Debt less cash in the Treasury....

$357,164,844 00 30.706,633 39

14,514,200 00

$402,385,677 39

$2,625,502,848 02

133,998,398 02

.$2,491,504,450 00 The outstanding notes of the United States, including the fractional currency, as above stated, have been reduced $71,633,834.12 since the close of the war, which has been so much progress in a contraction of the currency, and toward the resumption of specie payments. Still that there is an excess of currency, the Secretary concludes, because coin commands a premium of some forty per cent. over legaltender notes; a high tariff has proved powerless to prevent excessive importations; capitalists hesitate in regard to the uses to which they shall put their surplus means; business is speculative and uncertain; expenses of living are driving thousands into crime, and making dishonesty excusable, while honorable men of limited means are indignantly and justly complaining that they cannot live on incomes that formerly gave them a handsome support. A difference of views existed in the public mind relative to an excess of currency, and Congress by a considerable majority had limited the power of the Secretary to contract it. On April 12, 1866, an act was passed authorizing the Secretary to receive treasury notes and other obligations of the Government, whether bearing interest or not, in exchange for bonds, with a proviso, that of United States notes not more than ten millions of dollars should be cancelled within six months from the passage of the act, and thereafter not more than four millions of dollars in any one month. This proviso, while it fixed a limit to the amount of notes which should be retired per month, so far from indicating an abandonment of the policy of contraction which had been maintained since the war, confirmed and established it.

So favorable had been the general tendency of the measures adopted by the Secretary, that

he had expressed the opinion that specie payments ought to be resumed as early as July 1, 1868. But these anticipations were not fully realized. The grain crops of 1866 were barely sufficient for home consumption. The expenses of the War Department, by reason of Indian hostilities and the establishment of military governments in the Southern States, greatly exceeded the estimates. The Government was also defrauded of a large part of the revenue upon distilled liquors, and the condition of the South continued disturbed and unsatisfactory. An apprehension was also created, by some public speakers on finance and taxation, that the public faith might not be maintained. All these facts indicated a postponement of the time when specie payments might be resumed. Much, however, had been done to effect that object, and in the opinion of the Secretary, as expressed in his last annual report, no insuperable difficulty in the way of an early and permanent resumption existed. "But with favorable crops in 1868," he says, "and with no legislation unfavorable to contraction, resumption ought not to be delayed beyond January 1, or, at the farthest, July 1, 1869." To make this restoration of the specie standard permanent, the Secretary regarded it as of the highest importance, that the funding or payment of the balance of interest-bearing notes and a continued contraction of the paper currency should be made; also that the public faith with regard to the public debt should be maintained; and that the Southern States should be restored to their proper relations to the Federal Government.

To aid in consolidating the debt, Congress, on March 2, 1867, authorized and directed the Secretary to issue three per cent. loan certifi cates to the amount of fifty millions of dollars for the purpose of redeeming and retiring compound-interest notes. Of the certificates, $11,560,000 had been issued during the year for the redemption of notes becoming due in October and December. The remainder of these notes, then outstanding, he expected to take up with certificates, or pay at maturity. Indeed, all the interest-bearing notes, at the close of the year outstanding, were, by their terms of contract, to be paid or converted within eleven months.

As has already been stated, a difference of opinion existed in the public mind respecting a contraction of the currency, and this embraced the further question as to which of the two kinds of the currency-the United States notes, or the notes of the national banks-should bear the contraction. In favor of a contraction generally, it was urged that an increase of money beyond what was needed for a circulating medium, not only inflated prices, but diminished labor, and coin flows from the country in which the excess exists, to some other where labor is more active, and prices are lower; to flow back again when the loss by

one country and the gain by another produce the natural results upon industry and production. Thus coin is not only the regulator of commerce, but the great stimulator of industry and enterprise. The same may be said of a convertible paper currency, but is rarely if ever true of an inconvertible currency, which is necessarily local, and would not be likely to be inconvertible if it were not excessive; and, by being excessive and inconvertible, is fluctuating and uncertain in value. No matter what laws may be enacted to give credit and value to it, an irredeemable currency must, unless limited, always be a depreciated currency. The Secretary, in presenting the importance of contraction, urged the following among other remarks:

The United States notes were made a legal tender and lawful money because was thought that this character was necessary to secure their currency. By reference to the first debates of Congress upon the subject, it will be noticed that those who advocated their issue justified themselves on the ground of necessity. No one who spoke in favor of the measure favored it upon principle, or hesitated to express his apprehensions that evil consequences might result from it. But the Government was in peril, the emergency was pressing, necessity seemed to sanction a departure from sound principles of finance, if not from the letter of the Constitution, and an inconvertible currency became the lawful money of the country. While the action of Congress in authorizing the issue of these notes seemed necessary at the time, and was undoubtedly approved by a large majority of the people, there can now, in the light of experience, be no question that the apprehensions of those who advocated the measure as a necessity were well founded. Had they not been made a legal tender, the amount in circulation would not have been excessive, and the national debt would doubtless have been hundreds of millions of dollars less than it is. The issue would have been stayed before a very large amount had been put in circulation, not because the notes would have been really more depreciated by not being made lawful money, but because their depreciation would have been manifest. By being made lawful money they became the legalized measure of value-a substitute for the precious metals-which, as a consequence, were at once demoralized and converted into articles of traffic. Made by statute a legal tender, they were, of course, popular with those who had debts to pay or property to sell; costing nothing, and yet seemingly adding to the value of property, supplying the means for speculation and for creating an artificial and a delusive prosperity, it is an evidence of the wisdom of Congress that the issue was stopped before the notes had become ruinously depreciated, and the business of the country involved in inextricable difficulties. But although the issue of these notes was limited, and we thus escaped the disasters which would have overwhelmed the country without such limitation, it can hardly be doubted that the resort to them was a misfortune. If this means of raising money had not been adopted, bonds would have undoubtedly been sold at a heavy discount, but the fact that they were thus sold, without debasing the currency, would have induced greater economy in the use of the proceeds, while the discount on the bonds would scarcely have exceeded the actual depreciation of the notes below the coin standard. As long as notes could be issued and bonds could be sold at a premium or at par, for what the statute made money, there was a constant temptation to liberal, if not unnecessary, expenditures. Had the specie standard been maintained and bonds been sold at a discount for real money, there VOL. VII.-20

would have been an economy in all the branches of the public service which unfortunately was not witnessed, and the country would have escaped the evils resulting from a disregard of the great international law, which no nation can violate with impunity, the one that makes gold and silver the only true measure of value. The financial evils under which the country has been suffering for some years past, to say nothing of the dangers which loom up in the future, are, in a great degree, to be traced to the direct issues by the Government of an inconvertible currency with the legal attributes of money.

Upon the demoralizing influences of an inconvertilarge. They are forced upon our attention by every ble Government currency it is not necessary to enday's observation, and we cannot be blind to them if we would. The Government is virtually repudiating its own obligations by failing to redeem its notes according to their tenor. These notes are payable to bearer on demand in dollars, and not one of them is being so paid. It is not to be expected that a people will be more honest than the Government under which they live, and while the Government of the their tenor, or at least as long as it fails to make United States refuses to pay its notes according to proper effort to do so, it practically teaches to the people the doctrine of repudiation.

On the other hand, those who were opposed to these views, urged that, as the credit system had been very much curtailed since 1861, and sales were made chiefly for cash, a much larger amount of currency was required than formerly for the convenient transaction of business; that there was, in fact, no excess of money in the United States, but, on the contrary, an increase was required to move the crops, encourage enterprise, and give activity to trade. As an evidence of the correctness of this view, reference was made to the "tightness of the money market" in the commercial cities and the scarcity of money in the agricultural districts.

In reply, it was urged that its apparent scarcity in the United States was attributable to high prices, to its uncertain value, and to its inactivity. Money by no means becomes abundant by an increase, or scarce by a diminution of its value. It was now in demand not so much to move the crops, as to hold them; not to bring them at reasonable prices within the reach of consumers, but to withhold them from market until a large advance of prices could be established. Let the great staples of the country come forward and be sold at market prices, at such prices as, while the producer is fairly remunerated, will increase consumption and exports; let capitalists be assured that progress toward a stable basis is to be uninterrupted, and money, now considered scarce, will be found to be abundant. The business of the country was estimated to be no larger than in 1860, when three hundred millions of coin and bank-notes were an ample circulating medium, and when an addition of fifty millions would have been excessive. There was a lack of products in the best growing sections of the country to exchange for money, which was the cause of the complaint of scarcity of money in those quarters. Other considerations relative to the depreciation of the currency and its consequences, which have been already noticed,

were urged in proof of the excess of paper money.

But admitting that the paper circulation was excessive, the question was then presented, why the contraction should not be applied to the notes of the national banks instead of the United States notes, and thus a large saving of interest to the Government be effected? Thus it involved the question whether the national banks should be sustained. In support of the affirmative view, it was urged that the national banks were the successors of the State banks, which had been institutions of great use and value to the public; that the change from the latter to the former was made in order, through the agency of the new institutions, to establish a permanent national bank-note circulation. Had it been supposed that the object of those who advocated the measure was to bring the State banks under the control of the Federal Government for the purpose of destroying them, or that such would be its effect, it would never have been adopted. In the present condition of the country, and in view of the relations that the national banks sustain to the Government, the Secretary expresses the conviction that they should be sustained, and he adds that they are now so interwoven with all branches of business, and so directly connected with the credit of the Government, that they could not be destroyed without precipitating upon the country financial troubles which it is not in a condition to meet. And further, the state of public affairs was too critical to justify any action that would compel the national banks, or any considerable number of them, to call in their loans and put their bonds upon the market for the purpose of providing the means of retiring their circulation.

On the other hand, those who were in favor of compelling the banks to retire their notes and to yield the field to the notes of the Government, supposed that if three hundred millions of United States notes were substituted for the three hundred millions of national bank notes in circulation, the Government would save some eighteen millions of dollars in interest, which was a gratuity to the banks. This supposition was investigated by the Comptroller of the Currency, whose conclusions were: 1. That upon the merely technical ground of amounts paid and received by the banks, the figures show that but two millions will be saved to the Government. 2. Taking these figures into account, it has been established that the banks loan the Federal Government $490,000,000 at less than three-fourths of one per centum per annum. 3. Allowing money to be worth to the banks six per centum per annum, it is demonstrated that the interest on $150,000,000 of legal tenders is annually given to the Government, which, added to the taxes paid, swells the total amount paid by the banks to the Government to $25,000,000; an excess of $5,500,000 over the interest received by them, which is a bonus they pay for their circulation. In other

words, if the banks were charged with the interest on three hundred millions of dollars, and the losses sustained through those that have failed, and credited with the interest on the United States notes held by them as a permanent reserve, with the taxes paid by them to the Government and the States, and with a commission covering only what has been saved in transferring and disbursing public money, it would result that the banks were not debtors to the United States. The chief objection urged by the Secretary was, that the depreciated legal-tender notes which it was thus pro-. posed to issue would stand in the way of a return to specie payments; and a substitution of them for bank notes would be regarded by the country as a declaration that resumption had been indefinitely postponed. It was an unfortunate but most fallacious idea, urged by those who admitted that the currency was redundant, that the country was not in a condition to bear further contraction; that its growth would soon render contraction unneces sary; that business, if left to itself, would rapidly increase to such an extent as to require the three hundred and eighty-eight millions of United States notes and fractional currency and the three hundred millions of bank notes outstanding for its proper and needful accommodation.

The policy of the Government has steadily tended toward a contraction of the currency and a resumption of specie payment. On this basis the national debt has been a subject of important consideration, and two opinions have appeared relative to its payment. The one which has been hardly more than proposed, and not received any extensive discussion as yet throughout the country, is that the debt shall be paid off without delay by an issue of government notes. The other view is that constantly held by the Government and people, that the debt should be paid according to the understanding between the Government and the subscribers to its loans at the time the subscriptions were solicited and obtained. Under this latter view the aspect presented by the debt and the resources of the country at the close of the year may be briefly stated. On August 31, 1865, the period of the maximum of the debt, it was, less the cash in the Treasury, $2,757,689,571.43, involving an annual obligation for interest of $138,031,628.24. The debt in general, at this period, might be classified as follows: of long obligations (5-20 bonds, 6's of 1881, 10-40's, etc.), $1,084,222,600; of short-time paper (temporary loan, certificates of indebtedness, compound-interest notes, treasury notes, United States notes, fractional currency, bonds of 1847 and 1848), $1,673,466,971.43, of which $373,398,256.38 was currency proper.

Its condition on November 1st, 1867, after being consolidated, through the operation of the funding process, and reduced through the application of the surplus revenues to its payment, was briefly as follows: