"There is no fact more manifest that the plethora of paper money is not only undermining the morals of the people by encouraging waste and extravagance, but is striking at the root of our material prosperity by diminishing labor . . . and if not speedily checked, will, at no distant day, culminate in widespread disaster. The remedy, and the only remedy within the control of Congress, is, in the opinion of the secretary, to be found in the reduction of the currency."
The chief part of his report was devoted to the danger of inflation and the necessity of contraction. He said the longer contraction was delayed the greater must the fall eventually be, and the more serious its consequences.
In accordance with the recommendations of Secretary McCulloch, a bill was introduced in the House by Justin S. Morrill, which authorized the Secretary of the Treasury, at his discretion, to sell any of the description of bonds authorized by the act of March 3, 1865, the proceeds to be used only to retire treasury notes or other obligations issued under any act of Congress. This bill as reported would have placed in the power of the secretary the retirement of all United States notes at his discretion. An amendment was made in the House which provided:
"That of United States notes not more than ten millions of dollars may be retired and canceled within six months from the passage of this act, and thereafter not more than four millions of dollars in any one month."
The bill as it came to the Senate was as follows:
"An act to amend an act entitled 'An act to provide ways and means to support the government,' approved March third, eighteen hundred and sixty-five.
"Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the act entitled 'An act to provide ways and means to support the government,' approved March third, eighteen hundred and sixty-five, shall be extended and construed to authorize the Secretary of the Treasury, at his discretion, to receive any treasury notes or other obligations issued under any act of Congress, whether bearing interest or not, in exchange for any description of bonds authorized by the act to which this is an amendment; and also to dispose of any description of bonds authorized by said act, either in the United States or elsewhere, to such an amount, in such manner, and at such rates, as he may think advisable, for lawful money of the United States, or for any treasury notes, certificates of indebtedness, or certificates of deposit, or other representatives of value, which have been or which may be issued under any act of Congress, the proceeds thereof to be used only for retiring treasury notes or other obligations issued under any act of Congress; but nothing herein contained shall be construed to authorize any increase of the public debt: Provided, That of United States notes not more than ten millions of dollars may be retired and canceled within six months from the passage of this act, and thereafter not more than four millions of dollars in any one month: And provided further, That the act to which this is an amendment shall continue in full force in all its provisions, except as modified by this act.
"Sec. 2. And be it further enacted, That the Secretary of the Treasury shall report to Congress at the commencement of the next session the amount of exchanges made or money borrowed under this act, and of whom and on what terms; and also the amount and character of indebtedness retired under this act, and the act to which this is an amendment, with a detailed statement of the expense of making such loans and exchanges."
This bill, without change, became a law April 12, 1866. I believed then, and now know, that the passage of this law was a great misfortune. It enabled the Secretary of the Treasury to retire at a rapid rate United States notes and to largely increase the bonded indebtedness of the United States. It would no doubt have brought us abruptly to the specie standard and made us dependent for circulating notes upon the issues of national banks.
At this time there was a wide difference of opinion between Secretary McCulloch and myself as to the financial policy of the government in respect to the public debt and the currency. He was in favor of a rapid contraction of the currency by funding it into interest bearing bonds. I was in favor of maintaining in circulation the then existing volume of currency as an aid to the funding of all forms of interest-bearing securities into bonds redeemable within a brief period at the pleasure of the United States, and bearing as low a rate of interest as possible. Both of us were in favor of specie payments, he by contraction and I by the gradual advancement of the credit and value of our currency to the specie standard. With him specie payments was the primary object, with me it was a secondary object, to follow the advancing credit of the government. Each of us was in favor of the payment of the interest of bonds in coin, and the principal, when due, in coin. A large proportion of national securities were payable in lawful money, or United States notes. He, by contraction, would have made this payment more difficult, while I, by retaining the notes in existence, would induce the holders of currency certificates to convert them into coin obligations bearing a lower rate of interest.