Recollections of Forty Years in the House, Senate and Cabinet / An Autobiography.

by John Sherman

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"We then come to the redemption in bonds. There is the moral obligation, on the part of the United States, which has issued its notes payable in coin, but for reasons of public policy does not pay in coin, to give to its creditors its notes bearing interest in place of coin. The United States cannot plead inability to pay interest on its notes if it will not or cannot pay the principal. Why should not the United States give its obligation bearing interest just as any individual would have to do? There is a moral obligation which rests upon the United States every day of the year to every holder of these notes, because, although the United States has not said when it will redeem these notes in coin, yet it is bound to do what it can to give them additional value. Although it may not receive these notes for customs duties, why can it not receive these notes in payment of bonds? Why discriminate against these notes in the sale of bonds? The answer is, that during the war we were compelled to do it; and so we were. I very reluctantly yielded to that necessity. We were compelled to do it; but, sir, it was only expected that that would continue to the close of the war; and, practically, during the whole of the war these notes were received at par for bonds at par.

"If, therefore, we are to take any step toward specie payments, why not give to the holder of United States notes who demands it, a bond of the United States bearing a reasonable rate of interest in exchange for his notes? This should only be done after a reasonable time, so as to prevent any injury to the private contracts between debtor and creditor. When we cannot pay the coin, we are honorably and sacredly bound to pay in a bond of the United States, which in ordinary times would approximate to par in gold. In other words, this is a qualified redemption. The Senator from Indiana calls it a 'half-way measure.' It is a half-way measure in the right direction, and indeed it is practical specie payment."

The bill led to a long continuous debate which extended to the 6th of April, 1874. Several amendments were offered and adopted which enlarged the maximum of notes to $400,000,000, and greatly weakened the bill as a measure of resumption of specie payments. By reason of these amendments many of those who would have supported the bill as introduced voted against it on its passage, I among the number. The bill, however, passed the Senate by a vote of yeas 29 and nays 24. The title of the bill was changed to "A bill to fix the amount of United States notes and the circulation of national banks, and for other purposes." This change of title indicates the radical change in the provisions of the bill. Instead of a return to specie payments, it provided for an expansion of an irredeemable currency.

The bill, as it passed the Senate, was as follows:

"Be it enacted, etc.,, That the maximum amount of United States notes is hereby fixed at $400,000,000.

"Sec. 2. That forty-six millions in notes for circulation, in addition to such circulation now allowed by law, shall be issued to national banking associations now organized and which may be organized hereafter, and such increased circulation shall be distributed among the several states as provided in section 1 of the act entitled 'An act to provide for the redemption of the three per cent. temporary loan certificates and for an increase of national bank notes,' approved July 12, 1870. And each national banking association, now organized or hereafter to be organized, shall keep and maintain, as a part of its reserve required by law, one-fourth part of the coin received by it as interest on bonds of the United States deposited as security for circulating notes or government deposits; and that hereafter only one-fourth of the reserve now prescribed by law for national banking associations shall consist of balances due to an association available for the redemption of the circulating notes from associations in cities of redemption, and upon which balances no interest shall be paid."

The bill was taken up in the House of Representatives on the 14th of April, 1874, and, without any debate on its merits, was passed by the vote of 140 yeas and 102 nays.

On the 22nd of April, President Grant returned the bill to the Senate with his veto, and the Senate, upon the question, "Shall the bill pass notwithstanding the objections of the President of the United States," voted 34 yeas and 30 nays. I voted nay. The president of the Senate declared "that two-thirds of the Senators present not having voted in the affirmative the Senate refuses to pass the bill."

Thus, for that session, the struggle for resumption ended; but the debate in both Houses attracted popular discussion, and tended in the right direction. The evil effects of the stringency in monetary affairs, the want of confidence, the reduction of the national revenue, the decline of domestic productions, all these contributed to impress Congress with the imperative necessity of providing some measure of relief. Instead of inflation, of large issues of paper money by the United States and the national banks, there grew up a conviction that the better policy was to limit and reduce the volume of such money to an amount that could be maintained at par with coin.