UNITED STATES, FINANCES OF THE. 



785 



those bonds should be payable at the pleasure 

 of the United States, but should not be called 

 in and paid so long as any bonds of the United 

 States theretofore issued bearing a higher rate 

 of interest than 3 per cent., and redeemable at 

 the pleasure of the United States, should be 

 outstanding and uncalled. The only bonds an- 

 swering to this description were those which 

 had been continued at 3 per cent. The " call " 

 for the redemption of the last of these bonds 

 having fallen due Nov. 1, 1883, the 3 per cent, 

 bonds by the terms of the authorizing act be- 

 came redeemable, and '^calls'' for the redemp- 

 tion of $iO,000,000 of them were issued before 

 the close of the year, of which $30,000,000 

 matured during the year. All other classes of 

 the United States bonds had risen to so high a 

 premium, that the 3 per cent, bonds had been 

 very largely deposited with the Treasurer of the 

 United States by the national banks as security 

 for their circulation, and for public money de- 

 posited with them. Of $374,464,500 in bonds 

 on deposit for these purposes on July 31, 1883, 

 $210,656,850 was in 3 per cent, bonds, being 

 more than two-thirds of the entire amount out- 

 standing. The calling in of large amounts of 

 these bonds for redemption, and the certainty 

 that under the present revenue laws their rapid 

 retirement will continue, must have a very se- 

 rious effect on the bank circulation. The pre- 

 mium on the 4 and 4| per cent, bonds is so 

 great as to reduce the profit on circulation to 

 a very low rate. This fact, added to the gen- 

 eral dislike of bankers to carrying a large pre- 

 mium account, has deterred the banks from 

 substituting these bonds for their called 3 per 

 cents. The only alternative is to surrender 

 their circulation by depositing the proceeds of 

 their called bonds in the treasury as a fund 

 for its redemption, and this course is being 

 very generally pursued. Various plans to pre- 

 vent the contraction of the bank circulation 

 have been suggested. The more important of 

 these are discussed in the annual reports of 

 the Secretary of the Treasury and the Comp- 

 troller of the Currency, and in the President's 

 message to Congress. 



The Comptroller of the Currency repeats 

 the recommendations made in his report for 

 1882. After advertiig to the facts mentioned 

 above, he says : 



The contraction of the bank circulation may be 

 avoided by reduction of the redundant revenue, and 

 there is no doubt that this is the true policy. . , . 



The contraction of the bank circulation may also be 

 avoided by the conversion of the long bonds into three 

 per cents. , by offering inducement to the holders of 

 these bonds to exchange them for three per cents, to 

 mature in 1907, the Government paying to the holders 

 thereof a reasonable amount for their difference -in 

 value. . . . The premium to be paid to the holders of 

 these long bonds may be considerably reduced by 

 providing that the circulation to be issued upon the 

 proposed bonds when deposited by the national banks 

 as security therefor shall not be subject to the present 

 tax of 1 per cent, per annum, or by postponing the 

 time for their payment. Such legislation would make 

 the new bonds more valuable for this purpose than 



VOL. XXIIL 50 A 



for any other, and would be likely to prevent their 

 withdrawal until maturity, if once deposited, and for 

 this reason the bonds would-be more desirable as a 

 basis for circulation than any which have heretofore 

 been issued. 



The contraction would also be avoided by providing 

 for the removal of the tax on circulation, and the in- 

 crease of the amount of circulation to be issued to the 

 banks upon the bonds deposited by them. . . . 



Other propositions have been suggested in order to 

 postpone or prevent the contraction of national-bank 

 circulation which Is now imminent, but the Comp- 

 troller considers that, so long as there is a sufficient 

 amount of United States bonds outstanding, legisla-" 

 tion should be so shaped as to continue them in use 

 as a basis for national- bank circulation. . . . A law 

 authorizing increase of issue to 90 or 95 per cent, upon 

 the lowest market price during the calendar or fiscal 

 year previous to the deposit, together with the re- 

 peal of the tax upon circulation, would result in 

 the deposit of a sufficient amount of the 4 and 

 4i per cents, to maintain the circulation at about its 

 present aggregate. ... If considered desirable, in 

 anticipation of a gradual decline of premium, the pro- 

 posed law could require the amount of circulation is- 

 sued to be reduced 1 per cent, yearly, or such per 

 centum that the total amount outstanding could not at 

 any time exceed the value of the bonds on deposit, 

 and _ the Treasurer also could be authorized to retain 

 the interest upon bonds when necessary upon the re- 

 quest of the Comptroller. 



The proposition to convert the long bonds into 

 threes, is more desirable than the proposition to in- 

 crease the rate of circulation, for the reason already 

 referred to, that the new three per cents, payable in 

 1891 and 1907 would bear but a comparatively small 

 premium in the market, and that the Government 

 would be enabled to use its surplus revenues to advan- 

 tage. They would be the onlv bonds available for 

 circulation, and would not be likely to be withdrawn 

 for sale for the purpose of realizing the market price ; 

 and the profit on circulation would be sufficient to in- 

 duce banks to deposit them whenever additional cir- 

 culation is required. 



The Secretary of the Treasury in his annual 

 report thus discusses the various measures of 

 relief proposed : 



The public mind is naturally turned to the inquiry : 

 How shall the national- bank notes be kept in circula- 

 tion ; what shall be taken as a safe foundation there- 

 for, and yet be so low in price as that the banks can 

 afford to buy and deposit ; or what can be proposed 

 which will give to the banks safeguard against loss in 

 taking and issuing circulating notes? 1 am not in 

 favor of anything but the interest-bearing obligations 

 of the United States Government. . . . There are other 

 propositions, the vertebral idea of which is the crea- 

 tion of a new form of public debt. A plausible one is, 

 for the Government to offer a new bond, of its own 

 issue, at low rate of interest, to run a long period, 

 in exchange for its 4 per cents, and 4i per cents., 

 allowing such a rate of premium upon the latter, 

 but lower than that at present ruling, as would 

 induce the holders to surrender them and take the 

 ne w ; and to make this a security for bank circulation. 

 I doubt not that this is feasible. In that way, a holder 

 of fours or four-and-a-halfs could capitalize the pre- 

 mium allowed on his bond, and draw interest at the 

 new rate on that as well as on the principal, whereby 

 there would be an inducement to exchange, rather 

 than to hold, or, in the present" difficulty of desirable 

 reinvestment, to sell. . . . Should ttiis project be 

 favorably considered, details can be furnished. Yet I 

 am so averse to recommending the creation of another 

 or a different public debt, that as great as are, in my 

 judgment, the advantages of the national-bank circu- 

 lation in safety, in uniformity of value everywhere, 

 and in other matters of convenience and confidence, I 



