"To the Congress of the United States.
"You are confronted, at the threshold of your legislative duties, with a condition of the national finances which imperatively demands immediate and careful consideration."
This threatening announcement of a great national danger startled the general public, who had settled down into the conviction that all was going on very well with a Democratic administration. The President said that the amount of money annually exacted largely exceeded the expenses of the government. This did not seem so great a calamity. It was rather an evidence of good times, especially as he could apply the surplus to the reduction of the national debt. Then we were told that:
"On the 30th day of June, 1885, the excess of revenues over public expenditures, after complying with the annual requirement of the sinking fund act, was $17,859,735.84; during the year ended June 30, 1886, such excess amounted to $49,405,545.20; and during the year ended June 30, 1887, it reached the sum of $55,567,849.54."
In other words, we had an excess of revenue over expenditures for three years of about $122,000,000. The sinking fund during that three years, as he informed us, amounted in the aggregate to $138,058,320; that is, we had stipulated by law to pay of the public debt that sum during three years, and had been able to pay all we agreed to pay, and had $122,000,000 more. He did not state that during and subsequent to the panic of 1873 the United States did not pay the sinking fund, and this deficiency was made good during the prosperous years that followed 1879. Upon the facts stated by him he based his extraordinary message. The only recommendation made by him was a reduction of taxation. No reference to the vast interests intrusted to departments other than the treasury was made by him except in a brief paragraph. He promised that as the law makes no provision for any report from the department of state, a brief history of the transactions of that important department might furnish the occasion for future consideration.
I have a sincere respect for President Cleveland, but I thought the message was so grave a departure from the customary annual message of the President to Congress that it ought to be answered seriatim. I did so in a carefully prepared speech. The answer made can be condensed in a few propositions: An increase of revenue (the law remaining unchanged) is an evidence of unusual trade and prosperity. The surplus revenue, whatever it might be, could and ought to be applied to the reduction of the public debt. The law under which the debt was created provided for this, by requiring a certain percentage of the debt to be paid annually, and appropriating the surplus revenue for that purpose. Under this policy it was estimated that the debt would be paid off prior to 1907.
But experience soon demonstrated that, whatever might be the law in force, the revenues of the government would vary from year to year, depending, not upon rates of taxation, but upon the financial condition of the country. After the panic of 1873, the revenues were so reduced that the sinking fund was practically suspended by the fact that there was no surplus money in the treasury to meet its requirements. At periods of prosperity the revenues were in excess of the current expenses and the sinking fund, and in such conditions the entire surplus revenue, was applied to the reduction of the public debt and thus made good the deficiency in the sinking fund in times of financial stringency. This was a wise public policy, fully understood and acted upon by every Secretary of the Treasury since the close of the war and prior to Mr. Manning.
Another rule of action, founded upon the clearest public policy, had been observed prior to the incumbency of Mr. Cleveland, and that was not to hold in the treasury any form of money in excess of a reasonable balance, in addition to the fund held to secure the redemption of United States notes. All sums in excess of these were promptly applied to the payment of the public debt, and, if none of it was redeemable, securities of the United States were purchased in the open market. It was the desire of Congress and every Republican Secretary of the Treasury, in order to comply with the sinking fund law, to apply the surplus to the gradual reduction of the debt. While I was secretary I heartily co-operated with the committees of Congress in reducing appropriations, and in this way was enabled to maintain the reserve, and to reduce the interest- bearing public debt.
The policy of Mr. Cleveland and Secretary Manning was to hoard in the treasury as much of the currency of the country as possible, amounting sometimes to more than $200,000,000, and this created a stringency which affected injuriously the business of the country. It was the policy of all the early Presidents to apply any surplus revenue either to the reduction of the public debt or to public objects.
Mr. Jefferson, in his message of 1806, says: "To what object shall the surplus be appropriated? Shall we suppress the impost, and thus give that advantage to foreign over domestic manufacturers?" He believed that the patriotism of the people would "prefer its continuance and application for the purpose of the public education, roads, rivers and canals." This was in exact opposition to the policy proposed by Mr. Cleveland, who refused to apply the surplus revenue to the reduction of the debt, and in his extraordinary message demanded a reduction of duties on foreign goods. A larger surplus revenue had frequently, from time to time, been wisely dealt with by Republican administrations. It had either been applied by the executive authorities to the payment of the public debt, or its accumulation had been prevented by Congress, from time to time, by the reduction or repeal of taxes. In the administration of each of Mr. Cleveland's predecessors since the close of the war, this simple remedy had been applied without neglecting other matters, or raising a cry of alarm. It was apparent that the object of the President was to force the reduction of duties on imported goods, which came into competition with domestic products, and that the accumulation of money in the treasury was resorted to as a means to compel such a reduction.