306 



FINANCES OF THE UNITED STATES. 



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 ad- 

 vocated 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 busi- 

 ness, and so directly connected with the credit 

 of the Government, that they could not be de- 

 stroyed 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 Rational banks, or any con- 

 siderable 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 Gov- 

 ernment, 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 Cur- 

 rency, 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 Gov- 

 ernment. 2. Taking these' figures into ac- 

 count, 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 de- 

 monstrated that the interest on $150,000,000 

 of legal tenders is annually given to the Govern- 

 ment, which, added to the taxes paid, swells the 

 total amount paid by the banks to the Govern- 

 ment 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 in- 

 terest 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 perma- 

 nent reserve, with the taxes paid by them to 

 the Government and the States, and with a com- 

 mission 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 deprecia- 

 ted 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 re- 

 dundant, that the country was not in a condi- 

 tion to bear further contraction ; that its 

 growth would soon render contraction unneces- 

 sary ; that business, if left to itself, would rap- 

 idly 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 accom- 

 modation. 



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 govern- 

 ment notes. The other view is that constantly 

 held by the Government and people, that the 

 debt should be paid according to the under- 

 standing between the Government and the sub- 

 scribers 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 gen- 

 eral, 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 indebted- 

 ness, compound-interest notes, treasury notes, 

 United States notes, fractional currency, bonds 

 of 1847 and 1848), $1,373,466,971.43, 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 pay- 

 ment, was briefly as follows : 



