And thus thirty-year securities, subsequently at a premium of more than twenty-five per cent., were forced into the law by the determined action of the House.
This proved to be an error. No bonds should have been authorized that did not contain a stipulation that the government might pay them at pleasure, after a brief period and before they became due. This stipulation during the war was inserted in the 5-20 and the 10-40 bonds. Its wisdom and importance were demonstrated by the early substitution of bonds bearing a lower rate of interest for the 5-20 six per cent. bonds. When this precedent was cited, and its saving to the government shown, it was strongly urged by the House conferees that such a provision would prevent the sale of bonds, and that there was no probability that bonds bearing less than four per cent. could be sold at any time at par. This was proven to be an error within a short period, for securities of the United States bearing three per cent. interest have been sold at par.
Some years later, Senator Beck, of Kentucky, arraigned me for consenting to the issue of bonds running thirty years, but I was able to show by the public records that I resisted this long duration of the four per cent. bonds, that the House insisted upon it, and that Mr. Beck, then a Member of the House, voted for it. The same objection was made by the Senate conferees to the bonds bearing four and a half and five per cent., that no stipulation was made authorizing the government to anticipate the payment of these bonds. Under the Senate bill the bonds would have been redeemable in a brief period, and would, no doubt, have been redeemed by bonds bearing four, three and a half, or three per cent. interest.
The bill, as it passed, authorized the conversion of all forms of securities, then outstanding, into the bonds provided for by the refunding act at par one with the other. The Secretary of the Treasury could sell the bonds provided for by the refunding act at par, and with the proceeds pay off the then existing securities as they became redeemable. In the discussion of this bill in the Senate, on the 28th of February, 1870, I made a carefully prepared speech, giving a detailed history of the various securities outstanding, and expressed the confident opinion that the existing coin bonds bearing six per cent. interest, and other securities bearing interest in lawful money, could be refunded into bonds running for a short period, bearing a reduced rate of interest. I said:
"After a long and memorable debate of over two months in both Houses of Congress, the act of February 25, 1862, was adopted. That was a revolutionary act. It was a departure from every principle of the financial policy of this government from its foundation. It overthrew, not only the mode and manner of borrowing money, but the character of our public securities, and was the beginning of a new financial system, unlike anything that had been ventured upon by any people in the world before. This new policy was adopted under the pressure of the severest necessities, and only because of those necessities, and was intended to meet a state of affairs never foreseen by the framers of the constitution.
"Now, sir, it is important to understand the principles of this act; for this act was the foundation of all the financial measures during the war. It was upon the basis of this act, enlarged and modified from time to time, that we were enabled to borrow $3,000,000,000 in three years and to put down the most formidable rebellion in modern history. This act was based upon certain fundamental conditions.
"Extraordinary power was conferred upon the Secretary of the Treasury to borrow money in almost any form, at home or abroad, practically without limitation as to amount, or with limits repeatedly enlarged. Every form of security which the ingenuity of man could devise was provided for by this act or the acts amending it. Under these acts bonds were issued, payable in twenty years, treasury notes were issued, certificates of indebtedness, compound-interest notes, and other forms of indebtedness, with varying rates of interest. There were, however, distinct limitations upon the nature and character of these loans. It was stipulated first, that more than six per cent. interest in gold should not be paid on the bonds issued, nor more than seven and three-tenths interest in currency should be paid on the notes issued; and second, all the loans provided by this act were short loans, redeemable within a short period of time at the pleasure of the United States. Thus the gold bonds were redeemable after five years, the treasury notes were redeemable after three years, and all forms of security were within the power of the United States at the end of five years at furthest. And third, no securities were to be sold at less than par. Their unavoidable depreciation was measured, not by the rate of their discount, but by the depreciation of the currency. We held our bonds at par in paper money, though at times they were worth only forty per cent. of gold. . . .
"Now, Mr. president, it may be proper to state the reasons for this policy. Short loans were adopted that we might not bind the future to the payment of usurious rates of interest. We recognized the existence of a great pressing necessity that would tend to depreciate the public credit; and we took care, therefore, not to make these loans for a long period, so as to bind the future to the payment of the rates which we were then compelled to pay.
"We provided for gold interest and gold revenue, to avoid the extreme inflations of an irredeemable currency. We wished to rest our paper fabric on a coin basis, and to keep constantly in view ultimate specie payments. I believe but for that provision in the loan act of February 25, 1862, that in 1864 our financial system would have been utterly overthrown. There was nothing to anchor it to the earth except the collection of duties in coin and the payment of the interest on our bonds in coin.
"But, sir, the most important and the most revolutionary principle of the act of February 25, 1862, was the legal tender clause. This was a measure of imperious and pressing necessity. I can recall very well the debates in the Senate and in the House of Representatives upon the legal tender clause. We were then standing in the face of a deficit of some $70,000,000 of unpaid requisitions to our soldiers. Creditors in all parts of the country, among them the most powerful corporations of this country, had refused our demand notes, then very slightly depressed. We were under the necessity of raising two or three million dollars per day. We were then organizing armies unheard of before. We stood also in the presence of defeat, constant and imminent, which fell upon our armies in all parts of the country. It was before daylight was shed upon any part of our military operations. We adopted the legal tender clause then as an absolute expedient. Remembering the debate, I know with what slow steps the majority of the Senate came to the necessity of adopting legal tenders."