A bill in regard to refunding the debt maturing after the 1st of March, 1881, was introduced in Congress on the 27th of December, 1879, by Fernando Wood, chairman of the committee of ways and means of the House. It provided for a change of existing laws so as to limit the rate of interest upon the bonds to be issued in such refunding to not to exceed three and a half per cent. per annum.
This bill, if it had been pa.s.sed, would have prohibited the sale of all bonds for resumption, as well as for refunding, at a greater rate of interest than three and a half per cent. I opposed this proposition, as it would impair the power of maintaining resumption in case such bonds could not be sold at par, and the existing law did not prevent the secretary from selling those already authorized at a premium. No action was taken upon the bill by that Congress, and Mr. Windom, my successor, found no difficulty in refunding these bonds on more favorable terms without any change of existing law.
On the 30th of January, 1880, I appeared before the finance committee of the Senate in response to their invitation. The committee was composed of Senators Bayard (chairman), Kernan, Wallace, Beck, Morrill, Allison and Ferry, all of whom were present. Mr. Bayard stated that a number of propositions, upon which it was desired to obtain my views, had been submitted by Senator Beck, and then read them as follows:
"1. What reason, if any, there is for refusing to pa.s.s a bill authorizing the receipt of legal tenders for customs dues.
"2. Why the trade dollar should not be converted into a standard dollar.
"3. What has been the cost of converting the interest-bearing debt, as it stood July 14, 1870, to what it is now, including double interest, commissions, traveling expenses of agents, etc., and the use of public money by banks, and the value of its use, so as to determine whether the system should be continued or changed.
"4. The effect of the abolition of the legal tender quality of greenbacks upon the paper currency.
"5. The necessity for a sinking fund and how it is managed.
"6. Whether silver coin received in payment of customs duties has been paid out for interest on the public debt; and if not, why not."
Senator Allison desired to know if this interview was to be stenographically reported, and the committee decided that it should be.
My answers to these questions and the colloquy with the committee in respect to details cover fifty-four printed pages, and give by far the most comprehensive statement of treasury operations during the two or three years before that meeting, and suggestions for future legislation, that has been written or published. The length of the interview prevents its introduction in full, but a statement of some portions of it may be interesting. In answer to the first question I said:
"The act of February 25, 1862 (section 3694, R. S.), provides that all the duties on imported goods shall be paid in coin; and the coin so paid shall be set apart as a special fund to be applied to two purposes, one of which is the payment in coin of interest on the bonds of the United States, and the balance to the sinking fund.
"This is an obligation of the government that its coin revenue should be applied to the payment of interest on the public debt.
So long as legal tender notes are maintained at par and parties are willing to receive them in payment of coin interest, there is no objection to receiving legal tender notes for customs dues.
"Since resumption it has been the practice of the department to thus receive them, but this practice can be kept up only as long as parties holding interest obligations are willing to accept the same notes in payment thereof. If, by any unforseen and untoward event, the notes should again depreciate in value below coin, the obligations of the government would still require that interest on the public debt be paid in coin; and if customs dues were payable in legal tender notes, the department would have no source from which to obtain the coin necessary to the payment of interest, for of course holders of interest obligations would not accept a depreciated currency when they were ent.i.tled by law to coin."
I reminded the committee that in my report of December, 1878, I stated that on the 1st of January following I would receive United States notes for customs duties. As these notes were redeemable in coin, it was unreasonable to require the holder of notes to go to one government officer to get coin for his notes to pay customs duties to another government officer. I held that the United States notes had become coin certificates by resumption, and should be treated as such. I informed them that I issued the order with some reluctance, and only after full examination and upon the statement of the Attorney General, who thought technically I could treat the note as a coin certificate. I called their attention to the fact that I had informed Congress of my purpose to receive United States notes for customs duties and had asked specific authority to do so, but no action was taken, and I was a.s.sured that none was needed.
The conversation that followed showed that they all agreed that what I did was right. It was evidently better not to provide by specific law that the United States notes should be receivable for customs dues, for in case of an emergency the law would be imperative, while, if the matter was left to the discretion of the Secretary of the Treasury, he could refuse to receive notes for customs dues and compel their payment in coin.
This led to a long colloquy as to whether the time might come when the United States notes could not be redeemed in coin. I entered into a full explanation of the strength of the government, the amount of reserve on hand, the nature of our ability, and said: "Still we know that wars may come, pestilence may come, an adverse balance of trade, or some contingency of a kind which we cannot know of in advance may arise. I therefore think it is wise to save the right of the United States to demand coin for customs duties if it should be driven to that exigency."
The question then arose as to the propriety of confining redemption of notes to one place. Mr. Wallace inquired whether the government notes should not be receivable and interchangeable at every government depositary. I answered that the notes should be received everywhere at par with coin, but I doubted the propriety of paying coin for United States notes except at one place and that in New York, the natural center for financial operations, where most of the customs dues were paid and where coin could be most safely h.o.a.rded.
Mr. Beck examined me at considerable length, and, with his usual Scotch tenacity, insisted, in spite of the attorney general, that I was not authorized to receive legal tender notes for customs dues. He asked me by what authority I claimed this power. I quoted the third section of the resumption act, and gave him a copy of my circular letter to officers of customs, dated on the 21st of December, 1878, in which, after calling attention to that section, I said:
"By reason of this act, you are authorized to receive United State notes, as well as gold coin and standard silver dollars, in payment of duties on imports, on and after the first day of January, 1879.
"Notes thus received will in every instance be deposited with the treasurer, or some a.s.sistant treasurer of the United States, as are other collections of such duties, to be redeemed, from time to time, in coin, on government account, as the convenience of the service may demand."
Mr. Beck then said:
"I desire to know, Mr. Secretary, whether it is not better, in your opinion, that the Congress of the United States should prescribe the duties of executive officers, so that they can act in pursuance of law, rather than the executive officer should be acting on his own notions of what is best?"
I replied:
"I say yes, decidedly."
Mr. Beck inquired:
"Is not that what we are proposing to do now, by the pa.s.sage of this law which I seek to have enacted, and are you not opposing that condition of things?"
I replied:
"An executive officer, when there is a doubt about the law, must give his own construction of it, but should, of course, readily conform to the action of Congress as soon as it is declared. The objection I make is not to the pa.s.sage of a law, but that the bill as proposed applies it to a possible future state of affairs such as did not exist when this order was made and does not now."
The subject then turned to the exchange of trade dollars for standard dollars. Mr. Beck said: "I have introduced several bills to facilitate the exchange of trade for standard dollars." I said:
"The bill which I have here is a House bill. There is no objection in my mind to the object of this bill; that is, to provide for the exchange of the trade dollar for the standard silver dollar; the only point is whether the trade dollar shall be treated as bullion, or as a coined dollar of the United States. Now, I am clearly of the opinion that it ought to be treated as so much bullion, issued at the expense of merchants, for their convenience and benefit, and without profit to the United States, and therefore not ent.i.tled to any preference over other bullion, and we might say not to so much, because it was issued to private parties for their benefit and at their cost, but stamped by us merely to enable the coins to be used to better advantage in a foreign market. I have not, therefore, any objection to the bill if you allow us to pay the same for these trade dollars as for other bullion."
This reply led to a long examination about silver at home and in foreign markets, and the objections made to having two silver dollars, one coined for private persons, from bullion furnished by them, and the other coined for the United States from bullion purchased by it.
Mr. Beck next inquired what effect the abolition of the legal tender quality of the greenbacks would have on our paper currency. This led to a long colloquy between him and myself, in which all the laws relating to the subject and the practice of the government, from its organization to that time, were discussed.
On the question whether United States notes ought still to be a legal tender, I referred him to my report, in which I said: "The power of Congress to make them such was a.s.serted by Congress during the war, and was upheld by the Supreme Court. The power to reissue them in time of peace, after they are once redeemed, is still contested in that court."
I soon found that Mr. Bayard and Mr. Beck were quite opposed to each other on this topic, and I suggested that I thought that the argument upon it should be between them. My own opinions were sufficiently stated in the report in which I submitted to Congress whether the legal tender should not be repealed as to all future contracts, and parties be left to stipulate the mode of payment.
I said that United States notes should still be receivable for all dues to the government, and ample provision should be made to secure their redemption on demand.
The examination, or, rather, conference, took a wide range between the members of the committee and myself. Mr. Beck pressed me to express my opinion of the legal tender which was contained in the bill introduced by him, providing for a mandatory legal tender of all forms of money. I answered:
"I do not think, Mr. Senator, you ought to ask me that question, because that is a matter you are called upon to decide and pa.s.s upon in your sphere as a Senator. I would say, on the other hand, that I do not think it ought to have any such effect. I suppose, however, Mr. Bayard would very frankly tell you what the intention of the resolution is."
Mr. Bayard then said:
"I know one thing: That banks cannot compel me to receive their notes for debts due me, nor can any man compel me to receive them.
If the government owes me my salary, I think they could, perhaps, pay me in the national bank notes, under the existing law, but you cannot compel the payment of a debt between private parties with it."
I said:
"If you will allow me, I should like to amplify a little on one point: I think if Congress would take up this question of the modification of the legal tender note and make certain rules of evidence (which would be clearly const.i.tutional), which good lawyers undoubtedly approve, declaring that where a contract is made between parties upon the basis of United States notes, it shall be presumed by courts, in the affirmance of contracts, that the payment in United States notes shall be a sufficient compliance therewith, and that, in the absence of any absolute provision to the contrary, paper money, or promises to pay money, shall be a legal tender in discharge of any obligation."
In respect to the cost of refunding, the next subject of inquiry, I was able to give them full details, with all the orders of the treasury department from the 16th of January, 1878, until the close of these operations in the summer of 1879. Many of these details had not then been published, but I furnished the fullest information available. In response to an inquiry as to the amount of commissions paid to the national banks on account of the sale of the four per cent. bonds, a full table was exhibited of the subscriptions of, and commissions paid to, the twenty-six national banks chiefly engaged in this business, in which the total amount of sales made by them was shown to be $552,929,100, and the amount of commissions paid was $1,363,070.34. In exhibiting these tables I said:
"Here is a table showing the sales and commissions of certain banks.
I have taken all banks who sold over $1,000,000. There were twenty- six of them. The First National Bank, having been always connected with the national securities and having been the agent of the syndicate, continued to be the agent of the foreign syndicate, and continued to have altogether the largest business. They sold of the four per cent. bonds $262,625,000. The sales of the other banks are kept here in the same way. The Bank of New York (National Banking a.s.sociation), I think, was the next. It sold $57,259,500.
The National Bank of Commerce sold $51,684,000; the National Bank of the State of New York sold $46,915,000, and so on down."
I called attention to the fact that in the last sale of about $200,000,000 four per cent. bonds, we received one-half of one per cent. premium, or a million dollars, which nearly covered the entire commissions paid to the twenty-six banks named. Full details were given of the various loans, and it was shown that the cost of selling the last loan was less expensive to the government, in proportion to the amount sold, than any previous loan.
In reference to the sinking fund, about which I was asked my opinion, I said it was the same old question that had been so often debated.
I explained that a sinking fund is nothing but an obligation or promise, on the part of the government or an individual, to pay a certain amount annually of the princ.i.p.al of the debt in addition to the interest. In this way the debt is gradually liquidated and the annual interest lessened. A sinking fund promised by a government is nothing more or less than a name for the surplus revenue of the government. A government without a surplus revenue cannot possibly have a sinking fund. There is no way to pay a debt except by having an income above your expenditures, and you can call your surplus revenue a sinking fund if you choose. I said that under existing law the department was required to purchase one per cent. of the entire debt of the United States each fiscal year, and to set the amount apart as a sinking fund, and to compute interest thereon to be added with the amount to be subsequently purchased each year.
This act can only be construed as an authority to purchase the debt in case of surplus revenue for the purpose.
In practice, while keeping a book account with the sinking fund, we have reduced the debt by the application of surplus revenue more rapidly than if the requirements of the sinking fund had been literally complied with. At several periods we, in fact, did not reduce the debt, but actually increased it, and especially within the last two years, but in other years of prosperity, when the revenues exceeded our expenditures, we were able to pay a much larger amount of the debt than the sinking fund required by law.
Mr. Beck said: "I propose to inquire pretty carefully, before we get through with this interview, concerning the immense reduction of the public debt which has been made, of over $700,000,000, from the highest point down to the present, so that we may be governed in the future taxation by actual requirements of the public service."
He expressed his wish, after he had carefully examined the interview thus far, to continue it at a future day, but I was not again called upon.