"Then there is no necessity for it."
Mr. Fessenden: "Yes, there is. I differ from you."
I continued:
"We have here the tables before us. The honorable Senator and I know when this debt matures. . . .
"That is the power now given, and he will use the power. He may think it to his interest to retire the whole of the seven-thirties or the ten-forties; but is it wise for us to give him that power now, at the heel of the war and before things have settled down? I do not think it is.
"I repeat, I do not wish to call in question the integrity of the Secretary of the Treasury. The Senator interjects by saying we must look ahead. I have done so. The difference between us is that I anticipate that the future of this country will be hopeful, buoyant, joyous. We shall not have to beg money of foreign nations, or even of our own people, within two or three years. Our national debt will be eagerly sought for, I have no doubt. I take a hopeful view of the future. I do not wish now to cripple the industry of the country by adopting the policy of the Secretary of the Treasury, as he calls it, by reducing the currency, by crippling the operations of the government, when I think that under any probability of affairs in the future, all this debt will take care of itself. I believe that if the Secretary of the Treasury would do nothing in the world except simply sit in his chair, meet the accruing indebtedness, and issue his treasury warrants, this debt will take care of itself, and will fund itself at four or five per cent. before very long. All that I object to in this bill is the power it gives the Secretary of the Treasury over the currency, to affect the currency of the country now and to anticipate debts that are not yet due. . . .
"That is what I am afraid of, his interference to contract the currency. The honorable Senator from Maine, however, would seem to think that I impute to him a wrong motive, and therefore I corrected him when he made the remark that I seemed to suppose the secretary was doing this improperly. I think not. The Secretary of the Treasury informed us that he desired to reduce the currency, and he has been doing it as far as he could. He has been accumulating large balances. He was opposed to the proviso which has been inserted in this bill, and yielded to it only with reluctance. That is admitted on all hands, and he is not precluded either in honor or propriety from carrying out his policy if you gave him the power to do it."
This bill became a law on the 12th of April, 1866. President Johnson relied entirely upon McCulloch, and had no opinions upon financial topics.
Now, nearly thirty years after the passage of this act, it is manifest that it was far the most injurious and expensive financial measure ever enacted by Congress. It not only compelled the United States to pay the large war rates of interest for many years, but postponed specie payments until 1879. It added fully $300,000,000 of interest that might have been saved by the earlier refunding of outstanding bonds into bonds bearing four or five per cent. interest. Mr. Fessenden, then chairman of the committee on finance, committed a grave error in hastily supporting the bill, an error which I believe he greatly regretted and which, in connection with his failing health, no doubt led him to resign his position as chairman of that committee. Although our debate was rather sharp, it did not disturb our friendly relations. With McCulloch in the treasury department, nothing could be done.
If the funding clauses of this act had been limited to the conversion of compound interest notes, treasury notes bearing interest, certificates of indebtedness, and temporary loans into bonds redeemable at the pleasure of the United States after a brief time, bearing not exceeding five per cent. interest, retaining in circulation during this process of refunding all the then outstanding United States notes, the result would have been greatly beneficial to the United States, but this was not the chief object of the Secretary of the Treasury. His primary object was to convert United States notes into interest-bearing bonds, and thus force the immediate resumption of specie payments or the substitution of national bank notes for United States notes. The result of his refunding was largely to increase the amount of six per cent. bonds, the most burdensome form of security then outstanding. In October, 1865, the amount of six per cent. bonds was $920,000,000; on the 1st of July, 1868, the six per cent. bonds outstanding were $1,557,844,600. The increase of these bonds under the operation of this law was thus over $637,000,000.