396 



FINANCES OF THE UNITED STATES. 



toward a sinking fund. " It will hardly be 

 disputed," said the Secretary, " that in every 

 sound system of finance, adequate provision. by 

 taxation for the prompt discharge of all ordi- 

 nary demands, for the -punctual payment of the 

 interest on loans, and for the creation of a grad- 

 ually increasing fund for the redemption of 

 the principal, is indispensable." With these 

 measures, he further recommended that the 

 ordinary sources of revenue should be modi- 

 fied, so as to yield a greater income. Tea and 

 coffee, hitherto free articles of import, should 

 now be touched by a duty. To these, many 

 others might be added from the free list. 

 Sugar, which was slightly taxed, could bear a 

 heavier burden. A similar modification could 

 be made on many articles. Thus twenty mil- 

 lions extra could be gathered by a single sec- 

 tion of an act. He also proposed to Congress 

 that the pruning knife should pass among the 

 current disbursements, and that ten per cen- 

 tum should be shorn from salaries and wages, 

 the franking privilege be abolished, and that 

 the retrenchment be prompt and effective. He 

 also further said : " The Secretary will but 

 illy perform his duty to Congress or the people 

 if he omits to urge the great importance the 

 absolute necessity indeed of such full provision 

 of annual revenue as will manifest to the world 

 a fixed purpose to maintain inviolate the pub- 

 lic faith, by the strictest fidelity to all public 

 engagements." 



Kelative to the means to be sought through 

 loans, the Secretary proposed a National loan 

 of not less than a hundred millions in the form 

 of Treasury notes or exchange bills, having a 

 yearly interest of 7.30 per cent., redeemable at 

 the pleasure of the Government, after three 

 years. If the whole needed should not be 

 raised in this manner, he then proposed the 

 issue of bonds or certificates of debt to lenders, 

 at par, to the amount of one hundred millions 

 at 7 per. cent., redeemable at the pleasure of 

 the Government, after a period not exceeding 

 thirty years. As an auxiliary measure, he also 

 proposed the issue of fifty millions of Treasury 

 notes in small sums payable one year after date, 

 with interest at SjYff P er cent., and convert- 

 ible into the 7.30 Treasury notes ; or, " should 

 it be found more convenient," said the Secre- 

 tary, " they may be made redeemable in coin, 

 and issued without interest." This proposition 

 opens the door wide to a Government paper 

 currency {therefore the Secretary immediately 

 added td his recommendation the following 

 caution : " The greatest care will, however, be 

 requisite to prevent the degradation of such 

 issues into an irredeemable paper currency, 

 than which no more certainly fatal expedient 

 for impoverishing the masses and discrediting 

 the Government of any country, can well be 

 devised." 



These measures constitute the features of 

 the Secretary's system of finance. The ordi- 

 nary expenditures, interest, and a sinking fund 

 were to be provided by taxes upon the people- 



than which nothing more wise could have been 

 recommended. The great necessities of the 

 Government were to be relieved by loans from 

 the people, for which long and short and de- 

 mand paper was to be provided. Loans to the 

 Government, by the people, in its serious exi- 

 gencies, may be said to be the law of modern 

 civilization. They are the resort of all Govern- 

 ments ; and in times of unforeseen difficulty, 

 like commercial revulsion or war, the Feder- 

 al Government has always been able to bor- 

 row, sufficient to meet the occasion, and return- 

 ing prosperity has always afforded the means 

 of paying off" the debt. 



Congress immediately took the recommenda- 

 tions of the Secretary into consideration. The 

 loans which he asked for were granted, but on 

 the taxes they faltered. There was granted a 

 national loan of one hundred millions, or any 

 larger sum not to exceed the whole amount 

 authorized, in bonds or 7.30 Treasury notes 

 payable three years after date, and convertible 

 into twenty-year six per cent, bonds ; also a 

 seven per cent, loan of a hundred millions, pay- 

 able twenty years after date, for a foreign 

 loan ; also the issue to public creditors, or in 

 exchange for coin, of one-year Treasury notes, 

 with interest at 3.65 per cent, convertible in- 

 to three-year 7.30 bonds or Treasury notes ; 

 also the issue of notes payable on demand and 

 receivable for public dues, to be issued as coin 

 in payment and exchanges. The two last de- 

 scriptions were limited to fifty millions, in de- 

 nominations between five and fifty dollars. 

 Authority was also given to issue twenty mil- 

 lions six per cent. Treasury notes, payable in 

 a year. The act limited the rate at which the 

 seven per cent, stock might be sold to par, but 

 a supplemental act allowed the sale of a six 

 per cent, at a rate equal to par for a seven per 

 cent stock. 



The provisions adopted for taxes were : a di- 

 rect tax of twenty millions upon all the United 

 States, which would yield from the loyal States 

 $14,846,018, without deducting the expenses of 

 collection ; also a tax of three per cent, upon all 

 annual incomes over $800, since changed to 

 $600, to be levied in April of the next year. The 

 increase of duties on imports embraced cocoa, 

 tea, coffee, sugar, etc., but were less than the 

 Secretary recommended. The direct tax was 

 apportioned among the States and paid out of 

 the States Treasuries to the Federal Govern- 

 ment, by crediting the latter that amount on 

 their claims for outfits of volunteers. The 

 people were taxed the next year by the States 

 for these sums. Compared with the necessi- 

 ties of the Government, the amount raised by 

 taxes was insignificant. This tenderness on 

 the subject of taxation manifested by Con- 

 gress at this time produced serious results, as 

 it caused to be withheld from the Government 

 that confidence in its financial strength and 

 resources to Avhich it was entitled, and there- 

 by greatly embarrassed the action of the Sec- 

 retary ; deprived him of the power to make due 



