302 



FINANCES OF THE UNITED STATES. 



banks to give such security. The bill as 

 amended passed the Senate February 3, 1882. 

 No action having been taken by the House up 

 to a late date, the provisions of the bill were 

 attached by the Senate to the act providing for 

 the extension of the charters of national bank- 

 ing associations, and became a law July 12, 

 1882. Section 11 of this act reads as fol- 

 lows: 



That the Secretary of the Treasury is hereby au- 

 thorized to receive at the Treasury any bonds of the 

 United States bearing three and a half per centum 

 interest, and to issue in exchange therefor an equal 

 amount of registered bonds of the United States ot 

 the denominations of fifty, one hundred, five hundred, 

 one thousand, and ten thousand dollars, of such form 

 as he may prescribe, bearing interest at the rate ot 

 three per centum per annum, payable quarterly at the 

 Treasury of the United States. Such bonds shall be 

 exempt from all taxation by or under State authority, 

 and be payable at the pleasure of the United States : 

 Provided, That the bonds herein authorized shall not 

 be called hi and paid so long as any bonds of the 

 United States heretofore issued bearing a higher rate 

 of interest than three per centum, and which shall be 

 redeemable at the pleasure of the United States, shall 

 be outstanding and uncalled. The last of the said 

 bonds originally issued under this act. and their sub- 

 stitutes, shall be first called in, ana this order of 

 payment shall be followed until all shall have been 

 paid. 



It will be noticed that these bonds were to be 

 issued redeemable at the pleasure of the United 

 States, but not until after all bonds bearing a 

 higher rate of interest, and thus redeemable, 

 are redeemed or called ; and they are to be 

 called for payment in an inverse order to that 

 in which they are issued ; those last dated and 

 numbered being the first to be redeemed. 



Under this authority the exchange of " 3-J- per 

 cent continued bonds " began August 1st, and 

 continued until September 20th, when opera- 

 tions were temporarily suspended in order to 

 allow the preparation of the schedules and 

 checks for the dividend due November 1st on 

 the 3| per cents which had not been exchanged, 

 as well as upon the new issue of 3 per cents. 

 Up to the date of the suspension of operations, 

 3 per cents to the amount of $259,370,500 

 were exchanged for a like amount of 3 per 

 cents. The interest on the bonds surrendered 

 was adjusted to August 1, 1882, and the 3 per 

 cent bonds exchanged therefor carried inter- 

 est from that date. The total amount of 3 per 

 cent bonds issued to December 30, 1882, was 

 $289,563,950. The reduction in the annual in- 

 terest charge by reason of these exchanges is 

 $1,447,819.75. 



The following is a statement of the calcu- 

 lated average rates of interest to investors in 

 the 4 and in the 4 per cent securities of the 

 United States, at their market values during 

 the months of January and July of each year, 

 from 1877 for the 4| per cents, and from 1878 

 for the 4 per cents, to and including July, 1882, 

 as prepared by Professor E. B. Elliott, Actu- 

 ary of the Treasury Department. 



It will be seen that the decline has been 

 gradual from 4-425 to about 2-895. 



But once before in the history of the Gov- 

 ernment has its revenue so far exceeded its ex- 

 penditure as to cause any feeling of anxiety 

 in the minds of its financial officers as to the 

 best disposition to be made of the surplus. In 

 1836 the country was free from debt, and dur- 

 ing a period of unexampled prosperity, aided 

 by a strong speculative mania for the purchase 

 of the public lands, the surplus revenue was 

 very large, too much so to be allowed to remain 

 in the Treasury. On June 23, 1836, an act 

 was passed which provided that, at the com- 

 mencement of the following year, the surplus 

 revenues in the Treasury in excess of $5,000,- 

 000 should be distributed among the several 

 States according to their respective represen- 

 tation in the Senate and House of Eepre- 

 sentatives. The amount so distributed was 

 $28,104,864.91. The act provided for a dis- 

 tribution in four equal installments, but the 

 fourth installment was never paid over. With- 

 in a brief period the condition of affairs was 

 changed. The good times of 1835-'36 were 

 succeeded in 1837 by the most extraordinary 

 depression and panic. At the close of the 

 year 1837 it was not only impossible to pay to 

 the States the fourth installment of the surplus, 

 but even to meet the current 'expenses of the 

 Government from its ordinary revenues. (See 

 INDEBTEDNESS OF THE STATES, page 398.) 



At the present time, and under existing laws, 

 we have no reason to fear such a result from 

 any attempt to dispose of the rapidly increas- 

 ing surplus revenues of the Government. All 

 the circumstances are different. We have a 

 large outstanding debt, and the surplus over 

 and above the amount required for the pay- 

 ment of the ordinary expenditures of the Gov- 

 ernment may well be applied to the extinguish- 

 ment of that debt, until Congress shall provide 

 by suitable legislation for a reduction of taxa- 

 tion, by a revision of the tariff laws and a cor- 

 responding change in our internal revenue sys- 

 tem of taxation. 



The Secretary of the Treasury, in his annual 

 report for 1881, called the attention of Con- 

 gress to this subject, and suggested the propri- 

 ety of new legislation, looking to a reduction of 

 the surplus revenue by a reduction of taxation. 

 He said : 



41 It is a matter of gratulation that the busi- 

 ness of the country so thrives as to endure the 

 onerous taxation that is upon it, and yet grow 

 in volume, and apparently in profits, and yield 

 to the Government a surplus over its needs. 

 The result upon the public revenue is to em- 



