Twenty Years of Congress, Volume 2 / From Lincoln to Garfield, with a Review of the Events Which Led to the Political Revolution of 1860

by James Gillespie Blaine

Gold was lower than it had been, but great disappointment was felt because the premium, which had ranged in January, 1867, at 32-1/8 @ 37-7/8, was in November 37½ @ 48-5/8, and the latter figure was higher than the quotation at the beginning of the first session of the Thirty-ninth Congress. The charge was current, and was believed by many, that the premium had been advanced by speculators to compel Congress to enforce the policy of contraction. On the other hand, it was declared to be demonstrably true that the reduction of the volume of paper did not lower the premium on gold. It only depressed production and placed the markets of every kind under the control of reckless operators. Surely, it was argued, the contraction had been severe enough to satisfy the advocates of the most stringent Procrustean policy. The short obligations had been cut down nearly one-half since January, 1866. If account were taken of compound-interest notes the reduction in currency ought to be reckoned at $100,000,000, and even at twice that sum, since the cash held by the Treasury had been taken from the circulation of the country.

The Secretary of the Treasury still adhered to the policy of contraction, and yet was charged with putting into circulation legal-tender notes that had been once withdrawn, in order to affect the market. Thus in August, 1866, between the 8th and the 23d inclusive, he had withdrawn and destroyed $12,530,111, and of the 31st of that month he issued $12,500,000. He had again in October, 1866, cancelled $500,000 on the 24th, and issued anew the same sum on the 25th. On the 31st of January, 1867, he had issued anew $4,000,000, May 31 $2,500,000, and during December, 1867, $1,842,400. In answer to remonstrance against this practice the Secretary maintained that the authority to contract and to cancel the legal-tender notes did not require him to do it, but left it within his discretion. This was unquestionably the law of the case.

Mr. McCulloch in his official report insisted on the funding or payment of the balance of interest-bearing notes, and upon a continued contraction of the currency, as the first measure for promoting the National prosperity; and he presented a strong argument in favor of permanent specie payment. He reported that he had not always retired notes in each month to the extent permitted, but he declared that the effect of the policy as carried out had been salutary and that its continuation would be obviously wise. Yet he feared that financial views were inculcated, which if not corrected might lead to its abandonment. The truth was that the Secretary's policy was counter to the popular wish, and evidence was accumulating that Congress would not sustain him in its continued enforcement. The Secretary had confidently relied upon the bankers and commercial men of the country; but the serious fact was now developed, that many of the most prudent financiers had concluded that the changes in the volume of the currency were causing mischief, and that the process of contraction had been carried as far as was desirable.

The Secretary argued bravely and wisely in his report, in favor of paying the principal and interest of the Government bonds in coin. His argument was designed to meet heresies which had found favor in unexpected quarters. The plea was urged by the new and short-lived school of finance that the notes of the National banks should be withdrawn and greenbacks substituted for them, that all payments by the Government on the principal of the bonds should be in its own paper. It was admitted by these novel theorists that the bonds on their face promised coin for interest; but they maintained that the bonds had been issued in large part when gold was at a heavy premium for paper, and could rightfully be liquidated in paper at its advanced value. Propositions were frequently presented to stop the issue of bonds and to pay out notes for any obligations of the Government offered at the Treasury on becoming due in any form. The pressure of rapid contraction secured a hearing for every extravagant proposition. Prejudice against speculators in gold, who during the war had grown rich on the disasters of the Union, was added to the discussion, especially while the premium was maintained and the National credit charged with odium on its account.

At the opening of the second session of the Fortieth Congress (December, 1867) numerous resolutions and bills demanding the stoppage of contraction were referred to the Committee on Ways and Means. Five days afterwards Mr. Schenck reported a bill of four lines, by which the "further reduction of the currency by retiring and cancelling United-States notes is prohibited." It had the unanimous approval of the Committee on Ways and Means, and was passed by the House,—ayes 127, noes 32. The minority included a goodly number of leading Republicans. In the Senate Mr. Sherman, in supporting the bill, stated the amount of contraction since August 1, 1866, at $140,122,168. He argued from these figures that "contraction should go no farther while industry is in a measure paralyzed, and that Congress ought to resume control of the currency, which should not be delegated to any single officer." He declared that the measure was entirely preliminary to other legislation, "which must include the banking system, the time and manner of resuming specie payments, the payment of the debt and the kind of money in which it may be paid, and the reduction of expenditures and taxes." Debate was somewhat prolonged, and a conference committee gave final form to the measure, which failed to receive the President's signature, but became a law without it. It is known as the "Act of February 4, 1868, prohibiting any further reduction of the currency, and authorizing the replacing of mutilated notes." By this Act the minimum limit of legal-tender notes was fixed at $356,000,00,—the volume then afloat after Mr. McCulloch's policy of contraction had done its work.

The actual legislation of the second session of the Fortieth Congress included also the repeal of the tax on raw cotton, and the further reduction of internal revenue, by the Acts of March 31 and July 20 (1868). Great relief was given to manufactures by the abolition of the five per cent tax on a variety of products. The surrender of revenue was estimated at $23,000,000 on cotton at $45,000,000 on manufactures. These concessions were much needed, for the producers of cotton were crippled by the condition of their States, and manufacturers found that prices did not justify the payment of these war charges.

In his annual message to Congress in December, 1868, President Johnson argued "that the holders of our securities have already received upon their bonds a larger amount than their original investments, measured by the gold standard. Upon this statement of fact it would seem but just and equitable that the six per cent interest now paid by the Government should be applied to the reduction of the principal, in semi-annual installments, which in sixteen years and eight months would liquidate the entire National debt." This bold and shameless advocacy of repudiation was less mischievous than it would have been if Mr. Johnson had held a longer lease of power, and if the people had not in the Presidential election pronounced so clear and positive a verdict in favor of the maintenance of the National credit. The Senate deemed it worth while to put on record a resolution condemning this part of Mr. Johnson's message. Mr. Hendricks of Indiana moved a substitute indorsing the statement in the message, and closing with the words of the Democratic National Convention in favor of paying the bonds in lawful money. Only seven senators supported his substitute, while forty-five opposed it; and President Johnson's proposal for repudiation was, by the action of the Senate, "utterly disapproved and condemned," —ayes 43, noes 6. In the House of Representatives a similar resolution was passed by a vote of 155 ayes to 6 noes, 60 not voting. No Democratic member in that body seemed willing to assume the objectionable position taken by Mr. Hendricks in the Senate, and a declaration "that all forms of repudiation are odious to the American people" was adopted without a division.

The financial achievement of the National Government herein reviewed, for the four years following the war, may be briefly summarized. The National debt was reduced by the sum of nearly $300,000,000, while at the same time the Government reduced its revenue to the amount of $140,000,000 per annum by the repeal of a long series of internal taxes. During this period more than $35,000,000 had been paid from the Treasury towards the construction of the Union and Central Pacific Railroads, and $7,200,000 was paid to the Russian Government on account of the purchase of the Territory of Alaska. It is also to be noted that within this period were embraced all the expenses incident to the disbandment of the Union army, and also a very large addition to the pension-list. Notwithstanding all these enormous expenditures the business interests of the country continued prosperous, and the fact that so large a reduction had been made in internal taxes gave promise that within a comparatively short period the Government would be able to remove all levies that were in any degree oppressive or even vexatious to private interests.

By reason of his official and personal connection with the President, Mr. McCulloch had failed to secure cordial support from Congress, and had moreover given offense by his obvious sympathy with the free-traders, who were already beginning to assault the protective tariff which the necessities of war had led the country to adopt. The Secretary had also gone far beyond the popular wish and the best business judgment of the country in regard to the rapid contraction of the currency. But while his politics and his policies were not acceptable to Congress or to the people, he is entitled to high credit for his direct, honest, intelligent administration of the Treasury Department. In the peculiar embarrassments to the administration of the Government, caused by the course of President Johnson, it was a matter of sincere congratulation that a Secretary of the Treasury, so competent and trustworthy as Mr. McCulloch had approved himself, was firmly in place before the serious political disturbances began—a congratulation in which his most ardent Republican opponents were ready to join, knowing how fatal it might prove if President Johnson had the opportunity to nominate his successor.

Throughout the more difficult period of his administration of the department, Mr. McCulloch was aided by two most intelligent and efficient officers. Mr. William E. Chandler, though only twenty-nine years of age, was appointed First Assistant Secretary in March, 1865, and exhibited great aptitude, discrimination, and ability in his position. He developed an admirable talent for details, a quick insight into the most difficult problems that came before the Department, and at all times an honorable devotion to public duty. The Bureau of Internal Revenue, the most important of the Treasury Department, was under the direction of another citizen of New Hampshire, Edward Ashton Rollins. The Bureau for a time collected more than half the revenue of the United States, and required in its Commissioner integrity, administrative talent, and singular skill in providing against every form of fraud. No department of the Government had to contend against so many corrupt combinations to rob the Government, and the slightest relaxation of vigilance on the part of the Commissioner might involve at any time a loss of millions to the National Treasury. In the complex and difficult duties of this station, Mr. Rollins proved himself equal to every requirement.