300 



FINANCES OF THE UNITED STATES. 



clause and law, which it is alleged the Secretary has 

 in so doing violated, must be so construed as to per- 

 mit the carrying out of the other requirements of the 

 statute in this regard. No one can doubt that this 

 salutary provision of the law, which, it is alleged, the 

 Secretary has violated, was intended to take away 

 from him the power of appropriating the proceeds 

 of any of the bonds authorized by this statute to any 

 other purpose than that of refunding the public debt ; 

 so that when the transaction was completed the pub- 

 lic would be assured that the debt of the nation had 

 not thereby been increased. * *' * * In the 

 opinion of the committee, this clause of the statute 

 has no other scope and effect, and was not intended 

 to embarrass or cripple the efforts of the Secretary 

 to carry out every pro vision of the law, which simply 

 provided that he should first negotiate the new loan, 

 and after having done that should, with its proceeds, 

 redeem a corresponding amount of the outstanding 

 indebtedness of the United States. * * * * 



The second allegation of the resolution is that the 

 Secretary has exceeded the one-half of one per cent, 

 allowed by the funding act for all expenses in placing 

 said loan. There is no dispute as to the facts. It ap- 

 pears that, after deducting, from the aggregate sum 

 which one-half per cent, of the loan would amount 

 to, all the expenses thus far attending this negotia- 

 tion, such as advertising^ preparing, and printing 

 the bonds, and that portion of it which had been 

 paid to the national banks and their agencies for 

 such negotiations of it as they had been able to make, 

 the balance of said one-half per cent., and no more, 

 was, by the arrangement with Jay Cooke & Co., to 

 be paid to those parties who took the balance of the 

 loan. If this statement is correct and the commit- 

 tee see no reason to doubt it then it is apparent 

 that the limitation of one-half per cent, has not been 

 exceeded thus far in the negotiation of the loans 

 authorized by this act. But a part of the agreement 

 by which the balance of the loan was taken was, in 

 substance, this : That the national banks which took 

 this loan for themselves, and those for whom they 

 negotiated it, were to be designated as depositaries 

 of public money, and proceeds of the bonds thus 

 taken were to remain as deposits with said banks 

 until used by the Secretary for the redemption of an 

 equal amount of five-twenty bonds. But it is claimed 

 that the use which the bank thus had of this money 

 was a part of the expense incurred by the United 

 States in negotiating the loan, and that thereby to 

 the extent of that use the expense exceeded the one- 

 half per cent, allowed by law. It was one of the 

 stipulations of these agreements that these deposits 

 should remain with such banks for the period of 

 three months, and it is fair to conclude that such use 

 of the money so deposited was of considerable value 

 to the banks, and entered largely as an element into 

 the inducement which finally led to their undertak- 

 ing to place the bonds of the entire loan then offered. 

 If, therefore, that use may be legitimately reckoned 

 as a part of the expense of the United States of nego- 

 tiating the loan, it must be added to the other expen- 

 ditures, and the whole would exceed the one-half per 

 cent. But the committee are of opinion that this 

 advantage thus derived by the banks from their use 

 of the money during the time which must necessarily 

 elapse between the conversion of the new bonds into 

 coin and the redemption of the old bonds with that 

 coin, can, in no fair interpretation of the funding 

 act, be counted a part of the expense which was 

 limited by that act to one-half per cent, of the loan. 

 It is given to such banks by the law that makes them 

 depositaries ; not by the contracts of the Secretary. 

 If the Secretary had received into the Treasury and 

 locked up in its vaults a large pmount of coin derived 

 from these bonds, it would have resulted in disas- 

 trous consequences to the commercial world. 



The importance of a resumption of specie 

 payment, and the manner in which it may be 



brought about, have been the subject of much 

 discussion. The methods proposed by which 

 to effect it have been as numerous as the dif- 

 ferent views entertained of the state of the 

 currency. By some persons it was assumed 

 that the paper currency was redundant, or in 

 excess of the healthy demands of trade, and 

 the excess must be retired in order to bring 

 the currency up to a specie standard. This 

 redundancy has been attributed to the cur- 

 rency of the United States by a majority of 

 those who have written and spoken on the 

 subject since the year 1864, and the remedy 

 prescribed has been " contraction." 



So prevalent was this view of the case at 

 one time that, in 1866, Congress, in obedience 

 to what was regarded as a sound and correct 

 principle of political economy, provided by 

 law for a gradual withdrawal and cancellation 

 of United States notes to the extent of four 

 millions a month; but, owing to the funding 

 operations of the Treasury, this provision was 

 not carried into effect until the latter part of 

 the year 1867, when the process of contraction 

 was commenced. Just at this time, also, com- 

 menced a stringency in the money market, 

 which increased in severity as contraction 

 went on. To the people the stringency seemed 

 to be produced by the contraction, though it 

 is now evident that other causes conspired 

 to aid in producing the result. The hard 

 times, however, were generally attributed to 

 the depletion of the money markets by the 

 actual withdrawal of ten millions of currency 

 in six months, and its continued reduction 

 at the rate of four millions per month there- 

 after. 



This opinion had all the force of conviction 

 in the public mind, and found its appropriate 

 expression in an act of Congress, which became 

 a law in February, 1868, prohibiting any fur- 

 ther reduction of the currency, and so the 

 matter now stands. If there is a superabun- 

 dance of currency, which must be retired before 

 a specie basis can be reached, the first step 

 toward specie payments must be the repeal of 

 the act of February, 1868. If public senti- 

 ment will not permit or sanction such action by 

 Congress, it will be because the people do not 

 wish for resumption at the expense of contrac- 

 tion. The Comptroller of the Currency, in 

 some remarks on this view of the subject, 

 says: "If this is the only road to specie pay- 

 ments, it remains closed by the mandate of 

 the people." 



Another view, in direct antagonism to the 

 demand for specie payments at all hazards, 

 and without regard to consequences, has been 

 entertained, which is, that the currency should 

 be permanently divorced from a specie basis. 

 It is urged that the convertibility of paper 

 money into coin on demand has always been 

 an unsound element of currency, because it 

 has never been practicable when actually re- 

 quired. Under any system of currency of which 

 credit forms a part, convertibility is but little 



