it as an act in the public interest and from which no injury had arisen. Upon these facts, Senator Henry G. Davis, of West Virginia, made the charge that the books of the Treasury had been altered by my direction and that it was possible that some great fraud had been perpetrated which might be discovered if a committee were appointed to investigate the Treasury. A committee was granted, of which Senator Davis was a member. The investigation was a failure from his standpoint. Indeed, the alteration of the books of the Treasury would required the collusive co-operation of many persons, and evidence of the fact of the alteration would, of necessity, become known to hundreds of clerks.

Mr. Davis and some other Democrats implicated me in an analogous matter which they tried to understand but did not. The Loan Accounts of the Treasury Department showed that the payments on the Public Debt exceeded the receipts from loans in the enormous sum of one hundred and sixteen million dollars. I appointed a committee of clerks to examine the account in detail for the purpose of ascertaining whether the discrepancy was real or only apparent. The fact of the discrepancy was reported to Congress and the progress made in the investigation was noted in the appendix to the Annual Reports. It is probable, however, that these reports were never seen by Mr. Davis, and hence his suspicion that an investigation into the accuracy of the Treasury accounts would show an alteration of Treasury books, and of course, for some improper purpose.

The error began in Mr. Hamilton's time, and in consequence of the assumption of the State debts. Bonds were issued for those debts but there were no receipts paid into the Treasury, and consequently the debit side of the account was a blank. When the bonds were paid the payment became a credit on the loan account. In after times bonds were issued and sold below par. The account was charged with the receipts and upon payment the loan account was credited with the full amount paid. In some cases the discrepancy was augmented by the purchase of bonds and the payment of a premium, as was done in the second term of General Jackson. The investigation showed that the discrepancy was only apparent, and the criticisms and complaints ceased.

During my administration of the Treasury Department, the government of the Territory of Alaska was in my hands. The legislation of Congress was brief and indefinite and the only officers were collectors of customs, treasury agents and the revenue cutter officials. The principal topics of thought were the exclusion of liquors and firearms and the protection of the fur seal fishery. During the session of the Forty-first Congress a bill was passed which required the Secretary to lease the seal fishery to the best bidder, with a preference to the company which was then engaged in the fishery. On the question of the nature of the preference I took the opinion of the Attorney-General in advance of the contract. At that time I was opposed to any system of leasing and I so advised the House of Representatives in a report upon the subject. Congress, however, adopted the system of leasing and upon experience that system was shown to be more advantageous to the country. The value of the fur seal fishery depends upon the market for the dressed furs, and the value of the dressed furs depends upon the fashions, and the fashions are manipulated by the producers of the varied competing goods. The Government could never engage in the business of promoting fashions and training the markets. Fur seal skins have only a moderate commercial value when the fashion is not with them.

The question of the claim on Behring Sea was not then much considered. By the law of nations it is difficult to maintain the position that that vast body of salt water can be treated as a closed sea, but there are peculiarities which distinguish it from other bodies of water as the Mediterranean Sea and the Gulf of Mexico, which are partially enclosed.

Russia for a long time was the possessor of the adjacent mainland and of the islands which mark the limits and in a degree enclose the sea. That country claimed jurisdiction over the water. That claim was known and its validity was not disputed seriously. By the treaty Russia ceded about one half of the sea to the United States. Russia and the United States are the countries directly interested. England has no territorial rights and therefore she has no interest that is not common to other nations. The United States and Russia are interested in the seal fishery which can be preserved only by the protection of the animals in Behring Sea. It may be claimed fairly that Russia and the United State have property in these animals due to the fact that they gather upon the territory of the countries at certain seasons of the year. At other seasons they roam over the water as other animals roam over the land. They are, at least, partially domesticated. They are accustomed to the presence of the inhabitants of the islands which they occupy as breeding grounds and which they visit annually. Moreover, England has an interest in the preservation of the fishery. The skins are dressed in London, and thus far no one has been found, either in Europe or in the United States, who can compete with the London workmen. For the purpose of protecting and preserving the seal fishery, Behring Sea ought to be treated as a closed sea. For general commercial purposes it may be used as other parts of the ocean are used.

At a time, while I was Secretary of the Treasury, when I was detained at my lodgings by a slight illness, I received a visit from William E. Dodge a New York merchant and an importer of tin, whom I had known some years before when I was a member of Congress. He said that he had called to see me in regard to charges against his house preferred by the revenue officers relating to the importation of tin. I said, what was true, that I had not heard of the charges and that I had never suspected his house of any wrong-doing in their business. His statement in reply was a great surprise to me. He said that if there was anything which appeared to be wrong, or that was in fact a violation of law, the error or wrong was unintentional—that he and his partners intended to act always in good faith. He then stated that the claim amounted to more than two hundred thousand dollars, and he proposed then and there to pay the amount claimed, coupled, however, with the condition that the payment should be kept secret. I replied that I could not take the money upon such terms and that secrecy was impossible. Upon his statement there were three persons besides ourselves who had knowledge of the existence of the charges and the payment of money must come to the knowledge of the Treasury officials. I then said:

"Mr. Dodge, you cannot afford to pay this money. If you are innocent you should contest the matter in the courts, and if you convince the judge, even if you are technically wrong, that there was no intent to defraud the Government the Secretary can remit all the penalty, leaving you to pay the duty." His counsel, if they were competent, must have given him similar advice and yet he paid voluntarily, about two hundred and seventy-six thousand dollars to the officials in New York, of which he and his friends proceeded to complain. There was a suit, but it was the duty of the firm to contest the claim of the Government, if they had a defence. And if they had had a defence they were in no danger even if they had violated the law ignorantly, for no Secretary would have allowed honest men to suffer for an ignorant violation of the revenue laws. Senator Edmunds placed upon the records of the Senate a full statement of the case.