AMERICAN FINANCES AND RESOURCES.
letter no. i, from hon. robert j. walker.
London, 10 Half Moon Street, Piccadilly,}
August 5, 1863.}
The question has been often asked me, here and on the continent, how has your Secretary of the Treasury (Mr. Chase) so marvellously sustained American credit during this rebellion, and when will your finances collapse? This question I have frequently answered in conversations with European statesmen and bankers, and the discussion has closed generally in decided approval of Mr. Chase's financial policy, and great confidence in the wonderful resources of the United States.
Thus encouraged, I have concluded to discuss the question in a series of letters, explaining Mr. Chase's system and stating the reasons of its remarkable success. The interest in such a topic is not confined to the United States, nor to the present period, but extends to all times and nations. Indeed, finance, as a science, belongs to the world. It is a principal branch of the doctrine of 'the wealth of nations,' discussed, during the last century, with so much ability by Adam Smith. Although many great principles were then settled, yet political economy is emphatically progressive, especially the important branches of credit, currency, taxation, and revenue.
Mr. Chase's success has been complete under the most appalling difficulties. The preceding administration, by their treasonable course, and anti-coercion heresies, had almost paralyzed the Government. They had increased the rate of interest of Federal loans from six to nearly twelve per cent. per annum. Their Vice-president (Mr. Breckenridge), their Finance Minister (Mr. Cobb), their Secretary of War (Mr. Floyd), their Secretary of the Interior (Mr. Thompson), are now in the traitor army. Even the President (Mr. Buchanan), with an evident purpose of aiding the South to dissolve the Union, had announced in his messages the absurd political paradox, that a State has no right to secede, but that the Government has no right to prevent its secession. It was a conspiracy of traitors, at the head of which stood the President, secretly pledged, at Ostend and Cininnati, to the South (as the price of their support), to aid them to control or destroy the republic. Thus was it that, in time of profound peace, when our United States six per cents. commanded a few weeks before a large premium, and our debt was less than $65,000,000, that Mr. Buchanan's Secretary of the Treasury (Mr. Cobb) was borrowing money at an interest of nearly twelve per cent. per annum. Most fortunately that accursed administration was drawing to a close, or the temporary overthrow of the Government would have been effected. Never did any minister of finance undertake a task apparently so hopeless as that so fully accomplished by Mr. Chase in reviving the public credit. A single fact will illustrate the extraordinary result. At the close of the fiscal year ending 1st July, 1860, our public debt was only $64,769,703, and Secretary Cobb was borrowing money at twelve per cent. per annum. On the first of July 1863, in the midst of a stupendous rebellion, our debt was $1,097,274,000, and Mr. Chase had reduced the average rate of interest to 3.89 per cent. per annum, whilst the highest rate was 7.30 for a comparatively small sum to be paid off next year. This is a financial achievement without a parallel in the history of the world. If I speak on this subject with some enthusiasm, it is in no egotistical spirit, for Mr. Chase's system differs in many respects widely from that adopted by me as Minister of Finance during the Mexican war, and which raised United States five per cents. to a premium. But my system was based on specie, or its real and convertible equivalent, and would not have answered the present emergency, which, by our enormous expenditure, necessarily forced a partial and temporary suspension of specie payments upon our banks and Government. Mr. Chase's system is exclusively his own, and, in many of its aspects, is without a precedent in history. When first proposed by him it had very few friends, and was forced upon a reluctant Congress by the great emergency, presenting the alternative of its adoption or financial ruin. Indeed, upon a test vote in Congress in February last, it had failed, when the premium on gold rose immediately over twenty per cent. This caused a reconsideration, when the bills were passed and the premium on gold was immediately reduced more than the previous rise, exhibiting the extraordinary difference in a few days of twenty-three per cent., in the absence of any intermediate Federal victories in the field.
Such are the facts. Let me now proceed to detail the causes of these remarkable results. The first element in the success of any Minister of Finance is the just confidence of the country in his ability, integrity, candor, courage, and patriotism. He may find it necessary, in some great emergency, like our rebellion, to diverge somewhat from the via trita of the past, and enter upon paths not lighted by the lamp of experience. He must never, however, abandon great principles, which are as unchangeable as the laws developed by the physical sciences. When Mr. Chase, in his first annual Treasury Report of the 9th of December, 1861, recommended his system of United States banks, organized by Congress throughout the country, furnishing a circulation based upon private means and credit, but secured also by an adequate amount of Federal stock, held by the Government as security for its redemption, it was very unpopular, and encountered most violent opposition. The State banks, and all the great interests connected with them, were arrayed against the proposed system. When we reflect that many of these banks (especially in the great State of New York) were based on State stocks, and in many States that the banks yielded large revenues to the local Government;—when we see, by our Census Tables of 1860 (p. 193), that these banks numbered 1642, with a capital paid up of $421,890,095, loans $691,495,580, and a circulation and deposits, including specie, of $544,469,134,—we may realize in part the tremendous power arrayed against the Secretary. This opposition was so formidable, that neither in the public press nor in Congress did this recommendation of Mr. Chase receive any considerable support. Speaking of the currency issued by the State banks, and of the substitute proposed by Mr. Chase, he presented the following views in his first annual Report before referred to, of December, 1861:—
'The whole of this circulation constitutes a loan without interest from the people to the banks, costing them nothing except the expense of issue and redemption and the interest on the specie kept on hand for the latter purpose; and it deserves consideration whether sound policy does not require that the advantages of this loan be transferred in part at least, from the banks, representing only the interests of the stockholders, to the Government, representing the aggregate interests of the whole people.
'It has been well questioned by the most eminent statesmen whether a currency of bank notes, issued by local institutions under State laws, is not, in fact, prohibited by the national Constitution. Such emissions certainly fall within the spirit, if not within the letter, of the constitutional prohibition of the emission of bills of credit by the States, and of the making by them of anything except gold and silver coin a legal tender in payment of debts. 'However this may be, it is too clear to be reasonably disputed that Congress, under its constitutional powers to lay taxes, to regulate commerce, and to regulate the value of coin, possesses ample authority to control the credit circulation which enters so largely into the transactions of commerce and affects in so many ways the value of coin.
'In the judgment of the Secretary the time has arrived when Congress should exercise this authority. The value of the existing bank note circulation depends on the laws of thirty-four States and the character of some sixteen hundred private corporations. It is usually furnished in greatest proportions by institutions of least actual capital. Circulation, commonly, is in the inverse ratio of solvency. Well-founded institutions, of large and solid capital, have, in general, comparatively little circulation; while weak corporations almost invariably seek to sustain themselves by obtaining from the people the largest possible credit in this form. Under such a system, or rather lack of system, great fluctuations, and heavy losses in discounts and exchanges, are inevitable; and not unfrequently, through failures of the issuing institutions, considerable portions of the circulation become suddenly worthless in the hands of the people. The recent experience of several States in the valley of the Mississippi painfully illustrates the justice of these observations; and enforces by the most cogent practical arguments the duty of protecting commerce and industry against the recurrence of such disorders.