This was the same view I had taken of the matter. I did not feel myself officially bound to do anything but to require prompt payment for the bonds subscribed. The treasury, however, was well prepared for any probable stringency, and I was convinced that the settlements would not cause any serious disturbance. The advices from London continued to be unfavorable. The bonds were offered in the market in some cases at a less price than the syndicate were to pay for them.
In the process of selling the four per cent. bonds I had frequently been written to by persons of limited means, who wished to invest their savings in government bonds of small denominations bearing four per cent. interest. I called the attention of the proper committee of each House to the expediency of issuing notes or certificates of that description, and the act of February 26, 1879, already quoted, was pa.s.sed.
On the 26th of March I issued a circular relative to these certificates, prescribing the manner in which they should be sold, and stated the purpose and probable effect of their issue, as follows:
"The primary purpose of these certificates is to enable persons of limited means to husband small savings as they accrue, and place them where they will draw interest and become the nest egg for future acc.u.mulation. The form of certificate seems better adapted for the purpose than the French _ventes_ or the English savings bank system. The objection to a national savings bank is that, in a country so extensive as ours, the agencies would necessarily be scattered, and the cost and delay of correspondence and transferring money to Washington would be considerable; but, more than all, the United States cannot undertake the risk of repaying deposits at any time when called for. The necessary reserve for that purpose would make the system burdensome. The certificate, as issued, may, at the expense of the subscriber, be either to bearer, or, by being registered, only transferable by a.s.signment on the books of the treasury. It combines, in the cheapest form, all the benefits of any system of savings banks that has been devised. No doubt these certificates, when first issued, will, by voluntary consent of parties, be used as currency; but, after they shall have run a short time, the accruing interest on them will induce their sorting and holding, and thus, like the compound-interest notes, they will cease to be a currency and become an investment. Their possible use as currency is certainly no objection to them; for, though I adhere as strictly as anyone to a specie standard of value, I think that, it being constantly maintained by ample reserves and prompt redemption, current money in different forms should be provided for daily use. Diversity of the currency, if it is always redeemable, is no objection. These certificates will always be redeemable in the bonds stipulated for, and can, with profit, be issued, while the money received for them can be used in redeeming bonds bearing a higher rate of interest. They are of as low a denomination as can be conveniently issued and bear interest. The issue of this certificate is a safe experiment. I have confidence that it will be beneficial to the holder, in begetting habits of saving, and to the treasury, in aiding refunding; but its great benefit will be that the people themselves will in this way have a direct interest in preserving and maintaining the public faith."
On the same date I wrote a note for publication to the treasurer of the United States, to facilitate the payment of called bonds, as follows:
"As it is desirable to make payment of called bonds in the mode that will least disturb the market, you will draw from the depositary banks the proceeds of four per cent. bonds only when required to make payment of called bonds, and in proportion from the several depositaries to the amounts held by them, as near as may be, in sums of $1,000. Money in the treasury received from four per cent.
bonds should be applied to the payment of called bonds before such drafts are made.
"When practicable, drafts upon depositary banks, for transfers of deposits on account of proceeds of four per cent. bonds, may be so drawn as to be payable at the option of the bank, through the New York clearing house.
"Drafts on depositary banks in cities other than New York should be drawn a sufficient time in advance to meet payments there.
"Payment by called bonds should be treated as payment in money as of the date when it would, under this order, be required."
On the 27th I received from Conant the following cablegram:
"Would be pleased to know if subscriptions to be settled during April can be expected without disturbing market in New York."
I answered on the same day as follows:
"Entirely confident subscriptions during next month will be settled without disturbing market. Order of the treasury department yesterday will facilitate greatly."
The following correspondence with Conant, the syndicate and myself then took place:
"London, March 28, 1879.
"Sherman, Washington.
"Rothschild & Sons request me to say they do not consider contract of January 21, 1879, requires subscription two million to be made April 1. On account of market price below par at present time they desire delay subscription few days. Hope you will consent.
"Conant."
"Treasury Department, March 28, 1879.
"Conant, London.
"I think contract of January 21, 1879, very plain, subscription should be made April 1, but, if they desire, time will be extended to April 8.
"Sherman."
"Treasury Department, March 28, 1879.
"August Belmont & Co., New York.
"Gentlemen:--In confirmation of my two telegrams of to-day to you, copies of which are inclosed, I have to inform you that the proper legal officers of the department, as well as myself, consider it very clear that, under the contract of January 21, your option to make the second subscription expires on the 1st of April, but I am not at all desirous of raising the question, and therefore am willing to extend the time a week, within which I am quite confident the anxiety about the April payments will begin to subside. Thus far this week, over $17,000,000 called bonds have been redeemed by credit on subscriptions, and $450,000 only paid by draft. Called bonds are rapidly coming in for credit. The subscriptions in excess of bonds called now amount to $6,600,000. With an a.s.surance of a subscription of $2,000,000 from you, by the 1st, or even the 8th, of April, I would immediately issue a call for $10,000,000, and may do so without waiting for your subscription.
"I would prefer that the parties to the contract should not avail themselves of the extension offered, but leave that entirely to your good judgment.
"Very respectfully, "John Sherman, Secretary."
(Telegram.) "Treasury Department, March 28, 1879.
"August Belmont & Co., New York.
"The contract is very plain that the first subscription should be made by April 1. The stipulation for five million each month would have made the second subscription in February or March, but, by the agreement, it need not be made before April 1.
"John Sherman, Secretary."
"New York, March 28, 1879.
"Hon. John Sherman, Secretary of the Treasury, Washington, D. C.
"Dear Sir:--We received this morning a telegram from Messrs.
Rothschild about the next subscription under the contract of the 21st of January, and telegraphed its contents to you, as follows:
"London a.s.sociates telegraph consider according contract have all month April to make next subscription. Please telegraph whether you agree they are right"
"In reply we received your telegrams reading:
"The contract is very plain that the next subscription should be made by April 1. The stipulation for five million each month would have made the second subscription in February or March, but by agreement it need not be made before April 1."
"and--
"Have cabled Conant to extend option, if desired, to April 8."
"contents of which we have communicated to our London friends.
"Yours, very respectfully, "_Pro_ August Belmont & Co.
"W. Suttgen.
"W. Beuter."
The explanation of these cablegrams is given in the following letter:
"New Court, St. Swithin"s Lane, } "London, E. C., England, March 29, 1879.} "Dear Mr. Secretary:--On the 27th instant I had the honor to make an inquiry of you by cable dispatch, as follows: "Would be pleased to know if subscriptions to be settled during April can be effected without disturbing market in New York." The constant decline in the price of all descriptions of our bonds in New York, the strenuous efforts being made by certain parties to sell American bonds here at low rates on home account, particularly the four and four and a half per cent. stock, the advancing rates of interest, and the condition of the exchanges, together with the rumors concerning scarcity of money in New Orleans and elsewhere, gave rise to apprehension, in the minds of many, that refunding operations had been carried to too great an extent; that too many bonds had been subscribed for on speculative account, and that any forced settlement of the subscriptions falling due in April would produce a panic.
Private telegrams sent here conveyed information to the effect that arrangements would be made between yourself and the banks, by which the deposits in them would not be drawn upon until absolutely necessary. The answer, however, which I received from you a few hours later was highly gratifying and rea.s.suring, and I gave it as much publicity as possible without, of course, publishing it. It reads as follows: "Entirely confident subscriptions during the next month will be settled without disturbing the market. Order treasury department yesterday will facilitate greatly."
"The question of obligation to make a subscription on the 1st day of April to continue the contract has been under consideration by the syndicate during the past week, and in fact ever since the beginning of the decline in the price of the four per cent. stock.
The a.s.sociates claim that they are only required to take five millions of the bonds during the month of April, and that having already taken three-fifths of the amount in advance, they should, in view of the impossibility of disposing of the stock at present prices, be allowed the balance of the month in which to subscribe for the remaining two millions. They argue that it cannot be expected that they can afford to take the bonds and pay the government one and a half per cent. above the market prices, and they add that they do not think you would wish to have them do so. They also say that if they wanted the bonds for _speculative purposes only_ they should give up the contract and purchase in the open market; but their policy is to keep the price at par and not to buy or sell when it is below par. Bonds will sell more rapidly when they are at par than when below it. It is the speculators and not the investors, as a rule, who deal in stocks when they are cheap. If the price of the bonds had remained at par, I have no doubt but that all the bonds I have here would already have been disposed of, and that the parties would have been ready and willing to make the subscription for five millions on April 1.
"The Messrs. Rothschild say that, owing to the high price which they were compelled to pay for called bonds, and the reduced price at which they were compelled to part with a portion of the four per cent. bonds, they have made a slight loss on their transactions so far. They like to have business relations and connections with governments, and I think that that disposition on their part is paramount to the question of profits. The matter of the subscription was discussed again yesterday, and deferred until Monday for further consideration, and I was asked to send the following cable message to you:
"Rothschild & Sons request me to say they do not consider contract of January 21, 1879, requires subscription $2,000,000 to be made April 1. On account of market price below par at the present time, they desire delay subscription a few days. Hope you will consent."
"I hoped you would consent, because I think it quite important, for many reasons, that we should dispose of bonds on this side of the water. They take the place of actual gold in settling exchanges, and thereby prevent the disturbances in the money market which always result from the moving of bullion. I have no doubt but that the use of these bonds in this manner has stimulated purchases of grain and produce from us which would never have left our sh.o.r.es if payment for the same could only have been made in bullion. I received this morning your cable message in answer to the one I sent yesterday, as follows: