In obedience to this provision I had sold at par, for coin, $15,000,000 four and a half per cent. bonds, or $5,000,000 during each of the months of May, June and July, and $25,000,000 at par, in coin, of four per cent. bonds, or $5,000,000 for each of the months of August, September, October, November and December. Of the coin thus received $4,000,000 had been sold for the redemption of United States notes, and the residue was in the treasury. The surplus revenue had also, under the same authority, been applied to the redemption of the residue of United States notes, not redeemed by the sale of coin, and the balance was held in the treasury in preparation for resumption.
These operations, aided greatly, no doubt, by the favorable condition of our foreign commerce, had advanced the market value of United States notes to ninety-seven and three-eighths per cent., or within nearly two and a half per cent. of coin. They had also conclusively demonstrated the practicability of restoring United States notes to par, in coin, by the time fixed by law, and that without disturbing either domestic or foreign trade or commerce. Every step had been accompanied with growing business, with the advance of public credit, and the steady appreciation of United States notes. The export of bullion had been arrested, and our domestic supply had accumulated in the treasury. The exportation of other domestic products had been largely increased, with great advantage to all industries. I said the course adopted under the resumption act, if pursued, would probably be followed with like favorable results, and a sufficient fund for the maintenance of resumption would doubtless accumulate in the treasury at or before the date fixed by law.
I strongly urged the firm maintenance of a policy that would make good the promise contained in the United States note when issued— a promise repeated in the act "To strengthen the public credit," approved March 18, 1869, and made definite and effective by the resumption act, and asserted that dishonored notes, less valuable than the coin they promise, though justified by the necessity which led to their issue, should be made good as soon as practicable; that the public credit was injured by failure to redeem them; that every holder who was compelled by law to receive them was deprived of a part of his just due; that our national resources being ample, the process of appreciation being almost complete, and the wisdom of the law having been demonstrated, it was the dictate of good policy and good faith to continue the process of preparation, so that, at or before the time fixed by law, every United States note would have equal purchasing power with coin; that to reverse this policy in the face of assured success would greatly impair the public credit, arrest the process of reducing the interest on the public debt, and cause anew the financial distress our country had recently suffered.
The first section of the resumption act plainly provided for the permanent substitution of silver coin for the whole amount of fractional currency outstanding. Section 3 directed the permanent reduction of United States notes to an amount not exceeding $300,000,000. No distinct legislative declaration was made in the resumption act that notes redeemed after that limit was reached should not be reissued; but section 3579 of the Revised Statutes of the United States provided that "when any United States notes are returned to the treasury they may be reissued, from time to time, as the exigencies of the public interest may require."
I expressed in my report the opinion that, under this section, notes, when redeemed after the 1st of January, 1879, if the amount outstanding was not in excess of $300,000,000, might be reissued as the exigencies of the public service required. A note redeemed with coin was in the treasury and subject to the same law as if received for taxes, or as a bank note, when redeemed by the corporation issuing it. The authority to reissue it did not depend upon the mode in which it was returned to the treasury. But this construction was controverted, and I thought should be settled by distinct provisions of law. It should not be open to doubt or dispute. The decision of this question by Congress would involve not merely the construction of existing law, but the public policy of maintaining in circulation United States notes, either with or without the legal tender clause. These notes were of great public convenience—they circulated readily; were of universal credit; were a debt of the people without interest; were protected by every possible safeguard against counterfeiting; and, when redeemable in coin at the demand of the holder, formed a paper currency as good as had yet been devised.
It was conceded, I said, that a certain amount could, with the aid of an ample reserve in coin, be always maintained in circulation. Should not the benefit of this circulation inure to the people, rather than to corporations, either state or national? The government had ample facility for the collection, custody, and care of the coin reserves of the country. It was a safer custodian of such reserves than a multitude of scattered banks would be. The authority to issue circulating notes by banks was not given to the banks for their benefit, but for the public convenience, and to enable them to meet the ebb and flow of currency caused by varying crops, productions, and seasons. It was indispensable that a power should exist somewhere to issue and loan credit money at certain times, and to redeem it at others. This function could be performed better by corporations than by the government. The government could not loan money, deal in bills of exchange, or make advances on property.
I expressed the opinion, that the best currency for the people of the United States would be a carefully-limited amount of United States notes, promptly redeemable on presentation in coin, supported by ample reserves of coin, and supplemented by a system of national banks, organized under general laws, free and open to all, with power to issue circulating notes secured by United States bonds, deposited with the government and redeemable on demand in United States notes or coin. Such a system would secure to the people a safe currency of equal value in all parts of the country, receivable for all dues, and easily convertible into coin. Interest could thus be saved on so much of the public debt as could be conveniently maintained in permanent circulation, leaving to national banks the proper business of such corporations, of providing currency for the varying changes, the ebb and flow of trade.
I said that the legal tender quality given to United States notes was intended to maintain them in forced circulation at a time when their depreciation was inevitable. When they were redeemable in coin this quality might either be withdrawn or retained, without affecting their use as currency in ordinary times. But all experience had shown that there were periods when, under any system of paper money, however carefully guarded, it was impracticable to maintain actual coin redemption. Usually contracts would be based upon current paper money, and it was just that, during a sudden panic, or an unreasonable demand for coin, the creditor should not be allowed to demand payment in other than the currency upon which the debt was contracted. To meet this contingency, it would seem to be right to maintain the legal tender quality of the United States notes. If they were not at par with coin it was the fault of the government and not of the debtor, or, rather, it was the result of unforseen stringency not contemplated by the contracting parties.
In establishing a system of paper money, designed to be permanent, I said it should be remembered that theretofore no expedient had been devised, either in this or other countries, that in times of panic or adverse trade had prevented the drain and exhaustion of coin reserves, however large or carefully guarded. Every such system must provide for a suspension of specie payment. Laws might forbid or ignore such a contingency, but it would come; and when it came it could not be resisted, but had to be acknowledged and declared, to prevent unnecessary sacrifice and ruin. In our free government the power to make this declaration would not be willingly intrusted to individuals, but should be determined by events and conditions known to all. It would be far better to fix the maximum of legal tender notes at $300,000,000, supported by a minimum reserve of $100,000,000, of coin, only to be used for the redemption of notes, not to be reissued until the reserve was restored. A demand of coin to exhaust such a reserve might not occur, but, if events should force it, the fact would be known and could be declared, and would justify a temporary suspension of specie payments. Some such expedient could, no doubt, be provided by Congress for an exceptional emergency. In other times the general confidence in these notes would maintain them at par in coin, and justify their use as reserves of banks and for the redemption of bank notes.
As to the fractional currency I said the resumption act provided for the exchange and substitution of silver coins for such currency. To facilitate this exchange, the joint resolution, approved July 22, 1876, provided that such coin should be issued to an amount not exceeding $10,000,000, for an equal amount of legal tender notes. It also provided that the aggregate amount of such coin and fractional currency outstanding should not exceed, at any time, $50,000,000. That limit would have been reached if the whole amount of fractional currency issued and not redeemed, had been held to be "outstanding." It was well known, however, that a very large amount of fractional currency issued had been destroyed, and could not be presented for redemption, and could hardly be held to be "outstanding." The Treasurer of the United States, the Comptroller of the Currency, and the Director of the Mint concurred in estimating the amount, so lost and destroyed, to be not less than $8,083,513.