340 



FINANCES OF THE UNITED STATES. 



pose of retiring not only compound-interest 

 notes, but the United States notes. It was es- 

 timated that it would not be necessary to retire 

 more than one, or at most, two hundred millions 

 of United States notes, in addition to the com- 

 pound notes, before the desired result would be 

 attained. It was the immediate aim of the Sec- 

 retary to establish the policy of contraction, 

 under the belief that the business of the country 

 would readily accommodate itself to the pro- 

 posed change in the action of the Government, 

 and that specie payments might be restored 

 without a shock to trade, and without a dimi- 

 nution of the public revenues, or of protective 

 industry. 



Having adopted this general policy of contrac- 

 tion, it was then proposed by the financial offi- 

 cer of the Government, in the first place, to in- 

 stitute measures for funding the obligations 

 which were soon to mature. From the changes 

 which had taken place by October 31, 1865, 

 in the statement for June 30th, on the preceding 

 page, it appears that besides the compound in- 

 terest, the United States, and the fractional 

 notes, the past due debt amounted to $1,373,- 

 920.09. The debt due in 1865 Ad 1866, to 

 $187,549,646.46. The debt in 1867 and 1868, 

 to $848,323,591.80. 



It was proposed to Congress to authorize the 

 selling of bonds bearing interest at a rate not 

 exceeding six per cent., for the purpose of fund- 

 ing so much of this debt as was in notes, and 

 also to meet any deficiency for the present fiscal 

 year, to pay the certificates of indebtedness as 

 they matured, and also any portion of the debt 

 maturing prior to 1869, that can be advanta- 

 geously retired. The effect of these suggestions, 

 if adopted, would be to put the debt in such a 

 form that the interest only could be demanded, 

 until the Government might be in a condition 

 to pay the principal. Having thus placed the 

 indebtedness of the country in such a position 

 that it could be easily managed, it only remains 

 to provide for raising, in a manner the least 

 odious and oppressive to tax-payers, the reve- 

 nues necessary to pay the interest on the debt, 

 and a certain definite amount annually for the 

 reduction of the principal. In the opinion of 

 the Secretary of the Treasury, without any in- 

 crease of taxation, but with the labor question 

 at the South settled on terms just to the em- 

 ployer and to the laborer, and with entire har- 

 mony between the different sections, the debt 

 would be rapidly diminished in burden and 

 amount by the growth of the country. His 

 views of the rapidity with which the debt might 

 be paid, are thus expressed : 



The following estimate of the time which would be 

 required to pay the national debt (if funded at five 

 per cent, and at five and one-half per cent.) by the 

 payment of two hundred millions 01 dollars annually 

 on the interest and principal, and also of the diminu- 

 tion of the burden of the debt by the increase of pro- 

 ductions, may. not be without interest to Congress 

 and to tax-payers. 



The national debt, deducting moneys in the Treas- 

 ury, was, on the 31st of October, 1865, $2,740,854,750. 



Without attempting a nice calculation of the amount 

 it may reach when all our liabilities shall be accurately 

 ascertained, it seems safe to estimate it, on the 1st 

 of July, 1866, at three thousand millions of dollars. 

 The exact amount of existing indebtedness yet un- 

 settled, and the further amount that may accrue in 

 the interval, are not now capable of exact estimation, 

 and the revenue of the same period can be only ap- 

 proximately calculated, but it will be safe to assume 

 that the debt will not exceed the sum named. 



The annual interest upon three thousand millions, 

 if funded at five and a half per cent, per annum, would 

 be one hundred and sixty-five millions, but if funded 

 at five per cent, it would be one hundred and fifty 

 millions. 



Now, if two hundred millions per annum should be 

 applied, in half yearly instalments of one hundred 

 millions each, in payment of the accruing interest 

 and in reduction of the principal funded at the 

 higher rate of five and a half per cent., the debt would 

 be entirely paid in thirty-two and one-eighth years. 

 At five per cent, per annum, it would be extinguished 

 by the like application of one hundred millions every 

 BIX months, in a little over twenty-eight years. 



At the higher rate, the sum applied in the first 

 vear in reduction of the principal of the debt would 

 be thirty-five millions of dollars ; in the last, or thirty- 

 second year, when the interest would be diminished 

 to a little over nine millions, about one hundred and 

 ninety-one millions of the uniform annual payment 

 would go to the reduction of the principal. 



On the assumption that the debt may be funded at 

 five per cent., $50,000,000 would be applicable to the 

 reduction of the principal in the first year, and in the 

 twenty-eighth or last year of the period the interest 

 falling to less than 8,000,000 $192,000,000 of the 

 annual payment would go to the principal. 



The annual interest accruing upon $1,725,000,000 

 of the debt on the 31st of October last averages 6.62 

 per cent. A part of this sum is now due, another 

 portion will be payable next year, and the balance 

 will be due or payable, at the option of the Govern- 

 ment, in 1867 and. 1868. If these $1,725,000,000 shall 

 be funded or converted into five per cents by the 

 vear 1869, the average interest of the whole debt will 

 be 5.195 per cent. In the year 1771, if the debt then 

 maturing should be funded at the same rate, the aver- 

 age interest would be reduced to 5.15, and in 1881 

 to five per cent., excepting the bonds for $50,000,000 

 to be advanced in aid of the Pacific Railroad at six 

 per cent., which will have thirty years to run from 

 their respective dates. The interest of these bonds, 

 added to the supposed five per cents, would, in 1881, 

 make the average rate of the entire debt 5.03 of one 

 per cent, until the whole should be discharged. 



In these calculations of the average rate of interest 

 upon the funded debt, the outstanding United States 

 notes and fractional currency are not embraced. 

 Whatever amount of these $454,000,000 may eventu- 

 ally be funded at five per cent, per annum, will pro- 

 portionally reduce the average rates of interest upon 

 the whole debt. 



By the terms and conditions of some portion of the 

 debt, the interest on the whole cannot be reduced to 

 exactly five per cent., unless money may be borrow- 

 ed, at some stage of the process, at a trine below five 

 per cent. A bonus of one-tenth of one per cent., 

 paid by the bidders for five per cent, loans, would 

 more than cover the excess, the probability of which 

 fully warrants the calculation submitted as to the 

 payment of the total debt at this rate. 



It must be observed, also, that the assumed prin- 

 cipal of the debt in July, 1866, must undergo some 

 diminution before the funding in 1867, 1868, and 1869, 

 begins. If only $100,000,000 shall be paid off in those 

 three years, the principal, thus reduced to $2,900,- 

 000,000, would be extinguished by the process al- 

 ready stated in twenty-nine years, if funded at five 

 and a half per cent., and, if at five percent., in some- 

 thing less than twenty-seven years. And, it is well 



