History of the Legal Tender Paper Money
MR. SPAULDINGS SPEECH ON THE NATIONAL CURRENCY BANK BILL, FEBRUARY 19, 1863.
Mr. SPEAKERThis is a very important bill, and I may be indulged in a few remarks upon its scope and objects. I have already stated in the debate on the finance bill that I had no doubt of the constitutionality of the national bank bill proposed by the Secretary of the Treasury, nor had I any doubt that State banks were also constitutional ; that both systems of banking might be useful within their sphere of action, and that I was willing that the country should have both kinds of banking ; that inasmuch as the National Government had hitherto failed to establish a permanent system of national banking, State banks had, as a necessary means of commerce and the operations of State governments, become firmly established, and that the Supreme Court of the United States, by repeated decisions, held that they were constitutional and legitimate State institutions.
The coercive features in the pending bill against State banks having been stricken out, I intend to give it my vote ; not because I think it will afford any considerable relief to the Treasury in the next two or three years, or that it will in any manner lessen the issue of paper money, but because I regard it as the commencement of a permanent system for providing a national currency that will, if wisely administered, be of great benefit to the people, and a reliable support to the Government in the future.
The President, in his annual message, and the Secretary of the Treasury, in his annual report, recommend the passage of a free banking law, authorizing the issue of a national currency which shall be of uniform value in all parts of the country, and to be secured by a pledge of United States stocks, deposited in the Treasury of the United States. The bill, in all its essential features, is like the free banking law of the State of New York, which has been in successful operation in that State since 1838. Legal tender notes issued direct from the Treasury, without the agency of a bank, constitute a national currency uniform in value, in all parts of the United States, and bearing no interest, is an advantageous loan to the Government by the people who receive and circulate this kind of currency. These legal tender notes are based solely on the faith of the Government and all the taxable property under the jurisdiction of the United States. If Congress performs its duty by imposing taxes on this property, and the Executive enforces the collection thereof, all these notes will be ultimately redeemed and retired from circulation.
These notes are declared by law to be money, and they circulate as money in all parts of the United States. The free banking law is proposed by the Executive for the purpose of combining private capital with the credit of the Government in the issue of bank bills, similar in all respects to legal tender notes. The only difference between them will be that the legal tender notes have only the United States Government to provide for their redemption, while the bank bill, when issued, will have, in addition to the liability of the Government, the direct promise of the banking associations issuing them that they will redeem them on presentation at the bank, not in specie, certainly, during the suspension of specie payments, but in legal tender notes, and after a general resumption of specie payments by the banks and the Government, then to be redeemed in coin. Legal tender notes issued direct from the Treasury constitute a loan to the Government without interest. Bank notes, under this bill, would be loaned to the Government and the people at six and seven per cent. interest. We give to the banking associations the interest on the national currency issued by them, as an inducement to them to form these associations and become liable for its redemption. Instead of the Government issuing this national currency direct to the soldiers and other creditors without interest, it sells its own six per cent. bonds to the banking associations, and takes its pay in legal tender notes ; the banking associations take the six per cent. bonds from the Secretary of the Treasury and deposit them with the Treasurer, and thereupon the Comptroller of the Currency furnishes to such banking associations the national currency, the Treasurer holding the bonds as security for their redemption.
The additional advantages held out by the bill to induce rich men, men of accumulated capital, to join the Government in maintaining this national currency, are :
1. The national character given to the bills to circulate at par in all parts of the United States.
2. It is made receivable at par for all internal taxes and all other dues to the Government, except customs, and payable to the army and navy ; and all other creditors of the Government.
3. The banding associations are to be exempt from all State and United States taxation, and only pay two per cent. per annum for engraving, paper, and printing their circulating notes, and which is to include all the other expenses of tire Currency Bureau at Washington.
On a full review of this proposed plan of a national currency, it will be seen that it is based on public and private faith ; that it proposes to combine the interest of the nation with the rich individuals belonging to it. Men of surplus capital only can profitably engage in the business of banking. If speculators and adventurers, without positive capital, attempt to bank under this bill they will fail. Money-lenders, and not money-borrowers, can successively organize and manage banking associations under the provisions of this act.
How far it will be found practicable to extend the organization of associations on the credit of the public and of individuals, can only be ascertained by the experiment. A banking association of $100,000,000 capital, all paid in by wealthy individuals, and firmly established in the city of New York, and acting, as the fiscal agent of the Treasury Department, would be a most valuable support to the credit of the Government. It might be made the depository for all the public moneys in that city. It might receive the public moneys derived from loans, from customs and internal taxes, and disburse all these moneys to the creditors of the Government. This would give the moneyed men who are stockholders of the bank an immediate pecuniary interest in upholding the credit of the Government. Similar organizations in Boston, Philadelphia, New Orleans, and other principal cities of the Union might be made with less amount of capital, and, in like manner, become fiscal agents of the Government in those cities. The Bank of England is a striking example of the combined power of public authority and private influence in sustaining the credit of the Government. We may safely profit by this example. This bank has been the chief agent in sustaining the British Government, in the long and exhausting wars in which she has been engaged. The Bank of England is the fiscal agent of the British Government, and notwithstanding it is a bank of discount, deposit and circulation, it has thus far received and disbursed the public moneys without the loss of a dollar of the money entrusted to it.
It is also well known that our Government never lost any of the money deposited in the first or second Bank of the United States. They were both fiscal agents of the Government. All the public money was received and disbursed by them with fidelity and usefulness to both parties. Sound and well-managed banks tend to increase public and private credit, and extend as well as to facilitate commerce with States and individuals. They stimulate industry, commodities are multiplied, agriculture, mining, and manufactures flourish ; these constitute the true wealth, greatness, and prosperity of the country.
I have no doubt that the framers of the Constitution contemplated a national currency adequate to the wants of the general Government, and that for all national purposes it has the power to control and regulate the currency. In all Government transactions it has the right not only to provide by law for issuing the kind of currency that shall be received for taxes, custom duties, and all other dues to the United States, but also the kind of money that shall be paid to the army and navy, and all other creditors of the Government. If there had been established years ago a sound national bank of $200,000,000 capital, which had been in full operation as the fiscal and financial agent of the Government at the time of the breaking out of the present rebellion, what a mighty support it would have been in sustaining the Government at the present time ! The independent Treasury law unnecessarily isolated the Government from all the capitalists and the accumulated capital of the country.
At the very outset of this rebellion there was no money in the Sub-Treasury, and, notwithstanding the hostility heretofore and now manifested toward State banks, the Government was obliged to resort at once to the State banks in New York, Boston and Philadelphia, for money to prosecute the war. The States had fostered and built up strong State institutions, while the general Government had been vacillating and weakened by conflicting views and opinions as to the constitutionality and policy of a national bank. It is now most apparent that the policy advocated by Alexander Hamilton, of a strong central Government, was the true policy. A strong consolidated Government would most likely have been able to avert this rebellion ; but if not able to prevent it entirely, it would have been much better prepared to have met and put down the traitorous advocates of secession and State rights, who have forced upon us this unnatural and bloody war. A sound national bank, upheld and supported by the combined credit of the Government and rich men residing in all the States of the Union, would have been a strong bond of Union before the rebellion broke out, and a still stronger support to the Government in maintaining the army and navy to put it down.
Sir, the United States Government has thus far established no permanent system of national currency except that of gold and silver. Ever since the adoption of the Constitution there has been a conflict of opinion among the ablest statesmen of the country upon the question of a national currency. Jefferson opposed the creation of all banks, both State and national. Alexander Hamilton proposed a national bank during the struggle for American independence in 1780, but his suggestions were not then adopted. During Washingtons administration, in 1791, the first Bank of the United States was incorporated, mainly under the influence of Mr. Hamilton, which continued in operation until 1811, when its charter expired. No national bank was in existence during the second war with Great Britain. That war was carried on by loans and by the issue of Treasury notes. In 1816, the second Bank of the United States was chartered, and continued in existence until 1836, when its charter again expired. All will remember the decided opposition of General Jackson to its re-charter, and the fierce struggle that ensued between the friends and opponents of a United States bank. The friends of the bank were finally beaten when Jackson was re-elected President in the fall of 1832. The friends of a United States bank again rallied in 1840-41, but were again defeated by the veto of John Tyler. In 1846 the independent Treasury law was finally adopted, by which it was established that the operations of the Government should thereafter be carried on wholly in gold and silver coin, and that this money of the Government should be kept separate from all banks and banking transactions. Thus the law continued up to the session of the present Congress.
No settled policy has as yet been established by which the Government has assumed permanent control over the national currency. State banks still go on issuing circulating notes, selling exchange, discounting promissory notes and bills, and receiving deposits, and the Sub-Treasury law is still unrepealed. A national currency, adequate to the operations of the Government in peace and war, has yet to be established. It seems that the present is a propitious time to enact this great measure as a permanent system, and that the duty of the Government in providing a national currency shall no longer be neglected.
Sir, the Government of the United States ought not to depend on State institutions for the execution of its great powers. In the administration of the high prerogatives conferred by the Constitution, this Government need not depend at all upon State officers, State institutions, or State laws. Its own powers and its own means, if brought into active exercise, are fully adequate to the ends for which the Government was established. In the long interval of peace many of the powers granted in the Constitution have not been fully exercised, nor was it necessary during peace to put them fully into execution. But now, when engaged in a gigantic war, when the very existence of the Government is in such imminent peril, it is of the highest importance that it should exert all those great powers to maintain itself, preserve its own dignity, and enforce its own prerogatives. Congress and the Executive cannot fail now to do all in their power to save the Government and restore the national Union.
Sir, this Government has power to issue a national currency entirely independent of State authority ; power to support armies independent of Governors of States or State laws ; power to provide and maintain a navy in like manner ; and power to regulate commerce with foreign nations, among the several States, and with the Indian tribes. These great powers may, by means of proper legislation, be made to operate directly upon the people independently of State boundaries or State sovereignty. Under the power to raise and support armies we may provide for calling the able-bodied men of the nation directly into the army of the United States, and without the aid of Governors of States ; and in like manner the navy may be increased. As a necessary means for supporting such an army and maintaining such a navy, we may provide for the issue of a national currency, through the agency of banks, or by the issue of legal tender notes direct front the Treasury. Either mode will require about the same amount of currency to be issued to pay the army and navy ; either mode will be constitutional ; and it is in the sound discretion of Congress to decide which is the best mode of providing the means for carrying on the Government in the present exigency.
Sir, all the powers conferred on the general Government are self-acting, self-sustaining, and wholly independent of State authority ; and when enforced by men of will, strong nerves, enlightened self-reliance, energy, and ability sufficient to put them into active exercise, are fully adequate to the putting down of this gigantic rebellion and maintaining the Constitution and laws over all the thirty-four States and the Territories included in the national Union. The duty of putting these constitutional powers into active exercise devolves upon Congress and the Executive. Congress cannot fail to perform every duty devolved upon it in the present great emergency.
In the absence of a national bank the State banks have been liberal in making loans to the Government since the war begun. It has been ascertained from reliable data that on the 19th day of January, 1863, the banks in the State of New York alone held United States securities to the amount of $153,637,174 ; being $45,000,000 more than the entire capital of all the banks in the State, their capitals being only $108,606,062. This shows the ability and willingness of the banks in New York to support the Government in her present peril. There is in the present imperiled condition of the Union more distrust of the stability of the general Government than there is of the State Governments. Some doubt exists, owing to divisions at the North, as to our final success in crushing the rebellion. Could you make it certain that the Union will be preserved, and the national jurisdiction maintained over all the thirty-four States and the $16,000,000,000 of taxable property therein, which is liable for our public debt, excluding therefrom the debt of the rebel government, said to be $900,000,000, the six per cent. bonds of the United States would not be five per cent. below par, while the six per cent. bonds of the State of New York are worth a premium of twenty-eight per cent. Capitalists are naturally timid, and will hesitate about entering into new projects until they can see the way clear. They desire to know that the Union is to be maintained and the Government perpetuated. Being fully assured of this, your bonds will be immediately above par, and there will be less difficulty in organizing banking associations and carrying this act into effect.
Sir, banking is eminently a practical business. To be successful, it must be based on accumulated capital, and conducted by practical men, who are intimately acquainted with the commerce and business of the country. Finance and financial questions must all be finally brought to a practical standard. However fine spun the theories of visionary men may be, they cannot now be relied on to provide money in the present exigency to pay the army and navy and other needy creditors of the Government. Our plan of finance must be simple, efficient and practical. It consists of two parts, debts and taxation, namely :
1. Contracting debts for the supply of the army and navy, issuing legal tender notes, and borrowing money in some form on the faith of the Government.
2. Taxation on the entire property, commerce, and business of the country, amply sufficient to pay the principal and interest of all the debts which have been or may be contracted on the faith of the Government.
Sir, no theories can be imagined, nor shifts made that will be allowed to evade the tariff on imports and internal taxes on property and business adequate to the payment of the entire debt contracted, both principal and interest. The property and business of the country are amply sufficient for this purpose ; but it will require a strong, stable Government, wisely administered, to adjust and enforce the collection of so large an amount of taxes as will be required to pay the extraordinary war debt that must be contracted to crush the rebellion and restore peace and tranquility over the whole Union. I have no doubt that the patience and energies of the people are to be taxed to the utmost before the Union is restored and we be assured of future loyalty in all the southern States. You are not yet able to collect taxes in the disloyal States without the aid of a powerful army. Before you can be assured of loyalty in the rebellious States, Union State Governments must be established and maintained in each of them. To do this will require a large army for many years. Until you can collect your taxes in all the rebel States without the aid of military force the rebellion is not subdued.
Many of our friends express sanguine expectations of immediate relief from the passage of this national bank bill, and I should be much gratified to know hereafter that their expectations have been fully realized. But, sir, in my judgment, the Secretary of the Treasury must not place too much reliance upon this plan. It will not give much relief to the Treasury for one, two, or three years. It will not to any considerable extent, supersede the necessity for the issue of Treasury notes. It will go into operation slowly. The Government having heretofore failed to provide a national currency, the State banks in the older States have been organized, become deeply rooted, and firmly established. It will take a long time to supplant these banks. Every coercive or violent attempt to do so will do more harm than good. This new system will come in competition not only with existing institutions, but will encounter the prejudices of a large class of people who are hostile to banks, and especially hostile to a United States bank. It will be towards the close of the war, when the Government is firmly established and its authority respected in all the States, that it will be most valuable in providing a way for funding the public debt and establishing a permanent system of national currency. It is chiefly on this ground that I am induced to support the bill at this time. It is more for the benefits to be realized in the future than during the pending war, that I am induced to give it my support.
Debt and taxation are the inevitable necessities of war. Hence the importance of a reunion of all parties in a vigorous prosecution of the war, in order to crush the rebellion in the shortest time and with the least possible expenditure of blood and treasure. This is the only way to stop the burdens and calamities of the present war. Fight vigorously and in earnest while the war lasts. Every consideration of duty and patriotism require all the loyal people to come at their countrys call, to fight the rebels forthwith, by all the means within the range of civilized warfare, to save us from a protracted war, save the further effusion of blood, and stop the vast expenditures which must, unless speedily terminated, burden present and future generations.
We need more economy in the management of the war. It is manifest there is not that close supervision and scrutiny over the expenditures that are necessary. Every man in the service should be required to perform with fidelity the duties devolved upon him. All supernumerary officers and men should be dispensed with. All disbursing officers should be held to a rigid economy and strict accountability. As we approach the termination of this war the expenses must be greatly reduced, and preparation made for a resumption of specie payments. Our public debt will then appear in all its vast proportions, for it must all be paid ultimately in gold and silver. This makes it necessary for us to cut off all unnecessary expenses of every kind.
Every day that the war is prolonged the debt is largely increased. The daily increasing debt of $2,500,000 must all be raised by taxation in some form, or the debt will not be paid. The Government is spending at a fearful rate the accumulations of former years of prosperity. Every dollar of debt contracted becomes a first mortgage upon the entire property and productive industry of the country. It affects the farmer, laborer, mechanic, manufacturer, merchant, banker, commission merchant, professional man, and retired capitalist. Every pound of tea, coffee and sugar used is taxed to pay the expenses of the war, and the persons using these articles of daily consumption pay the tax in the increased price. Every person that uses wine, brandy, whisky, beer, cigars, or tobacco, pays a portion of the war tax. All necessary articles of dress, such as shoes, boots, hats, and wearing apparel, are taxed in like manner, and all superfluous and unnecessary articles, such as silks, laces, diamonds and jewelry, are heavily taxed, and I would be glad to see the tax still further increased on them, in order to prevent, if possible, their use at this time.
Every person that rides upon the railroads, reads a newspaper, draws a check, or sends a telegraphic message, is taxed for war purposes. But I need not further enumerate the different modes in which every body is taxed every day to pay the expenses of the war.
Sir, this war debt is a mortgage alike on all the productive industry and property of Republicans, Democrats, old line Whigs, conservatives, and abolitionists. All these classes of persons are taxed alike to pay the war debt. Every Democrat or Republican who chews tobacco, drinks beer or bad whiskey in the sixth ward of New York pays his proportion of the war debt, the same as the conservative who drinks his choice wine on the Fifth Avenue. This war tax is already beginning to be noticed by the people ; but as the war is procrastinated, and the debt increased, the burden will be more deeply felt. While we are running along at forty miles an hour, under the pressure of irredeemable paper, necessarily issued and circulated to prosecute the war, the present taxation is easily paid, and there is a seeming prosperity ; but I can assure gentlemen that a reckoning day will surely come. Look at the immense army in the field, their commissariat, supply vessels, supply trains, ambulance corps, sutlers, teamsters, hangers-on, idlers and assistants of all kinds, extending over a line of military operations of more than four thousand miles, and you will be impressed with two important facts :
1. The enormous expenditures necessary to their present support, and the future bounties and pensions that must be paid.
2. The number of men that are withdrawn from industrial pursuits, and the consequent loss of productive industry which ought to be added to the wealth of the country.
All this immense army add nothing by their labor to the wealth of the country, and the expense of supporting such an army devolves upon those who do labor and those who have already acquired property. What a mighty drain this war is upon the productive energies and resources of the country. It is, indeed, an exhausting as well as bloody war. Whether it be successful or unsuccessful, vast consequences are involved. If terminated successfully within three years, the Union maintained and the Government perpetuated under the Constitution, the results to flow from such a triumph would amply compensate for all this expenditure of blood and treasure. If it terminates unsuccessfully, the Union divided and the rebel government maintained, the war debt must still be paid ; but no man here is wise enough to predict what results will follow such a calamity.
I am asked almost daily, will the Union be maintained and the national Government perpetuated all over the States and Territories ? I cannot doubt that it will. No efforts of mine certainly shall be wanting to accomplish so desirable a result. I cannot, however, shut my eyes to the formidable character of the rebellion, nor to the difficulties in the way of accomplishing such a result. The inherent difficulties of conquering and subduing so large and intelligent a people, extending over such a wide extent of territory as is contained in the revolted States, are very great. It is very difficult to move and supply large armies. An advance in the enemys country for any considerable distance always involves the difficulties of keeping the rear line open to the base of supplies. This has been demonstrated in the advances that have been made in attempting to take Richmond. Even the armed occupation of a part of any one of the revolted States does not make the people in the State loyal to the General Government. The hatred of the people in the rebellious States is deep seated and abiding. They have a separate de facto confederate government, and separate State governments. As States they revolted from the United States Government, and with their State governments remaining intact and in full force. They still maintain their separate State organzations, with power to enforce their State laws. This insurrection was commenced very differently from most other insurrections. It was not commenced by disorganized bodies of the people, but by the constituted authority of States in their capacity of independent sovereignties. These State authorities had power to suppress immediately the Union sentiments of the people within their jurisdiction, and to enact as well as to enforce any new laws that might be necessary to accomplish their wicked purposes. Hence the formidable character of the rebellion at the outset. It will take a long time to supplant the present State organizations in the revolted States, and to institute new Union State governments in their stead. It can only be accomplished by armed force. It will require a large standing loyal army in the actual occupation of each State. Until Union State governments are organized and permanently maintained in all the Southern States, you cannot hope for a lasting peace.
Sir, it is proper for us to look these difficulties square in the face. All the people in the Northern States ought to look at the formidable character of this rebellion, and act up to the demands of the hour. It will require the active energies of a united North to maintain the integrity of the Union. It is unwise, ay, criminal for us, while incurring a debt of $2,500,000 every day, to deceive ourselves as to the real situation. The business men, at a distance, are going on making money, speculating, buying and selling, almost unconscious of the dangers that surround us. Party organizations are maintained, party platforms set up, and a partisan struggle constantly made for power, wholly inconsistent with the mighty issues involved in the present war. This applies to all parties and all party organizations. The people in the loyal States, without regard to party distinctions, have a common interest and a common destiny ; all are intensely interested in the deadly conflict, all become liable for the debts contracted in the prosecution of the war, and all must be taxed to pay both principal and interest.
But, sir, the higher inspirations of duty and patriotism impel us to sustain the President in a vigorous prosecution of the wara war that has been forced upon us by ambitious men, whose chief object is power. Considerations infinitely above mere party or pecuniary gains or losses should compel us to united action. Your country, my country, is in danger of being divided and destroyed. Oaths have been broken, the Constitution defied, and the laws trampled under feet of rebels. United we stand, divided we fall. I appeal to gentlemen of all parties to uphold and sustain the constituted authorities in vindicating the majesty of the Constitution and laws over all the States and Territories, from the great lakes to the Gulf of Mexico, and from the Atlantic to the Pacific oceans. This is our country. Let it have one national Governmentone destiny.
REDEMPTION OF NATIONAL CURRENCY-ASSORTING HOUSE.
BUFFALO, September 30th, 1865.
Dear SirI am in receipt of your favor of the 28th inst., asking me to communicate my views of the plan proposed by the New York banks for the redemption of national currency.
In reply, I would say that I am clearly of the opinion that a prompt redemption of the national currency is necessary to insure success and permanency to the system. No system of banking is safe that does not enforce rigidly the obligation of each bank to redeem its circulating notes on demand. During the suspension of specie payments they are required to be redeemed in legal tender demand notes, and on the resumption of specie payments they must be redeemed in coin. This is one of the requirements of the National Banking Law, which should be strictly enforced, and every sound and well managed bank will no doubt be able and willing to conform to this law, and every weak and badly managed bank should be compelled to live up to its requirements. But in stating these general propositions, which no sound banker will controvert, it does not follow that a combination called an Assorting House is the best mode of compelling them to fulfill its obligation to redeem.
An Assorting House would require large rooms, a great number of clerks ; they would handle a large amount of currency, the expenses would be heavy, and in these times of knavery and fraud, the risk would be very great. And to what end would this assorting process be carried on ? Simply to separate the money of each bank into packages to be sealed up and sent home by an express company for redemption. Is this necessary ? Is it necessary to incur all this expense and risk to secure a prompt redemption of the national currency. Let us consider the subject a little more in detail, and see if a prompt redemption of it cannot be attained under the law as it now stands, or by a proper amendment of it if found defective.
In the first place, it is not necessary to assort and send home this currency for redemption so long as it is required by the people to carry on the business operations of the country. Every time a hundred dollar bill passes from one person to another it is a practical redemption of it by the person who takes it. Every time a merchant at Chicago pays to a farmer $500 in national currency for a car load of wheat, the farmer by the operation redeems such national currency, not in greenbacks, nor in gold, but in a commodity better than either, namely wheat, a staple article useful to all. So every merchant in New York that sells a bale of cotton goods and receives his pay for it in currency, redeems such currency, not in the way that banks redeem it, but in cotton goods, which is far better because it performs the true functions of money by facilitating the legitimate sale of commodities. So every time that a merchant or manufacturer pays his internal revenue tax to the United States Collector in national currency, the Government redeems such currency by receiving and discharging such tax. So every mechanic or laborer that receives national currency for his services, redeems such currency by the labor performed. So it will be seen that just so long as the national currency is practically redeemed every day in its passage from hand to hand in the payment of commodities and services and in the ramified operations of trade and business both with the Government and the people whose operations it greatly facilitates, there is not the slightest necessity for resorting to the expensive and risky operation of assorting and sending it home for redemption.
With a proper amendment to the National Bank law, I am clearly of the opinion that it would be unwise to establish an Assorting House, and even without such amendment, I do not think it good policy to establish it. In the first place the Assorting House will be as I have stated, attended with great risk and expense. And in the next place it is opposed to sound policy and will have a mischievous effect upon the legitimate circulation of the national currency. The leading object of the national bank law was to furnish a currency of uniform value and similitude to be used by the Government and people as an instrument to facilitate the exchange of commodities and services, and the collection of internal taxes, in all parts of the United States. It is amply secured by gold bearing bonds deposited with the Treasurer of the United States at Washington. Only ninety per cent. of currency is issued on the amount of bonds hypothecated, thus leaving a margin of ten per cent. for depreciation. The Government stamps it with the imprint of the Treasury and guarantees the ultimate payment of every dollar put in circulation by any bank, whether such bank is solvent or insolvent. It is made a legal tender for all taxes and other debts due to the Government except customs, and for all debts due from the Government except interest on the funded debt. All national banks are obliged by law to receive it for all debts due them, and each national bank depositary is further obliged to receive it on all Government deposits made in the bank by any public officer. These provisions in the bank law give great advantages and credit to the national circulation over that of State banks. These provisions of the law provide to a considerable extent for a practical redemption of this currency in the every day operations of the Government and people, not only in New York, Boston and Philadelphia, but also in Charleston, New Orleans, St. Louis, Cincinnati, Chicago and Buffalo, and in every other city and village throughout the length and breadth of the whole country. With the facility thus given to the national currency to circulate at par in every part of the United States, and the guarantee of the Government that every dollar of it shall be paid, it passes freely among all classes of people and corporations without any one stopping to enquire whether a particular bank is badly managed or not. The national currency with the pledged security and guarantee of the Government, is good in any event, and is not likely to become a dead weight in any of the banks in the principal cities. If a weak or badly managed bank (like the First National Bank of Attica, for instance) should fail, its creditors may be large losers by the failure, but every dollar of the circulation will be paid, and the notes continue to circulate equally as well after as before its failure. No one ever stopped taking the circulating notes of the First National Bank of Attica, notwithstanding its failure more than six months ago. It is not the bill holder that will lose by the failure of a national bank, but its depositors and other creditors, hence the security of national currency over all other currency. Thus far the national banking system in respect to its circulation has gone on smoothly. All this currency in miscellaneous packages consisting of the issues of banks in Maine, Minnesota and Tennessee, pass equally well without being assorted, in all parts of the United States. This system of furnishing a circulating medium thus far works as well, or better than was anticipated by its most sanguine advocates. It is fulfilling admirably the great desideratum of a true national currency, so long needed to carry on successfully the business of the enterprising people of this great country.
I should regret very much to see a combination of bankers in any of the principle cities organize an Assorting House to disorganize the harmonious working of this system by assorting this currency, sealing it up in separate packages, and sending it home to each bank issuing it for redemption, unless there should be an imperative necessity for so doing. The tendency of such an operation would be to materially disturb the financial operations of the country. Once begin the operation of assorting currency by a large organized Assorting House in the city of New York, with a large number of clerks under good salaries, and you begin a system that will ultimately draw into its support every bank in the whole country. What will be the operation of such a combination ? In the first place it may not be illegal, but is not specially authorized by the national law. In the next place it begins by the city banks sending all national currency received by them to the assorting house, whether necessary or not, to be assorted, sealed up in packages, and sent home to each bank, either through its redeeming agency or directly by express to the bank that issued them. Each bank, on receiving this currency so sent home, is obliged to provide for it either in legal tender greenbacks, which are no safer than national currency, or by drafts which are at par in New York, but generally by providing a fund in advance at a bank in one of the principal cities. As the currency continues to be assorted and sent home, it creates the necessity for each bank out of New York to provide more par funds to be placed to their credit ready for redeeming their notes as they shall be again assorted and sent home for that purpose. These banks not being able to make exchange or par funds in other modes, will very soon begin to gather up the circulating notes of other banks, and especially notes issued by other banks in their own locality, and send them to New York for their own credit. These notes, on reaching New York, will again go immediately to the assorting house, and be again counted, sealed up, and sent back by express to the country. As this process of sending money packages to and from New York goes on through the machinery of the assorting house, the volume will continue to increase until every bank in the country will be obliged to contribute directly or indirectly to the support of a combination unknown to the law. It seems to me that the good to be attained by any such combinations will be greatly overbalanced by the mischiefs it will create to the present harmonious working of the system. It would no doubt be a profitable business for the express companies to carry these money packages to New York and back again to the country, but I am greatly puzzled to know how it will be any advantage to the people, the Government, or the banks, either in New York or elsewhere, to carry such a scheme into practical operation. If this combination is adopted, the national currency issued by the banks in New York city which now circulate freely everywhere, will be unnecessarily returned upon them for redemption under the operations of their own assorting house. This will be one of the legitimate results of the system of assorting which cannot be avoided.
I watched with considerable care the working of the system instituted by the Suffolk Bank of Boston and the Metropolitan Bank of New York, compelling the old State banks to redeem their circulating notes by a similar process. This was no doubt a check against the excessive issues of banks at that time, especially to banks in New England, which were not very strongly restricted by law as to the amount of these issues, but I very much doubt whether even this plan to coerce the redemption of even an inferior currency did not do more hurt in deranging the free and legitimate circulation thereof than it did good in preventing excessive issues. It certainly afforded a fine business for the express companies in carrying money packages to and from New York ; and it is certain also that the activity with which these packages were hurried back and forth, greatly accelerated the panic that occurred in August, September, and the first half of October, 1857 ; until finally the banks in New York, by common consent, ceased sending it home, and took this secured currency of the State of New York and made it a basis for Clearing House Certificates, which had an important influence in stopping the panic and restoring confidence.
Upon a full examination of the subject, I arrive at the conclusion that so long as the national currency is required for legitimate business purposes, it will not largely accumulate in the banks of either of the three cities of New York, Boston or Philadelphia, nor will it be sent home for redemption. Thus far it does not appear that there has been a plethora or glut of national currency in either of those cities. But suppose that in the course of a few months there should accumulate a few millions dollars of national currency in those banks more than could be readily disposed of in the operations of the Government and the people, in what manner should it be disposed of ?
In such a contingency, when it does occur, I think the issuing banks should be called upon to redeem their circulating notes, and it seems to me to be right that each bank should be required by law to redeem in the principal city where such surplus currency accumulates, as well as at their own counter.
New York city is the great commercial emporium, and is clearly indicated by the course of business, foreign and domestic, as the proper place for each bank located out of that city, to have an agent for the redemption of its circulating notes.
An amendment to the national banking law can probably be made at the next session of Congress, which shall require all the banks to have an agent for the redemption of their circulating notes in the city of New York, instead of being allowed to select as they now do, any one of the seventeen cities named in the present law. This being accomplished, any bank or individual in New York, or elsewhere, in any city or town in the United States, could send the circulating notes of any bank to the agency selected by it for redemption without the expense and risk of an assorting house, which I think is the true mode of providing for the redemption of the national currency. This would be in accordance with the law, and would, I think, give better satisfaction and better promote the welfare of all concerned.
This is my answer to your request.
MR. RANDALLS BILL TO DESTROY NATIONAL BANKS.
Dear SirI am much obliged for the information contained in your letter, and I trust you will pardon me for the remarks I am about to make.
I have watched with a good deal of interest the various plans brought forward in Congress, in relation to the National Finances and Amendments to the National Banking Law. Every man in the country is on the lookout to see what is to come next. Everyone engaged in legitimate pursuits wants a fixed policy and steadiness in financial affairs, and yet all are under constant apprehensions, fearing that some scheme will be hastily passed by Congress which will derange monetary affairs, and upset all their business calculations. Many enterprises are postponed. The building of railroads, ships, warehouses, elevators, furnaces, and other manufacturing establishments, are held in abeyance until it can be more clearly seen what is to be done with these schemes, and what is to be the future in regard to financial affairs.
It is obvious that this suspense and apprehension operates very unfavorably upon individuals, as well as upon the revenues of the Government. Congress in its official capacity has thus far acted wisely. It has not passed any of the individual schemes that have been brought forward. It has been content to let well enough alone. It has refused to increase the national currency above $300,000,000. It has not passed Mr. Randalls grand scheme of repudiating the faith of the Government with the National Banks, and turning the Treasury Department, in time of peace, into a permanent machine, for the issue of an irredeemable paper currency when there is not the least necessity for it, and when all history proves it to be unwise, as tending to retard the resumption of specie payments, and resulting in general financial disaster, bankruptcy and ruin, both to the Government and people. It has refused to pass the twenty pages of pending amendments to the National Bank act, (House Bill No. 771,) which, if passed, would make the law worse instead of better. In short, the Senate and House, as legislative bodies, have submitted to the introduction of these injudicious measures to be talked about, but as yet they have not been unwise enough to let any of them be passed into laws to further disturb existing arrangements under laws already passed, and which, up to the time of the meeting of Congress, were operating very favorably, under a moderate contraction of the currency, in preserving a good degree of steadiness and uniformity in the money market, keeping business steady and prosperous, and enabling the Secretary of the Treasury to establish more certainly the public credit at home and abroad, and make a most favorable exhibit of the national debt. These are matters of great consequence to the welfare of the nation, and I sincerely hope that no hasty or indiscreet measures will be allowed to pass. The people of the country need rest, and in order to secure it I trust that Congress will hold a steady purpose, and not pass laws at one session to be repealed in the next. We are cursed with too much legislation, and I am gratified to see the present Congress holding back on all impracticable schemes. The act of Congress passed on the 12th of April last, it seems to me is a wise and judicious measure. It authorizes the Secretary of the Treasury to dispose of 5-20 gold bonds, and with the proceeds to retire six per cent. compound interest notes, and the plain legal tender greenback currency and other indebtedness of the Government, but not to retire more than $4,000,000 of greenbacks a month, or $48,000,000 a year, but without restriction as to the amount of compound sixes that may be retired during any week or mouth. This law is discretionary with the Secretary of the Treasury. Power is given him to contract the currency, but he will no doubt use his discretionary power prudently, and not retire either greenbacks or compounds, any faster than it can be done without materially disturbing the legitimate business of the country. His object will be in the future, as it has been during the past year, to keep a steady and uniform money market. This will be a necessity on his part to enable him to successfully carry on the fiscal affairs of the Government. Under a very stringent and paniky money market, the 5-20 bonds would fall below par, thereby stopping conversion of 7-30 into the 5-20 bonds, and this, in view of $650,000,000 of 7-30s falling due between this and July 15, 1868, would embarrass and derange all the operations of the Treasury Department. The Secretary of the Treasury must therefore, of necessity, be moderate and discreet in contracting the currency under the law of the 12th of April.
The Secretary will no doubt, by a moderate and prudent course of contraction, endeavor to keep the business and industry of the nation in a prosperous condition, in some degree check wild speculation, gradually reduce prices, and bring greenbacks and national currency nearer the specie standard. On this point the Secretary, in his last annual report, makes the following judicious remarks : How rapidly the United States notes may be retired must depend upon the effect which contraction may have upon business and industry, and can be better determined as the work progresses. No determinate scale of reduction would, in the present condition of affairs, be advisable. The policy of contracting the circulation of Government notes should be definitely and unchangeably established, and the process should go on just as rapidly as possible without producing a financial crisis, or seriously embarrassing those branches of industry and trade, upon which our revenues are dependent. As the volume of currency is reduced, it will increase in value, and as soon as the specie standard is reached, the national banks will be obliged to redeem their circulating notes in specie. The Government can retire whenever it seems best, from the field, as an issuer of paper currency, and consequently will not be under the necessity of providing gold and silver to redeem it. The burthen of redeeming the national currency in gold and silver will then be thrown exclusively upon the banks that issue it, and they will be required to keep the necessary reserves of coin for that purpose.
It seems to me that the act of the 12th of April contains all the power for contracting the currency which is necessary to bring the business of the country back to the specie standard, as it was before the rebellion. It may take three years, five years, or even ten years, to accomplish that result. When the old uniform standard of gold and silver is reached, and prices and the business of the country are again based thereon, national banks will take the place of State banks in the issue, circulation and redemption of the currency necessary to carry, on the fiscal affairs of the Government and people. The Treasury Department will be relieved from a duty that was forced upon it as an imperative necessity during the war, and the Government left to perform its legitimate functions under the Constitution, the currency being thereafter regulated by the wants of trade and industrial pursuits.
It was never intended by the originators of the legal tender acts that the issue of an irredeemable paper currency should ever become the permanent policy of the Government. In the opening speech I made in the House on the 28th of January, 1862, on the bill introduced by me, I said that the bill before us is a war measure ; a measure of necessity and not of choice, presented by the Committee of Ways and Means, to meet the most pressing demands upon the Treasury, to sustain the army and navy, until they can make a vigorous advance upon the traitors and crush out the rebellion. These are extraordinary times, and extraordinary measures must be resorted to, in order to save our Government and preserve our nationality.
The Credit of the Government, by the legal tender act, was brought into immediate requisition, and in the most available form to provide ways and means for sustaining the army and navy to crush the rebellion. It was in effect a forced loan from the people to the Government, in a most perilous period in our history, and was justified mainly on the ground of imperative necessity. It was a temporary measure passed in a most pressing exigency, and should not be continued any longer after peace is restored than seems to be necessary to conduct us safely back to that standard of value, which is recognized by all the nations of the world.
In the speech to which I have above referred, I further said, a suspension of specie payments is greatly to be deplored, but it is not a fatal step in an exigency like the present.
The British Government and the bank of England remained under suspension of specie payments from 1797 to 1821-2, a period of twenty-five years ;gold is not as valuable as are the productions of the farmer and mechanic, for it is not as indispensable as are food and raiment. Our army and navy must have what is more valuable to them than gold or silver, they must have food, clothing and the material of war. Treasury notes issued by the Government on the faith of the whole people, will purchase these indispensable articles, and the war can be prosecuted until we can enforce obedience to the Constitution and laws and an honorable peace be thereby secured. This being accomplished, I will be among the first to advocate a speedy return to specie payments, and all measures that are calculated to preserve the honor and dignity of the Government in time of peace, and which I regret are not practicable in the prosecution of this war.
The national banking law, passed to continue for twenty years, was intended as a permanent system. It was intended that it should take the place of the State banks, in furnishing a solvent national currency of uniform similitude and value for the whole country. The arguments put forth in the last annual reports of yourself and the Secretary of the Treasury in favor of sustaining the national bank currency seem to me to be cogent and conclusive. I advocated the national bank law, not for any immediate relief it would give to the Treasury, but as a permanent system of currency and banking. In the remarks which I made in the House on the day of the passage of the bill, I said that I should vote for it, not that I think it will afford any considerable relief to the Treasury in the next two or three years, but because I regard it as the commencement of a permanent system for providing a national currency that will, if wisely administered, be of great benefit to the people, and a reliable support to the Government in the future.
All the advocates of the legal tender act while it was pending in Congress, based their arguments upon the necessity of its passage as a temporary relief to the Treasury during the war, and not as a permanent policy of the Government. On the contrary, the national banking law was advocated as a permanent system of national currency and banking for the whole country. The State banks in this and other States, especially the banks in the State of New York, gave up their State organizations with great reluctance. But in consequence of the law which taxed State circulation out of existence, the State banks were obliged to come under the national banking law for self-preservation, a law which on its face was to continue for twenty years.
It has taken something over three years to put in successful operation about 1,650 national banks under one system, and which are directly under the control and regulation of the officers of the Government at Washington. A few of the banks have but recently perfected their organizations and obtained from the Department their circulating notes. Before the ink is fairly dry on the last issue of national currency we are startled with a bill reported from the bank committee in the House to emasculate and destroy this system of national banking. I say destroy it, for no man at all conversant with the advantages of private banking and its freedom from taxation and other restrictions, would consider it any inducement to remain under the inquisitorial supervision imposed by the national banking law, if the right to issue circulating notes is taken away from them. These banks have been organized in good faith by the stockholders Under the national law, because in the first place State bank circulation was killed by United States taxation, and in the next place great inducements were held out to them for a national circulation to continue twenty years. What a breach of faith on the part of the Government in holding out inducements to organize under this law, killing off the State banks first, and then turning a short corner to kill off the national banks, children of its own creation. Are all the rights which the stockholders of the banks have acquired under this law to be thus summarily disposed of ? How many banks would have organized under this law if the stockholders had supposed that their rights to issue circulating notes would be taken away from them as soon as they were organized ? Not one in a hundred, for the simple reason that there would be no inducement to come under the restraints of the national law without circulation.
It is said that these banks can continue to do business on their capital and deposits, this is no doubt true, but it could be much better carried on by the stockholders as private bankers without the onerous taxation and restrictions imposed by the national law. The organization of State and private banks would be much better, larger latitude being given to operate, and much freer from inquisitorial examinations.
If this bill now pending in the House is passed and becomes a law, it will pretty effectually use up the national banking system. It has taken about four years to build it up, and within three years it will be so far destroyed as to make it no object for stockholders that can organize into private banking companies to remain in the emasculated and restricted condition in which they will be placed.
What security can men have for investing their money and basing their business calculations under a national law ? The insecurity and scandal that will attach to such hasty and inconsiderate legislation will deter all prudent men from placing too much reliance upon a law of Congress, passed at one session, organizing a great system of national policy, to be emasculated or repealed before it gets fairly into operation. It looks too much like confiscating the property of individuals under the pretence of creating a sinking fund to pay off the national debt.
I hope the Senate and House will carefully consider this measure in all its bearings before they pass a law involving such important consequences in regard to its breach of faith in destroying the acquired rights of the stockholders in these banks, and the disastrous consequences likely to follow the issue of Government paper money as a permanent policy.
Yours very truly,
Mr. Spaulding to Secretary McCulloch.
FARMERS AND MECHANICS NATIONAL BANK,
No. 3 Spauldings Exchange,
BUFFALO, December 4, 1866.
Dear SirYou will do me a favor by sending to me by mail a pamphlet copy of your report and accompanying documents. I have only seen a synopsis of it, but it seems to me that you understand the situation, and have stated it with force and ability. I congratulate you on the favorable exhibit of the public debt, which is in a great measure due to your discreet and prudent management of the national finances. You have no doubt now, to a large extent, control of the finances of the country, and I think that you will, of necessity, contract moderately, so as to preserve a tolerably easy money market, in order to be able to fund the compound 6s and the 7-30s into long gold-bearing bonds, between this and the 15th of July, 1868. There may be occasional spasms and tightness for money with the speculators, but generally I shall look for plenty of money for legitimate business for at least a year to come. If the speculators should get some check it would be a good thing for the country, and all men engaged in industrial pursuits would not complain.
I hope you will be able to reach the specie standard with at least $250,000,000 of plain legal tender United States notes still outstanding. The amount of gold and silver coin now available in this country is so small that it constitutes a very adequate basis on which to rest the largely increasing volume of business to be transacted, and unless we can have legal tender in some form, other than gold or silver coin, I think we will hereafter be very much subjected to panics and revulsions, to the injury of legitimate business, and, consequently, diminished revenues. If we can maintain $250,000,000 of the paper tender at the specie standard, in addition to the supply of gold and silver, I think the business of the country would, in the future, be more steady and uniform.
SECRETARY MCCULLOCHS REPLY.
WASHINGTON, December 7, 1866.
Dear SirYour favor of the 4th inst. is received. You will receive a copy of my report through the Comptroller of the Currency. It was very hastily written, but is, I think, sound in doctrine.
What we need is an increase of labor. If we could have the productive industry of the country in full exercise, we could return to specie payments without any very large curtailment of United States notes. My object has been to keep the market steady, and to work back to specie payments without a financial collapse. I shall act in the future as I have in the past, with great caution, and attempt no impracticable thing.
I am very truly yours,
NATIONAL DEBTNO REPUDIATION.
Will the public debt of the United States ever be repudiated ? The answer to this question depends upon the efficiency and fidelity of the national Government. The Government has ample power under the Constitution and ample means at its disposal to pay every dollar of the public debt. Believing that the Government will continue faithful and efficient, I answer no ! the public debt will not be repudiated. A large majority of the people also say no, but nevertheless there is a small minority that have answered this question in the affirmative, and continue to repeat the assertion that the public debt will never be paid. This reckless assertion has some influence in depressing the national securities and keeping up the price of gold. This grumbling class of people say that the old Continental money issued during the war for independence, became worthless and was never paid. This is no doubt truethe Continental money did greatly depreciate and was never fully paid, but it was issued under the feeble authority of the old Continental Congress, when there was no adequate executive authority to enforce the collection of taxes for the payment of the public debt. This depreciated currency was issued both before and after the adoption of the articles of Confederation of the old thirteen states, and before the formation of the present efficient Government under the new Constitution.
Under the articles which composed the old compact, there was no power vested in the Continental Congress to collect taxes. The power to enforce the collection of taxes was left to the legislatures of the several States. Upon a quota furnished and a requisition made by Congress, the several States were required to levy and collect taxes to support the Federal Compact. This plan was a fallacious system of quotas and requisitions, inconsistent with every idea of vigor or efficiency which pertains to every well organized Constitution of civil Government. It is not at all surprising that the Continental money which depended upon thirteen other Governments to levy and collect taxes to raise money for its payment, should depreciate and become of little or no value. The power contained in the old Continental Compact was nominal, without a president or other executive to enforce its requisitions. It was ineffectual to raise money by taxation, and consequently the old Continental money fell into disrepute and was never fully paid.
Under the present Constitution all is changed. Instead of the old feeble compact existing at the close of the seven years war for independence, we have now a strong, well organized civil Government, under a Constitution with ample executive legislation and judicial powers, fully adequate to the objects for which it was formed. This Government is now invested with power to protect and defend the Constitution, enforce the laws and preserve its own existence ; power to provide for the common defence and promote the general welfare ; and for these purposes has power to raise and support armies, to provide and maintain a navy, and provide for calling forth the militia to execute the laws of the Union, suppress insurrections and repel invasions. To raise the money for these purposes, the Government is invested with further power to borrow money on the credit of the United States, and to repay the money thus borrowed, to levy and collect uniform taxes, duties, imports, and excises throughout the United States. These are some of the great powers intrusted to the general Government for the preservation of its own existence.
When this most wicked and gigantic rebellion broke out, in an open and avowed determination to break up the Union, it became necessary to bring into active exercise all these high powers of the Government. Armies and navies had to be raised and supported. All the material of war necessary for their efficiency had to be provided. Money had to be borrowed, and in vast amounts. The old Continental money possessed none of the elements of vitality and credit that is imparted to the legal tender demand notes and bonds issued under the present Constitution, with this great power vested in the President to enforce the laws.
The debt thus incurred in the prosecution of the war to put down the rebellion and restore the national authority over all the States,[!?] will be about $3,000,000,000. This large sum has been borrowed on the credit of the United States, to maintain the Government and perpetuate the Union, and the beneficial results flowing from the triumph of the national cause are amply sufficient to compensate for all the money expended in accomplishing this great achievement. The securities issued as evidence of this large indebtedness, consist of bonds, notes and certificates, which are widely distributed among all classes of people.
All the forms of law have been complied with to bind the Government and give validity to these different forms of indebtedness. The good faith of the nation is pledged in the most solemn manner to the payment of every dollar of this debt, both principal and interest.
The Government of the United States is not now dependent at all on the State Governments for the execution of its great powers. All the powers conferred on the General Government by the present Constitution are self-acting, self-sustaining, and wholly independent of State authority. The Constitution and laws of the United States operate directly upon the people, without any regard to State boundaries. We have now a Congress to pass all the tariff and tax laws necessary to raise all the money required to pay the current annual expenses of the Government, pay the interest on the public debt, and raise a surplus sufficient to retire annually a portion of the principal.
The grand results of the last four years have most abundantly shown the power and efficiency of the present National Government under the existing Constitution.
It is clearly demonstrated that we have a strong, stable and efficient Government, fully competent to levy and enforce the collection of custom duties and internal revenue adequate to support the Government.
The true value of the property, real and personal, within the United States, according to the census of 1860, was $16,000,000,000, and it has, notwithstanding the exhausting nature of the war, greatly increased since that time. All this property is liable to be taxed to the full extent necessary, to support the Government and pay every dollar of the debt incurred in the prosecution of the war. The Government has a claim under the Constitution, a mortgage in fact, which is the first lien on all this real and personal property to that extent. All the debts of States, counties, cities, corporations and individuals are second and subordinate to this first claim of the National Government.
Our credit rests on this property and the good faith and fidelity of the Government to collect these taxes.
Since the creation and distribution of this large, debt among all classes of people, and a large part of it made the basis for the organization of over sixteen hundred banks, the whole fabric of credit, public and private, must, to a great extent, rest on the efficiency and determination with which these taxes are to be levied and collected. Public and private credit are so interwoven with all the commercial transactions of the country, that if the public credit fails, individual credit must also fail. The value of legal tender notes, national currency, five-twenty bonds, ten-forties and seven-thirties, all depend upon the revenues derived from custom duties and internal taxes. Our own people and the people of Europe must be fully assured, not only of the ability, but of the willingness and determination of the Government to pay promptly every one of the obligations of the Government as they become due, and that the financial credit of the Government will be maintained on the stable and sure basis of ample taxation. There is no other sure basis for it to rest upon.
There can be no doubt that the suggestions of the Secretary of the Treasury to gradually retire a portion of the currency, are wise and judicious. If it cannot be done by funding without bringing down the price of five-twenty six per cent. bonds below par, so as thereby to embarass the operations of the Treasury in providing for the large temporary debt as it becomes due, then I think it should be accomplished by Congress providing for an increase of revenue. The credit of the Government can be maintained, and it ought to be maintained at all hazards, and prices should be reduced. All who have read the late admirable reports of the Secretary of the Treasury, the Comptroller of the Currency, and the nearly unanimous resolution of the House of Representatives, must be satisfied that the Government is united and strong in its determination to enforce the full power it possesses to carry us safely through all our financial difficulties, and bring the business of the country back to a more safe and secure standard. So long as Congress and the Executive departments of the Government continue, as they now do, to discharge their duties with efficiency and fidelity, the repudiation of the public debt will be an impossibility.
I have lately seen and read in the public newspapers much that is of a fault-finding character, and much theorizing on the subject of our national finances, but after all that has been said or written on the subject, it comes down to a plain matter-of-fact business, which seems to be well understood by the Secretary of the Treasury, viz :
1. That frugality and economy should be practiced in all the departments of the public service.
2. Find out all the taxable property and business of the country, and the best modes of collecting revenue therefrom.
3. Levy and collect a tax upon it amply sufficient to raise a sum that will pay the yearly expenses of the Government, pay the interest on all the public debt, and leave a surplus of at least $50,000,000 annually towards retiring a part of the public debt, and the credit of the Government will be firmly maintained. No repudiation of the public debt will ever take place so long as this policy is pursued with vigor on the part of the national Government.
The great mass of the people are honest and patriotic, and believe that the public debt was incurred for just and patriotic purposes. They will stand by their rulers fn maintaining the public faith. They will pay the taxes freely, and will never consent that the fair fame of their free Government shall ever be tarnished by a repudiation of one dollar of the debt incurred in such a righteous and noble cause.
NO STATE TAXATION OF UNITED STATES BONDS.
The Supreme Court of the United States, at Washington, has decided that United States Government Bonds and Treasury Notes cannot be taxed by States, Counties or Cities. The power to borrow money by the Government of the United States is supreme, and cannot be interfered with by any State law. All the Government securities have been issued under a positive law, which makes it a part of the contract that they should not be taxed for local purposes ; and the contract cannot be changed. The first section of the act of Congress, passed June 30, 1864, provides that all bonds, Treasury notes and other obligations of the United States shall be exempt from taxation by or under State or Municipal authority.
The Constitution of the United States provides that This Constitution and the Laws of the United States, which shall be made in pursuance thereof, shall be the supreme law of the land, and the judges in every State shall be bound thereby ; anything in the Constitution or laws of any State to the contrary, notwithstanding.
The Supreme Court of the United States has decided that all the State laws passed to tax United States securities are unconstitutional and void. These loans are the best security in the market. No searches of title are necessary. The Constitution of the United States and the act of Congress make the public debt the first lien on the real and personal property of the country. The Government bonds and notes are the first claim to be paid, city bonds, railroad bonds and bonds and mortgages, are only a second lien, to be paid after the Government securities are paid.
E. G. SPAULDING.
PUBLIC DEBTGOOD FAITHHON. E. G. SPAULDINGS LETTER TO SENATOR MORGANSENATOR SHERMANS FUNDING BILL.
BUFFALO, Dec. 24, 1867.Hon. E.D. Morgan, U.S. Senator, Washington.
Dear SirI am in receipt of the recent report of the Finance Committee brought in by Senator Sherman, and Senate Bill No. 207, for funding the national debt, and for the conversion of the notes of the United States, accompanied by your letter of the 19th instant, asking my opinion on the proposed measure, or any of its parts, and desiring me to communicate my suggestions at an early day.
I am deeply impressed with the importance of a return to the specie standard at the earliest moment consistent with the operations of the Government and people. I concur fully in that part of the report of your committee which seeks to secure to the holders of United States notes, as soon as possible, their value in gold. This, in my opinion, should engage the earnest efforts of Congress and the Executive ; and I am much gratified to see your committee so earnest and decided in urging a return to the specie standard at the earliest practicable moment. A resumption of specie payments by the Government, the banks and people, is the first great thing to be accomplished. This would dispose of nearly all the complicated and disturbing issues that have been raised by politicians and others, as to the time when, and the kind of money in which, the public debt shall be paid. It would demonstrate more clearly than any thing else, our resources and ability to pay the public debt, and our determination to preserve unimpaired the good faith of the nation, and establish all business operations on a firm and enduring basis.
I notice that Senator Sherman, in his report, (pages 6 and 7,) giving countenance to the idea that the 5-20 bonds, under the act of 25th February, 1862, may be paid in the depreciated greenback currency, is laboring under a material misapprehension of the facts in regard to the representations made by the agents of the Government when the loan was negotiated, and especially as to the time when those representations were made. Mr. Sherman says :
It is said that the distinguished Secretary of the Treasury who negotiated the 5-20 loan, gave a construction to this act at the time the loan was offered ; that this was announced to the people, and upon the faith of this the loan was taken. Your committee can find no official declaration made by the Secretary on this subject, until after the loan was negotiated,
and then refers to a letter written by Secretary Chase, May 18, 1864, as being the first official declaration on the subject that has come to his knowledge. The Senator seems to concede that if the Secretary made official declarations, at the time the loan was negotiated, giving a construction to the act, to the effect that the principal, as well as the interest, was payable in coin, and that if both parties understood that to be the construction of the law, such declarations would form a part of the contract, and that the Government would be bound to make these declarations good, and to give effect to the contract as understood by both parties when it was made. Now, the proofs are at hand that such official representations were made by the distinguished Secretary of the Treasury, before and at the time the loan was being negotiated, as I will now proceed to show.[Mr. Spaulding, of course, lies; he intentionally left out two paragraph from his own speech in the House, on February 19th 1862, because they indicate that he is talking from both sides as the occasion requires]
Secretary Chase, who negotiated that loan, decided as early as December, 1862, that a fair construction of all the loan acts under which the funded debt was contracted, required us to pay actual moneygold and silveron all the funded debt of the Government ; that a pretended payment in another promise of the United States was no payment, but merely changing the form of the debt. In other words, that a payment of the bonds in greenbacks, would be merely substituting the debt of the Government in the form of legal tender notes bearing no interest, for bonds bearing six per cent. interest,which would be manifestly unjust. This question came up on the kind of money that should be provided for paying that part of the funded debt, created prior to the rebellion, which fell due January 1st, 1863, and this decision was then made and published. The Committee of Ways and Means, in December, 1862, a short time before its maturity, desired to know whether any further legislation would be necessary to ensure the payment of coin on that part of the funded debt falling due within a few days. In order to ascertain in a formal manner what construction the Secretary of the Treasury would put upon the law, a Sub-Committee from the Committee of Ways and Means was appointed, consisting of Mr. Hooper, Mr. Morrill and myself, to confer with the Secretary on the subject. This Sub-Committee called upon the Secretary at the Treasury Department, and after a full and free conference, the Secretary decided that a fair construction of the law, as well as good faith, required him to pay all the funded debt in coin, and that he did not deem it necessary to have any further law passed to enable him to do so.
Under these circumstances, the Committee of Ways and Means did not deem it necessary to report a bill authorizing or requiring the funded debt to be paid in coin, and consequently no further law was passed ; and on the first of January, 1863, the funded debt falling due at that time was paid in coin. From the time this decision was made by Secretary Chase, down to the present time, the same language has been held by each Secretary of the Treasury, namely, that the funded debt of the Government was payable in coin, both principal and interest, and that the Government would not seek to avail itself of the five years option to redeem the 5-20 bonds until it was prepared to pay coin for the principal as well as the interest. But this is not the only proof.
Messrs. FISK & HATCH, bankers in New York city, were prominent sub-agents of the Government in negotiating the 5-20 bonds under the act of February 25, 1862. Many persons who were desirous of subscribing to this loan, wanted to know authoritatively, whether the principal of the bonds was payable in coin as well as the interest. In order to have the proof in hand to satisfy people on this point, Fisk & Hatch, at the very time they were negotiating large amounts of this loan, addressed a letter to the Secretary of the Treasury on the 3d of August, 1863, and received from him an official reply, signed by the Assistant Secretary of the Treasury, which was immediately published in the New York Times, as follows :
THE POPULAR LOAN.
To the Editor of the New York Times :We are receiving numerous inquiries as to whether the United States 5-20 bonds are redeemable in gold. We have received a letter from the Treasury Department most satisfactorily answering this question, (as it was once before answered by Mr. Chase,) a copy of which we hand you herewith. The popular character of this loan, and its wide distribution among the people, renders the subject one of universal public interest and importance, and we presume the publication of this letter will be acceptable to your readers.
FISK & HATCH, Bankers.
TREASURY DEPARTMENT, WASHINGTON, D.C.,
August 5th, 1863.
GentlemenYour letter of the 3d instant, relative to the redemption of 6 per cent. 5-20 bonds of the loan of February 25, 1862, has been received. The following is the decision of the Secretary of the Treasury in regard to the redemption of the public debt : All coupon and registered bonds forming a part of the permanent loan of the United States, will be redeemed in gold. The 5-20 sixes, being redeemable at any time within twenty years after the lapse of five years, belong to the permanent loan, and so also do the twenty years sixes of July 17, 1861, into which the three years 7-30s are convertible. All obligations and notes forming a part of the temporary loan will be paid at maturity in United States notes, unless before such maturity payment in specie shall have been generally resumed. The 7-30 three year bonds or notes form part of the temporary loan, with the privilege of conversion into 20 years sixes, in sums not less than $500. They will therefore be paid, if the holders prefer payment to conversion, in United States notes.
Acting Secretary of the Treasury.
This official letter from the Treasury Department, in addition to its being published in all the newspapers, was published in hand-bill form, (one of the original hand-bills being now in my possession,) and sent broadcast among the people, to induce them to come forward and take up these bondswhich were then on the market under the direction of the Secretary of the Treasury, and offered by him at par. I was at this time actively engaged in negotiating this loan. I advertised and circulated this letter extensively myself, and gave copies of it to subscribers at the time of making their subscription to this loan. I regarded these representations, made by authority of the Treasury Department, and upon the faith of which people were induced to subscribe for the loan, as forming a part of the contract, and that the Government is now bound to make these representations good, and that, whenever they seek to redeem these bonds, the principal as well as the interest should be paid in coin. I should regard it as a gross breach of faith on the part of the Government to attempt to evade these declarations, or equivocate in fulfilling this contract, or any part of it.
But aside from these representations made by the Secretary, I would suggest that the plain meaning of the act of 62, when read in connection with its title, leads to the same conclusion, and that Secretary Chase, in giving the construction to the law which he did in negotiating the loan, gave a correct, practical, common sense decision. The argument of the present Secretary, in his last annual report, (pages 24, 25 and 26,) is able and conclusive on this point. The interpretation given to the act by both these distinguished Secretaries is in exact accordance with my intention at the time I drew and introduced the bill in the House, in January, 1862, and as I believe it was fully understood by Congress when it passed. The title of the act is expressive of the intention and purpose for which it was passed, namely, an act to authorize the issue of United States notes, and for the redemption or funding thereof, and for funding the floating debt of the United States.
It was intended by this measure, in the imminent peril in which we were then placed by rebellion, to make a forced loan from capitalists, by compelling them to take legal tender United States notes, which should be paid out to the army and navy, and for supplies and material of war, but at the same time give them a fair rate of interest for the use of their money, by allowing them to fund these legal tender notes as they should accumulate in their hands and not bearing interest, into a twenty years bond bearing six per cent. interest. In the opening speech which I made in the House on the 28th of January, 1862, I said : The demand notes put in circulation would meet the present exigencies of the Government in the discharge of its existing liabilities to the army and navy, and contractors for supplies, materials and munitions of war. These notes would find their way into all the channels of trade among the people, and as they accumulate in the hands of capitalists, they would exchange them for six per cent. 20 years bonds. These circulating notes in the hands of the people, would enable them to pay taxes imposed, and would facilitate all business operations between farmers, mechanics, commercial business men and banks, and be equally as good as, and in most cases better than, the present irredeemable currency issued by the State banks. The $500,000,000 six per cent. twenty years bonds in the hands of the Secretary of the Treasury, ready to be issued, would afford ample opportunity for funding the Treasury notes as fast as capitalists might desire to exchange notes not bearing interest for coupon bonds of the United States bearing six per cent. interest, and amply secured by a tax on the people and all their property. In this way the Government will be able to get along with its immediate and pressing necessities, without being obliged to force its bonds on the market at ruinous rates of discount ; the people under heavy taxation will be shielded against high rates of interest, and the capitalists will be afforded a fair compensation for the use of their money during the pending struggle of the country for national existence.
A suspension of specie payments is greatly to be deplored, but it is not a fatal step in an exigency like the present. The British Government and the Bank of England remained under suspension of specie payments from 1797 to 1821-2, a period of twenty-five years. Gold is not as valuable as are the productions of the farmer and mechanic, for it is not as indispensable as food and raiment. Our army and navy must have what is more valuable to them than gold or silverthey must have food, clothing and the material of war. Treasury notes, issued by the Government on the faith of the whole people, will purchase these indispensable articles, and the war can be prosecuted until we can enforce obedience to the Constitution and laws, and an honorable peace be thereby secured. This being accomplished, I will be among the first to advocate a speedy return to specie payments, and all measures that are calculated to preserve the honor and dignity of the Government in time of peace, and which I regret are not practicable in the prosecution of this war.
These are, in part, the remarks I made in the House on the loan bill introduced by me, and which became a law February 25th, 1862. The operation of the bill, in the issue of the legal tender notes, the paying them out to the army and navy, their final funding into a twenty years six per cent. bonds, have been substantially what I stated would be its operation at the time I introduced it into the House. The object of the bill was to provide the means by which the floating and temporary debt, then bearing heavily upon the Treasury, might, by the operation of the act, be funded into a long bond without a heavy sacrifice in making the negotiation. Some gentlemen are now trying to reverse the obvious intent of the act, and unfund all this bonded debt, by again putting it into a floating and temporary form. I regard all these late shifts and quibbles to unsettle what is already honorably fixed and determined by the Treasury Department under and in pursuance of law, as unworthy of this great nation, unstatesmanlike in those who advocate it, and, if persisted in, will, I think, inevitably destroy the credit of the Government, and postpone indefinitely a resumption of specie payments.
Why take the back track under these funding loan bills ? Why open the question at all at this time ? The floating debt and temporary loans are already funded, or so nearly funded that there cannot be any reasonable doubt that, by the 15th of July next, when the last series of 7-30 notes fall due, the whole will be funded into bonds, none of which are payable until 1882, being fifteen years yet before they become due. The Government is not legally or morally bound to pay one dollar of the principal of these bonds until they become due. Then why trouble ourselves about funding that which is already funded, especially when it has to be done by repudiating the acts and declarations of the Secretary of the Treasury in the discharge of his official duties ? Why raise the question now as to the kind of money with which we are to pay bonds already outstanding, and which are not becoming due until 1882 ?
The $830,000,000 of three years 7-30 notes were all negotiated under representations made by the Treasury Department, similar to those made in respect to the 5-20 loan of 62, with an express stipulation that the holders of these notes should have the privilege of converting them at maturity into 5-20 bonds. The bonds of 62, as well as the bonds issued in redemption of the three series of 7-30 notes, all stand upon the same footing, and the Government is no doubt bound to pay the principal as well as interest in coin, whenever it seeks to retire these bonds under the five years option, reserved in the face of the bonds. That such is the view taken by the present Secretary of the Treasury, fully appears by his letter to L.P. Morton & Co., bankers in New York, in which he says :
TREASURY DEPARTMENT, Nov. 15, 1866.
GentlemenYour favor of the 13th instant is received. I regard, as did also my predecessors, all bonds of the United States as payable in coin. The bonds that have matured since the suspension of specie payments have been so paid, and I have no doubt that the same will be true of all others. This being, as I understand it to be, the established policy of the Government, the 5-20 bonds of 1862 will either be called in at the expiration of five years from their date, and paid in coin, or be permitted to run until the Government is prepared to pay them in coin.
I am, very truly yours,
Under the influence of this official declaration, most of the bonds have been taken on the exchange of the 7-30 notes, in pursuance of the stipulation on the back of the notes, and long before these bonds become due, specie payments will no doubt be resumed, and we shall then have but one standard of value, and only one kind of money, namely, coin, or its equivalent, in which to pay these bonds. Our population and resources will be nearly double then to what they are now. We shall be abundantly able to pay at that time in that currency which is recognized by all civilized nations as the true standard and measure of value, and thereby the honor and good faith of the nation will be fully maintained.
I would suggest that it is not wise to prematurely agitate the question, and am not able as yet to see any good reason for doing so. On the contrary, I think all agitation now, on this branch of the financial question, is mischievous, and calculated unnecessarily to impair our credit at home and abroad.
I would suggest further, that the provision in the bill which limits the legal tender currency to $400,000,000, is a good one, provided there is any sane man in Congress who proposes, in a time of peace, to dilute and still further depreciate the currency, by increasing it above that sum ; but I think the maximum of the greenback currency must not exceed $250,000,000 or $300,000,000 when we reach the specie standard, if we would successfully maintain specie payments. And it seems to me that it would greatly facilitate a resumption of specie payments if the national banks were required to hold a part of their reserves in coin, and that some safe plan should be devised by which the sub-treasuries in the principal cities, especially in New York, could make daily settlements with the banks through the clearing-house, and requiring only balances to be paid, substantially in the same manner as the banks in the principal cities make their daily settlements with each other. In this way no large movement in coin to or from the sub-Treasury would be necessary, and the daily payments could be made with comparative ease. But this letter is already too long, much longer than I intended when I commenced it, and I will not enlarge further on this subject at this time. I may desire to make some further suggestions, and if so, will write you again.
I remain, very truly, your friend,
E. G. SPAULDING.
FROM HON. F.E. SPINNER
WASHINGTON, NOV. 9.Hon. E.G. Spaulding, Buffalo, N.Y.:
My Dear SirYour note of the 6th inst. has been received. If some one who believes in high-toned swindling will write in favor of open repudiation, I will agree to give the subject the consideration of a careful reading, but I have not the patience to read anything advocating the sneaking expedient of paying the national debt in depreciated currency.
The Secretary of the Treasury is sound on this subject ; and in his forthcoming Annual Report will address an argument to the Congress and the country, that I am sure will please you and those who are neither knaves nor fools.
The finance question is to become the leading one in the organization of parties, and I had hoped that such men as Butler and Stevens would have remained with the great body of their friends. Having an abiding faith in the honesty of the people, I believe the question will be settled honestly, and that honest Americans will be spared the shame of having their nation stigmatized as a band of cheats and swindlers.
Very truly, your friend,
NATIONAL CURRENCYLEGAL TENDER.
The avowed policy of the Government is to retire the legal tender greenback currency, issued during the war, and bring the business of the country back to a gold standard, and a resumption of specie payments. This policy is avowed by the President in his annual message, and by the Secretary of the Treasury in his Fort Wayne speech, and in his annual report. As this policy will sooner or later be carried out, it is important we should look ahead and be prepared for the change. It will take time to accomplish so great a result, and it must be done with great prudence and discretion, or it will produce a shock to the legitimate business of the country, which will paralyze our business operations and thereby diminish the revenues that will be so much needed to maintain the public credit. Whatever measures will aid in promoting the healthy and legitimate business of the country during the process of contraction will be of essential service both to the Government and the people.
It is not so very important just at this time, that there should be any material change made in the functions of the national currency, but as the Government legal tender notes are withdrawn from circulation, and the contraction policy fairly begun, I think it will be of great importance to the country, in giving stability to its financial operations, that the national currency should be, like the Bank of England notes, made a legal tender, except for debts owing by the banks. I feel confident that it would lessen the liability to a panic, as contraction goes on, and be useful and beneficial to the Government and people, in maintaining the financial credit and business of the country.
The national currency is limited to a proper amount, so that there will be no chance for an over issue, and as the banks issuing it are required on the resumption of specie payments, to redeem it in coin, I can see no harm that would arise from making it a legal tender, but on the contrary, much good to follow the enactment of such a law. Let us consider this subject a little more in detail.
What the Government and people want and must have in this great and enterprising country, is a currency of universal credit and uniform value. Such a currency is a vital necessity to the well being of the business of the country. It should possess all the attributes of money, adequate in amount, and receivable alike in all payments, public and private. Men engaged in large commercial transactions have no especial worship for gold and silver, either as money or for ornament ; but I would not discard those metals in fixing the standard of value of paper money, and the relative value of commodities and services. In devising and regulating a system of national currency, I would have coin and paper money as nearly on an equality as it is possible by having the paper convertible into coin on demand.
I know it is insisted by some persons that the only money is coined metal, and that paper money as its substitute, is only credit. This may be true in a certain sense, but at the same time both coined money and paper money are the creation of law, and it is equally true that credit underlies the whole financial operations of the Government and people, and if that credit is broken down, the Government and people will become bankrupt, business paralyzed and revenues largely diminished. Coined money like paper money is made in pursuance of statute law, and has impressed upon it the Government stamp, indicating its weight and purity. This stamp does not, however, give the metal its value, the value is in the metal independent of the stamp, but gold of individuals so coined into eagles under the laws of the United States, does determine the rate in arithmetical terms at which the metal thus coined shall be a legal tender, and the standard of value in all exchanges and payments, and this makes it by law money. Paper money is made by a somewhat different process, but when both are stamped with the functions of money they are both the creation of law. It is true that gold and silver are esteemed a valuable commodity without being coined, and are within a small fraction, rated as high in the form of bullion, as in the form of coin. The coined money rests on its own inherent or estimated value, while the paper money is based upon a well-founded credit. A payment in coin or bullion closes the transaction, because the bargained for equivalent is rendered at once, leaving no credit to be upheld or promise to be performed in the future. United States demand Treasury notes, are also by law made lawful money and a legal tender as a substitute for coin, and their value is based upon the credit of the Government, and all the taxable property under its jurisdiction. If they were not issued in excess they would not be below the gold standard, and would constitute as good, and even a better currency than coin, because less expensive and more convenient, and because they are based on a well founded credit, no less than an adequate tax on all the real and personal property of the country. The principal difference between coin and paper money may be stated thus : the exchange and delivery of one hundred bushels of wheat for one hundred dollars, in value of gold bars or coined gold, the transaction is closed on the spot, by each party delivering to the other, what is regarded by them as an equivalent ; according to the estimation of both parties, it is an exchange of equivalent values. In such a transaction ; no credit is given on either side ; but if instead of gold, the purchaser of the wheat should deliver to the seller in exchange for it, one hundred dollars in paper money, the equivalent for the wheat, although perfectly secured, would not be rendered on the spot, but a credit would intervene in taking the paper money, which contained only a promise to deliver one hundred dollars in gold at another time. In one sense it is true that the seller of the wheat takes even gold on a credit, trusting that it will continue at all times as valuable as it now is, notwithstanding it possesses very few useful qualities, and is not intrinsically as valuable as iron. Franklin says, that the value of gold and silver rests chiefly in the estimation they happen to be in, among the generality of nations, and the credit given to the opinion that that estimation will continue ; otherwise a pound of gold would not be a real equivalent for a bushel of wheat. It is the universal estimation in which gold and silver are held, that gives them their present value, and not the labor expended upon them, or any particularly useful qualities contained in the metal itself. Any other well founded credit is as much an equivalent as gold and silver, and in some cases more so, or it would not be preferred by commercial people in different countries. For this reason a well secured convertible paper money, in a normal state of the business of the country, is fully equal to gold and silver, because less expensive, and more convenient. But where commercial transactions are small, and among barbarous nations where credit is unsafe, gold and silver, on account of their comparatively steady value, and the universal estimation in which they are held by all mankind, no doubt constitute the best money. These precious metals, so called, being limited in amount, and used extensively in the arts and luxuries of life, are desired the world over, not only by civilized, but by barbarous nations, and having great estimated value in small bulk, are easily transported from continent to continent. This universal estimation gives them pretty steady value as money, and an equally steady value in the arts, and for ornament. They therefore constitute at present, the best standard by which to measure the relative value of all other commodities. They are, therefore, the standard of value in all countries, and it will be very difficult, if not impossible, for the nations of the world to agree upon any other standard of value. They have not become so by reason of a congress of nations, nor by any concert of action among them, but by the quiet action of commerce among the people for many centuries, and in all countries and climes. Gold and silver therefore, are the universal standard of value, made so by the acquiescence of all mankind, and consequently all foreign balances are settled in gold and silver. But owing to the scarcity of the precious metals, and the great expense attending their use as money, and the risk of transporting them from place to place, credit has been resorted to in some form by all civilized countries, under well established Governments, as a substitute for gold and silver, and especially for domestic purposes ; for instance, the Bank of England notes, for the British Empire.
Bills of exchange, promissory notes, credits on bank ledgers, checks, bank bills, and clearing house certificates are among the forms of credit, chiefly used in commerce at the present time. In consequence of this scarcity of gold and silver money adequate to the wants of commerce, these forms of credit have been extensively used by the people of all commercial countries, because business in this form could be done more cheaply, with much greater facility, and in vastly greater amounts, than It could be done by contracting it to the actual use of gold and silver in each transaction ; and although there is no actual use of coin in the exchange of commodities and services, nevertheless all these credit transactions have a relation to gold and silver, as the standard or measure of value, and ought to have an equally close relation to the amount of commodities and services to be exchanged ; and to be safe, should never exceed the wants of legitimate business. It is generally conceded that these different forms of credit, when not carried to excess, are of the greatest usefulness to every well regulated society. So apparent are their advantages, that they are deemed indispensable, and that without them, the present large volume of commercial transactions could not be carried on. Most of these forms of credit have grown into use by the necessities of commerce for centuries past, and are governed by universal commercial law, modified in some particulars by local statutes, but generally the law merchant regulates and governs all of them, except in the case of bank bills and Government paper money ; which are wholly the creation of local laws, and are regulated and governed by the statute laws under which they are created. This brings me to the consideration of a paper currency authorized and regulated by statute laws.
NATIONAL CURRENCYLEGAL TENDER.
In discussing the subject of a national currency, and the functions that should be imparted to it by law, I assume that Congress deems it necessary and proper to have a paper national currency, not only to carry on the fiscal operations of the Government, but also to facilitate the business operations of the people ; and that such a currency is created because it is the duty of the general Government to provide a domestic circulating medium of uniform value, to be used and circulated as money in all parts of the United States. Now, if it is desirable and proper to have a national paper currency at all, as I think it is, it seems to me to be obvious that it should be the best that the Government is capable of making. If it is necessary to create a paper currency, as a substitute for, or as a representative of, gold and silver, why not give it all the attributes of money, so far forth as it can be made so by law ? Why should not Congress confer upon it in all respects, the highest qualities possible to make it suitable, useful and acceptable in all the ramified operations of the Government and people over the whole country ? This currency is a creation of the Government. Its object is to make money for circulation ; to make it of uniform value all over the United States in effecting exchanges and payments, and as nearly equal to gold and silver as it is possible to make it.
This great nation surely ought not to create a currency inferior to the best paper money in the world. It should have all the attributes of money to pay debts and facilitate exchanges. It should be backed by the whole power of the Government to make it what it purports to be, a national currency, and the representative of gold and silver, and convertible into gold coin on demand. Nothing should be withheld by Congress which would in any degree add to the stability or usefulness of such a currency. It is created as an instrument of usefulness to benefit the Government and people, and if made at all, it should be, like a locomotive, or any other instrument, the best that can be made. I took this ground on the passage of the legal tender act introduced by me in 1863. I then said that if we issued a Government paper money at all, it ought to have imparted to it the highest legal sanction that could be given to it by the Government, to make it fulfill the purpose for which it was made. There are very few business men who now question the wisdom of that enactment. Though in the administration of the laws authorizing it, more was unnecessarily issued, and less funded, than was intended by the originators of the measure.
The British Government is the great pioneer in providing a paper national currency. The Bank of England, a creation of that Government, has existed one hundred and seventy-two years. She has had great experience in the issue, circulation and redemption of the circulating notes of that bank ; and the British Empire has increased in material wealth and power with astonishing rapidity since the bank was established. Previous to 1834, the circulating notes of the Bank of England were not made a legal tender, but after an experience of over 140 years, she passed an act, making them a legal tender for all debts, except those owing by the bank self ; and for the avowed reason that it would not remove any of the guards against over-issues, and that it would increase the stability of the bank, guard against panics, and consequently improve the whole monetary system of that empire. Since that act of Parliament was passed, she requires the notes of the bank to be perfectly secured by gold and Government stocks ; requires the bank to redeem in coin on demand at its own counter, and then makes them a general legal tender except at the bank.
The Bank of England notes admirably perform the functions of money. They are current money in all parts of the empire. They are probably, the most perfect paper currency in the world, because they are not only perfectly secured and redeemable in gold on demand at the bank, but they have imparted to them by law the functions of money in the payment of debts and, effecting exchanges, in the cities and villages remote from London, as well as in the metropolis itself. They are backed by the whole power of the British Government, and circulate with as much vitality at the circumference as at the centre of the empire. The bank and its circulating notes are as stable and secure as the Government itself.
Why should we not profit by the experience and example of the British Government in respect to its national currency ? We have provided by Congressional enactment for the organization of a system of national banks, and the issue of a national currency. This was deemed a necessary measure for the support of the Government in providing a circulating medium to facilitate the easy exchange of commodities, thereby stimulating enterprise, industry and production ; adding to the ability of the people to pay revenue, and furnishing a currency in which the internal taxes may be paid. The leading idea was to combine the capital of individuals with the credit of the Government, to provide a national currency, and throw the burthens of redeeming such currency upon the banks that issue it, the Government only guaranteeing its ultimate payment.
The national currency act is generally right as far as it goes. It limits the amount to $300,000,000 ; requires the circulating notes to be well secured by gold-bearing Government bonds, deposited with the Treasurer of the United States ; requires each bank to redeem its circulating notes in lawful money on demand, and to keep an adequate reserve for that purpose ; makes them a legal tender for all taxes and other debts due to the Government, except customs, and for all debts owing by the Government, except principal and interest of the funded debt ; it also makes them receivable by each national bank for all ordinary debts due to theme and each bank, designated as a depository, is also required to receive it on deposit from all public officers. These are important provisions in the law for nationalizing this currency, and it consequently obtains a wide circulation. I would not change or alter any one of these provisions for de-centralizing the currency, but I think it does not go quite far enough in that direction. It will be perceived that all persons in the employ of the Government are compelled to receive it in payment for salaries and for materials and other services performed for the Government. It is now in effect made a legal tender from the Government to all this class of persons, including the salary of the President, Cabinet, Members of Congress and the army and navy. If the President and other officers of the Government are obliged to receive it in payment for their salaries, why should not everybody else be required to take it from them for all ordinary debts they may incur ? I can see no valid reason why they should be a legal tender to persons employed by the Government, unless such persons can also compel other parties to receive it from them. I think that sound policy requires the act to be still further extended. I would go one step, further and make the national currency, like the Bank of England notes, a general legal tender, so long as the bank issuing it, redeem in lawful money, except that the currency issued by any bank separately should not be a legal tender for any debts such bank might itself owe.
I would not relax any of the duties or obligations now imposed on the banks. I would compel them to redeem their circulation in legal tender United States notes on demand, until the resumptions of specie payments, and after that in specie, and oblige them to keep a sufficient reserve for that purpose. The reason for such additional legislation would not be so much for the benefit of the banks, as it would be to benefit the public, by providing a domestic currency, made legal tender the same as gold belonging to individuals is made a tender, and which could be used to the greatest common advantage among all classes of people in all parts of the country. I would make it a legal tender because it would lessen the demand for coin, and have a tendency to prevent unnecessary runs on the banks to obtain it. It is argued by many persons, with much plausibility, that a well secured paper currency would be better in many respects, if not made redeemable in coin, for the reason that coin is scarce as compared with the volume of business to be done ; that it is easily exported, and that when brought to the test of requiring the paper money issued to be redeemed in coin it has always failed, and always will fail, because there is never available coin enough for that purpose. I admit that the frequent suspension of specie payments, whenever there is a panic or revulsion, furnishes an argument in favor of those who present this view of the subject, but as no proper standard can be had at present, without making paper currency equal to coin, I think it must be convertible into coin on demand. Every attribute, however, that can be given to improve its quality will lessen the necessity for its redemption in coin, and consequently the more steady and uniform will be the business of the country.
With this object in view, I can see no valid reason why the highest, legal sanction should not be imparted to this currency by the Government, which holds the pledged security and guarantees its payments, not only to give it stability, and guard against panics and suspensions of specie payments, but to make it useful to the people as money, in the remote districts as well as at the centre of business, and make it fulfil in the highest possible degree the object for which it was created, a national currency.
February 28, 1866.
LEGAL TENDER IN TIME OF PEACE.
BUFFALO, December 9, 1868.Hon. Hugh, McCulloch, Secretary of the Treasury :
Dear SirWill you be kind enough to send me a pamphlet copy of your Annual Report ; I have seen a synopsis of it in the newspapers, and desire to study it in a more readable form. I have always read your able and well-matured reports with pleasure and profit. I judge, from the extracts of the report which I have seen, that you continue firm in the opinion that we should get rid of the evils of a depreciated currency by returning to the specie standard at the earliest practicable moment ; this is the first great and important duty of the Government, and I sincerely hope that efficient measures will be adopted to that end at the present session of Congress.
You justly observe that the legal tender act was adopted as a war measurea measure of necessity to sustain the army and navy while crushing the rebellion. In the summer and fall of 1861, all the great powers expressly granted in the Constitution had been brought into active exercise in bringing into the field an army of half a million of men, which had to be fed, clothed and provided with all the material of war necessary to make them effective, requiring an average daily expenditure of $2,000,000. This required very large amounts of money, and we had to have it right offdelay would have been fatal. The banks in New York, Boston and Philadelphia had exhausted themselves in loaning to the Government $150,000,000 in gold during the summer and fall of 1861. A large part of the available gold in the country had thus been paid over to the Government, and expended during that time, and so scattered that it was not available as a reserve for the banks, or in a situation to be re-loaned to the Government. The Government and banks suspended specie payments on the last of December, 1861. No more gold could be loaned because it was not to be had, except in small and wholly inadequate amounts. State bank bills could be obtained, but the banks having suspended specie payments this currency was depreciated, and was only local in character and credit.
In this great emergency, with this large army to be supported and the navy to be maintained, and which were organized under the unlimited war powers expressly granted in the Constitution, there arose an overwhelming necessity for resorting to the incidental and implied powers, and especially to that provision in the Constitution which empowers Congress to make all laws which shall be necessary and proper for carrying into execution the foreign powers and all other powers vested by this Constitution in the Government of the United States, or any department or officer thereof. In the imminent peril in which we were then placed by a gigantic rebellion, Congress decided that the legal tender act was a measure necessary and proper to carry into effect those powers expressly granted in the Constitution, to maintain the army and support the navy. Secretary Chase relied at this time mainly upon the passage of the national currency act to furnish the means, but it appeared to me that it would be wholly inadequate, and besides it could not be made available quick enough. I therefore introduced the legal tender bill early in January, 1862, immediately after the suspension of specie payments. In this great crisis I advocated the bill as a war measure, a measure of temporary relief to the Treasury, and on the ground that it was an imperative necessity to preserve the life of the nation. I conceded that it was a forced loan, and could only be justified on grounds of necessity.
As a war measure passed during war, continuing during the war, and as long as the exigency lasted, I believe it was necessary and proper to successfully carry on the war, and was therefore constitutional. I am equally clear, that as a peace measure it is unconstitutional. No one would now think of passing a legal tender act making the promises of the Government, (a mere form of credit,) a legal tender in payment of all debts, public and private. Such a law, passed while the Government is on a peace footing, could not be sustained for one moment.
I think now that it is unfortunate that we did not have incorporated into the original legal tender act, at the time of its passage, a provision that the legal tender clause should cease to be operative in one year after the close of the war. In that case all parties would have shaped their business accordingly, and the law would have served its purpose as a war measure, and would not have been continued (as I think unnecessarily,) so long after the close of the war.
I see that the constitutionality of the law has finally come up for decision before the Supreme Court of the United States, at Washington. If the Court had been called upon to decide the question during the war, or at its close, they would most likely have decided that the law was valid, inasmuch as Congress had decided that it was a necessary and proper means to be used in crushing the rebellion ; but the law has been continued in force so long after the close of the war without any real necessity for it, that I should not be much surprised if the Court should now declare it unconstitutional.
Three great measures were adopted by the Government, which, in my judgment, were necessary to crush the rebellion and maintain the national unity, viz.:
1. The legal tender act, by which the credit of the Government was brought into immediate action in the most available form.
2. Emancipation, by which 4,000,000 slaves became intensely interested in the Union cause.
3. The draft, by which the army was speedily re-enforced at the turning point of the rebellion.
These three measures, backed by the people, and enforced by the army and navy, finally gave us a national triumph.
If Congress will not act promptly in devising some plan for bringing the legal tender greenback currency on a par with gold, rather than continue the demoralization incident to a postponement of specie payments, it will perhaps be as well for the country in a long run, if the Court, on due deliberation, should decide the legal tender clause to be unconstitutional. This would involve serious consequences for a while, and business arrangements would be materially affected, but we would very soon accommodate ourselves to the situation, and we would then emerge from the evils of an irredeemable currency, and all business operations would be established on a firm and enduring basis.
This letter is much longer than I intended when I sat down to write, and I trust you will pardon me for writing so much.
I remain, yours truly,
E. G. SPAULDING.
PRESIDENT LINCOLNS VETO.
Presidents Message in favor of a National Currency, but vetoing, irredeemable bank notes in the District of Columbia, June 23, 1862.To the Senate of the United States :
The bill which has passed the House of Representatives and the Senate, entitled, An act to repeal that part of an act of Congress which prohibits the circulation of bank notes of a less denomination than five dollars in the District of Columbia, has received my attentive consideration, and I now return it to the Senate, in which it originated, with the following objections :
1. The bill proposes to repeal the existing legislation prohibiting the circulation of bank notes of a less denomination than five dollars within the District of Columbia, without permitting the issuing of such bills by banks not now legally authorized to issue them. In my judgment it will be found impracticable, in the present condition of the currency, to make such a discrimination. The banks have generally suspended specie payments, and a legal sanction given to the circulation of the irredeemable notes of one class of them will almost certainly be so extended in practical operation as to include those of all classes, whether authorized or unauthorized. If this view be correct, the currency of the District, should this act become a law, will certainly and greatly deteriorate, to the serious injury of honest trade and honest labor.
2. This bill seems to contemplate no end which cannot be otherwise more certainly and beneficially attained. During the existing war, it is peculiarly the duty of the national Government to secure to the people a sound circulating medium. This duty has been, under existing circumstances, satisfactorily performed, in part at least, by authorizing the issue of United States notes receivable for all Government dues except customs, and made a legal tender for all debts, public and private, except interest on the public debt. The object of the bill submitted to me, namely, that of providing a small note currency during the present suspension, can be fully accomplished by authorizing the issue, as part of any new emission of United States notes, made necessary by the circumstances of the country, of notes of a similar character, but of less denomination than five dollars. Such an issue would answer all the beneficial purposes of the bill ; would save a considerable amount to the Treasury in interest ; would greatly facilitate payments to soldiers and other creditors of small sums, and would furnish to the people a currency as safe as their own Government.
Entertaining these objections to the bill, I feel myself constrained to withhold from it my approval, and return it for the further consideration and action of Congress.
SPEECH OF HON. E.G. SPAULDING, OF NEW YORK,
DELIVERED IN THE HOUSE OF REPRESENTATIVES,
Friday, May 3d, 1862.
The House having under consideration the bills to confiscate the property and free from servitude the slaves of rebels, Mr. Spaulding said :
Mr. SPEAKERIt seems to be right and proper, while we are taxing our own loyal people to pay the enormous expenses of this war, that we should endeavor to make the ring-leaders of the rebellion, who have fomented and brought on this terrible state of things, pay as large a portion of these expenses as is possible. To this end it is fit and proper that Congress should exert all the power it possesses in confiscating the property of rebels, and having it sold under an order of the court, and the proceeds thereof, paid into the Treasury of the United States ; and also that such rebels should be deprived of the labor and services of their slaves, from which they derive their chief support. These propositions are now pending in this House, and we shall be called to vote upon them on Monday next. These are important measures, and I desire to say a few words before giving my vote. After the able arguments that have been made in the Senate and House by those who have been especially charged with the subject of confiscating the property of rebels and the emancipation of their slaves, I do not deem it necessary for me to make any extended remarks.
Sir, the time has come when we must meet the actual condition of things, and dispose of these and other momentous questions presented for our consideration in a practical way, and with a firm determination to suppress this rebellion and establish law and order in every part of the United States. Success, regardless of the cost, is the all-important thing to be attained. This rebellion must be crushed out, and all the means which God has given us must, sooner or later, be brought into requisition to accomplish that result. The sooner we earnestly put forth every effort, and apply all the means at our command, the sooner will the rebellion be suppressed, and the less of life and treasure will be expended.
What is the actual condition of things ? All the horrors of war are upon us. War on a gigantic scalesavage, unrelenting war is waged against us by the rebels. Not only do they kill our brave sons and brothers on the field of battle, but they murder them stealthily, stab and scalp them when wounded, and disfigure and mangle them after they are dead. The rebel ; in arms against us are enemies de facto, possessed of all the bitterness and determination of the most unrelenting foreign enemies. We are obliged to accept this condition of things. It has been forced upon us by their own acts. The life of the nation is attacked, and a most determined effort made to overthrow the Government of the United States in all of the confederate States. They are our enemies. I am disposed, while they are so in rebellion, to treat them as enemies, and to give them only the rights of war, and apply to them all the disabilities and penalties of war.
As alien enemies, throwing off all allegiance to the Government, trampling the Constitution and laws of the United States under their feet, how can they claim any protection from us ? As enemies de facto, they call claim no rights except the rights of war. Any gentleman on this floor holding up the Constitution as a shield to protect these rebels it seems to me has not duly considered the subject. Is it possible that men who utterly repudiate the Constitution, confederate together, declare war, issue letters of marque and reprisal, and are in open war against us, can claim any rights under the Constitution ? The laws of war are against it. Common sense and common justice would revolt at any such claim, even if the public law was not so emphatically against it.
If we were to proceed and indict the traitors in arms against the Government for treason, (as we have an undoubted right to do,) under the provisions of the Constitution, then they might, in such case, claim to have their criminality decided by the court, under the strict rules of the common law and the Constitution and statute laws of the United States. In such a case, the argument of the gentleman from Massachusetts [Mr. Thomas,] might have some application. But when the traitors are engaged in actual war, then you apply to them the laws of war. Having themselves repudiated the Constitution, and having expelled the United States courts from all the rebel States, so that you cannot indict and try them under the ordinary forms of judicial proceedings, they cannot complain if you apply to them the laws which are clearly applicable to the position which they have voluntarily, but most criminally, chosen for themselves. Having declared war against the United States, they must submit to all the rules of civilized warfare, and if their property is confiscated and their slaves emancipated, they have no right to complain.
What is the war power conferred on the President and Congress ? By the Constitution, the President is made Commander-in-Chief of the army and navy of the United States, and of the militia of the several States when called into the actual service of the United States. The Constitution confers on Congress the power, first, to raise and support armies; second, to provide and maintain a navy ; third, to make rules for the government of the land and naval forces; fourth, to provide for calling forth the militia to execute the laws of the Union, suppress insurrections, and repel invasions; fifth, to grant letters of marque and reprisal ; sixth, to make rules concerning captures on land and water ; seventh, to declare war ; eighth, to make all laws which shall be necessary and proper for carrying into execution the foregoing powers. In pursuance of these war powers conferred on Congress by the Constitution, laws have been passed to carry them into execution. The public laws of nations declare the rights and penalties of war. More than one hundred articles of war have been adopted by Congress for the government of our army. At the extra session in July last, Congress passed various laws which were then deemed necessary to crush out the rebellion. Congress passed those laws, and the President executes them, in accordance with the rights of war.
Among the rights of war is the power to confiscate the enemys property and liberate their slaves. One of the express powers conferred on Congress by the Constitution, is to call out the militia to suppress insurrections, which means that you have unlimited power to effectually suppress the present or any other insurrection. All the means necessary may be employed to suppress it. Nothing within the range of civilized warfare is withheld from you in this crisis. Congress may, in the language of the Constitution, pass all laws which may be necessary and proper to suppress the insurrection. If the laws now on the statute-book are not sufficient, it is our duty to pass other and more stringent laws, confer more power on the President, give him ample power to make our success complete and certain. Let the rebellion be terminated in the shortest time, and with the least possible sacrifice of life and treasure. The continuance of the war is extremely hard and exhausting to our volunteer soldiers, and the enormous expenses will impose heavy burdens upon the people. Every consideration of patriotism and duty requires us to put into active exercise at once all the means within our reach to bring the war to a speedy and successful termination.
What are the rights of war, and what are the ordinary means which may be brought against these rebels to weaken their power and crush out the rebellion ? As enemies de facto it is conceded you may blockade their ports, preventing all exports and all imports or supplies from abroad ; you may cut off all internal supplies by depriving them of the use of railroads, canals, lakes, rivers, and all other means of transportation ; you may cut off all communication by mail, telegraph, express, or otherwise ; you may capture their vessels, their supply trains, sink their ships, destroy their military stores, and meet them face to face in battle, and kill, capture and disperse their hostile forces. All these ordinary means have been tried during the last year, and still the ring-leaders who fomented this rebellion are more desperate than ever. War, gigantic, unrelenting war, still goes on. The rebels are more determinedly our enemies than ever before ; and a call is made by the President for more troops to fight them. In this state of things what is to be done ? Are there no other means that can be used to strengthen ourselves and weaken the power of the rebels, and thereby insure their defeat ? This is the great question we are now considering. All the authorities sustain the doctrine that you may, under the war power, confiscate the property of enemies, and may liberate their slaves.
On the power of liberating slaves, John Quincy Adams lays down the doctrine that, in time of war, civil or foreign, not only the President of the United States, but the commander of an army, has the power to order the universal emancipation of the slaves. It is evident, however, that he regarded it as a power subject to the action of Congress. With a call to suppress insurrection, he says, comes full and plenary power to the Senate and House over the whole subject. It is a war power.
The extreme measures of confiscating the private property of rebels, and the liberation of their slaves, have not yet been tried to any considerable extent during the war. Is it a war measure necessary to success at this time ? If it is necessary, will Congress and the President have the courage and the firmness to exercise this power boldly ? Will this Government strike these rebels where it will do them the most harm ? Will you take from them their property and liberate their slaves ? Will you deprive them of the most effective means of carrying on the war ? Take away their individual property, and deprive them of the labor and services of their slaves, and you strike a blow at the heart of the rebellion. You would then strike directly at the root of the evil. Give a death-blow to slavery, and you would soon be able to terminate the war.
We have already taken some positive steps in advance on the slavery question during the present session. Slavery has been abolished in the District of Columbia. The capital of the nation is forever freed from the taint of involuntary servitude. We have passed a new article of war, which prohibits commanders of divisions from returning slaves that voluntarily come within their lines. We have extended the ordinance of 1787, prohibiting slavery in all the Territories of the United States. And we have passed a resolution offering pecuniary aid to States that shall enter upon a gradual emancipation of the slaves within their limits. These enactments are in accordance with public sentiment and the progressive spirit of the age. Shall we advance still further in the work of emancipation ? This depends somewhat upon the necessity of such a measure and the probable duration of the war. How long is the war to continue ? No man here is wise enough to determine how long it will continue, nor how much blood and treasure will be expended in its prosecution. The Richmond Enquirer (official organ of the confederate administration) uses the following language, evidently by authority :
But we are gratified to say that the time has come when, for the future at least, we all shall be agreed. All voluntary falling back has ended, and the fighting has commenced. What the enemy gains henceforth he gains by the bayonet. What we can win from him we will have. We will break his columns, and pursue him into his own country, if God shall prosper our arms. Strike ? strike often, strike hard, strike at every opportunityis henceforth the rule. Vigilance, activity, enterprise, daring, are, we trust, to be its interpreter.
The longer the war continues, the more desperate will it become, and the more certain will it be that slavery is doomed. The advice of the Richmond Enquirer to the rebels, to strike ! strike often, strike hard, strike at every opportunity, shows the desperate character of their cause.
Are we to be struck often, and struck hard at every opportunity, without giving hard blows in return ? I trust not. War means to strike often and strike hard on both sides. An eye for an eye, and a tooth for a tooth. War teaches us to use all the means within our power to strengthen ourselves and to weaken our enemy. Let us weaken him in every possible way within the rules of civilized warfare. We should strike him personally, strip him of his property, and strike the shackles from every slave that by his labor, and services gives him support. These are the rights of war, and I am prepared to see them fully enforced.
We have been forced by rebels into this unnatural and unnecessary war. We have already expended over six hundred millions of dollars in its prosecution ; besides, what is of far greater consequence, many thousands of our brave soldiers have been slain on the field of battle, and have died by disease brought on by the perils and hardships of the campaign. Is all this blood and treasure to be expended without accomplishing anything beneficial to the nation, to civilization, and the rights of man ? I trust not. We now want and must have a final settlement of this whole difficulty. Slavery was the cause of this gigantic and wicked rebellion. Slavery should receive its doom, thereby removing the cause of future difficulty. Rebels have fomented and brought on the war, and their property should pay a large share of the expenses incurred. These questions must now be met. They cannot be postponed. The laws of God and man require us to vote on the side of justice and humanity. I shall, under the circumstances, vote to confiscate the property of leading rebels, and to liberate their slaves.