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  On National Finances
Speech of Representative Thaddeus Stevens,
in Congress,  December 19, 1862

   Mr. Stevens. The bill which I introduced some days since, to provide means to defray the expenses of the Government, produced a howl among the money-changers as hideous as that sent forth by their Jewish cousins when they were kicked out of the temple.

   It produced, what seemed to me, an unaccountable excitement in financial circles. This was caused, I suppose, by wrong information as to its origin, and a misunderstanding as to its object. This was partly the fault of letter writers, and partly the fault of stock-jobbing money editors. I perceive the money article of the Pennsylvania Press, of Monday of this week, represents the bill as reported by the Committee of Ways and Means, notwithstanding the papers of last week stated its true origin. I suppose these money-article editors are some dishonest brokers who make gain by their misrepresentations. The bill, as all knew who wished to know, was introduced by me on my individual responsibility, on the call of the States, with the sole object, as I then stated, of referring it to the Committee of Ways and Means. Neither the Secretary of the Treasury nor the Committee of Ways and Means had ever been consulted with regard to it; nor, although referred to them on motion of the mover, has it ever been considered by the committee.

   So much for the origin of the bill.

   Its contents and objects seem to be equally misunderstood or misrepresented.

   It is known to this House that I do not approve of the present financial system of the Government. When this Congress assembled a year ago, all the banks of the Union, as well as the Government, had suspended specie payments. The last $50,000,000 of loan, which had been taken by the banks at a discount of $5,500,000 payable in coin, was no longer paid in anything but the currency of the suspended banks. The immense expenses of the Government (from $2,000,000 to $3,000,000 daily) were to be provided for.  It was impossible to negotiate loans, except at a ruinous discount. The Committee of Ways and Means were expected to provide the means, without any suggestions from any quarter to aid them. After careful deliberation, the committee, or rather, as it turned out, the one half of them, determined to inaugurate a system of national currency consisting of legal tender notes, receivable in all transactions between individuals and the Government, and convertible into bonds of the United States, bearing six per cent. interest, payable semi-annually in lawful money, and redeemable in twenty years in gold or silver coin. The issue of $150,000,000 of such notes was authorized, and all of $500,000,000 of twenty years bonds.

    The system was simple in its machinery, and easily understood. It formed a uniform currency, sustained by the faith of the Government, and furnishing but one currency for all classes if people. It was believed that as the legal tender notes accumulated in the hands of the bankers and capitalists they would invest them in six per cent. bonds, so as to realize a profit from their capital. The instinct of avarice or gain would never allow them to remain long idle. This conversion and reconversion would have absorbed the $500,000,000 within the fiscal year, and supplied all the wants of the Government. So long as the legal tender notes remained unconverted the Government would have had the benefit of the circulation without interest. This was the plan of the committee. The currency has proved the most acceptable ever offered the people. This was the condition of the bills as presented originally, and as they passed the House.

   But the simplicity and harmony of this system were doomed to be mangled and destroyed as it passed through the Senate. They began by making two kinds of currency for the same community—a fatal mistake wherever it occurs, They provided that bonds issued as above stated should receive the interest in gold, while the interest of all other bonds should be payable in legal tender notes, thus producing at the outset a depreciation of the United States notes, and creating a demand for gold to be taken advantage of semi-annually by bullion mongers. Without such provision, there would have been no demand for a single dollar of gold to be used in this country. If merchants wished to import goods beyond our exports, and that required gold, I should feel but little sympathy for them, whatever premium they were obliged to pay. Being unable to defeat this provision, I procured to be inserted a section making the duties on imports payable in gold. This was to enable the Government to meet the payment of interest in coin. That had one good and one bad effect. It increased our tariff some thirty per cent, but it compelled our merchants to go among the Shylocks to purchase coin to pay their duties. These combined provisions form a mine of wealth for brokers and bankers. The duties and interest will require $60,000.000 of gold annually, and soon double that amount. Now, our banks and brokers have scarcely that amount on hand. They may put the price as high as they please, it must be paid. Suppose the banks in our three great commercial cities to have just that amount. If half yearly they sell the half of it to the Government and merchants at thirty per cent., using the other half to the end of the year and then selling it, they would clear by this single operation thirty per cent. on their capital, and have all the profits of loans, on deposits, and currency circulation besides. The gold would return to their vaults, possibly, by the payment of interest on the very bonds they held themselves, and so to be ready for the same operation at the next semi-annual payment, doubling their capital in three years. If a financial system which produces such results be wise, then I am laboring under a great mistake.

   The next error was to change the twenty year bonds into bonds redeemable at the option of the Government in five years, and payable in twenty years. We all know these long loans sell much higher than short ones. But the most unsalable kind of bond is that payable in a short time if the obligor choose, or at any intermediate time up to a distant day at his option. Every man wishes to know when his investment will fall due, so as to know how to arrange for business for reinvestment. The very uncertainty of the day of payment is a great fault; hence our bonds sell some five per cent. lower than an absolute twenty year loan would; yet no one believes that we shall be able to redeem them short of that time. The only justification for this change would be the expectation of being able to pay in five years. He must be a very hopeful man who can indulge that idea.

   Another charge, which seems to me equally injudicious, was the allowing the holders of legal tender notes to deposit them with the Government agent at interest not exceeding five per cent., and payable on call after ten days. This effectively destroyed the hope of any very speedy conversion of them into bonds. A holder of them would much prefer lending them on short call at a smaller interest, and wait for emergencies to speculate, than to fund them in Government stock. The consequence is, that while $80,000,000 have been deposited on short loan, only about twenty millions have been invested in bonds. One singular feature of this provision is, that when $50,000,000 or more of these notes are thus borrowed by Government, the Secretary of the Treasury shall keep on hand $50,000,000 of legal tender notes to meet the call, either by not issuing the amount authorized, or holding others. It is, in effect, the same as if the Government agreed to take a loan of $50,000,000 at four per cent., and keep it in their vaults without use until the lender called for it; in other words, paying four per cent. interest for the privilege of holding unused a special deposit. How these short loans and the pressing demands for other claims are to be paid, at least after all the greenbacks are once issued, I do not well see. Had they twenty years to run, I should feel easy. These are the objections which I have to the present system.

   I will now briefly state the provisions of the bill which I introduced It was intended to restore the law just to the condition in which it left the House of Representatives, and nothing more.

   The first section provides that the Secretary of the Treasury shall pay off and cancel all the five-twenty bonds and all others whose interest is payable in gold, and to exchange new bonds for them on such terms as shall be agreed on, or pay them in legal tenders.

   Certain money editors have professed to see in this a violation of public faith, which promised the payment in gold. Nothing is more false. It proposed to lift these bonds, by negotiation with the holders, at such rates as could be agreed on. If the holder declined to sell, he would be entitled to receive his interest in gold, according to the original contract. I suppose no man could be found in this House base enough to propose repudiation. None but the very stupid man could so misread the bill. True, it proposed to issue no more bonds of that kind, and repealed the law authorizing it. And yet it has been thought of sufficient importance gravely to introduce the resolution here declaring in advance that we intended to make no change in the law. What business has anybody to inquire whether in our future issue of bonds we intend to pay the interest in coin or legal tender? It is enough for them to know that in contracts already executed the Government will keep its faith.

   It further proposed to pay off the legal tender interest-bearing deposits, and to repeal the law authorizing such loan. It has turned out just as the committee predicted, that such demand loan has prevented the conversion to any considerable amount. While $80,000,000 of legal tender are deposited on call, but about $20,000,000 have been invested in bonds. It is obvious that at that rate the sale of bonds will aid but little in carrying on the war.

   It repeals the law requiring the payment of duties in coin, as well as the interest on future issues of the bonds, except one fifth of the amount of duties. This is retained so as to furnish the Government with coin to defray the foreign diplomatic and consular expenses, and the charges of our courts in foreign ports, and the costs of destitute seamen. Thus the whole currency needed in this country would be legal tender United States notes. The bullion mongers would lose; the merchants and Government would gain.
   Having restored the law to its original shape, it proposes to raise money to pay the pressing debts due to depositors and gold-bearing bonds, the pay due soldiers, and other expenses, by issuing legal tender notes, not exceeding $200,000,000 beyond those already authorized, and to issue $1,000,000,000 of bonds, bearing six per cent. interest, payable semi-annually in lawful money, and redeemable in twenty years in coin.  With $500,000,000 of legal tender notes in circulation, they would accumulate so fast with capitalists and banks that the holders would be glad to turn them to profit by purchasing the loans; and I doubt not before the year would expire the whole $1,000,000,000 of bonds would be called for at par.  In my opinion, with the present law this amount can never be sold except at a ruinous discount.  I believe that this disposes of all the provisions of the bill, which were intended to restore the committee's project, and which was sanctioned by a large majority of this House.

   The balance of the bill refers to State banks, and imposes a tax of fifty per cent. on all their circulation beyond one half of their capital.  This tax is obviously intended for prohibition, and not for revenue.  I incline to think it should have taxed all above three fourths, instead of one half of the capital.  The object of this provision was two-fold:  first, to give a wider circulation to United States notes, and thus induce their conversion; secondly, to prevent the undue inflation of the currency.  I suppose that such a law would drive at least $100,000,000 of bank notes out of circulation, leaving about the same amount afloat.  These together with the United States notes, would give a circulation of $600,000,000.  I believe the business of this country requires that amount.  Before the rebellion the paper issues were over $200,000,000, and the coin was at least $300,000,000.  I suppose what may properly be called the present circulation amounts to more than that sum. The checks which pass as currency in our large cities are as much a paper circulation as bank notes.  They amount to some $200,000,000, I imagine, and almost entirely supersede bank notes in New York and Boston.  When it was said that the currency necessary to do the business of Great Britain was near two billion dollars, the bank note circulation was less than four hundred millions.  The rest was supplied by bills of exchange.
   But in times of suspension of specie payments, banks will expand to an unlimited amount unless restrained by some national law. I can account for the present high price of everything in no other way than by such expansion or the expectation of it. I fear the true amount of present circulation is not ascertained. Take, as an example, a very sound, well-managed bank in my own district; it has capital of $320,000; it holds about $150,000 of United States six and seven-thirty per cent. bonds; it has on short loan $250,000 legal tender; it has $80,000 in coin, and its circulation is $800,000. In an adjoining district a bank with $400,000 capital has more than its whole capital invested in United States loans, and has a circulation of $1,000,000. Such issues must inflate the currency. The people will run mad with speculation, and in a few years a general crash will follow. My proposition would not reduce bank profits below a fair gain. While suspension continues they might hold, as they now have, their whole capital in Government stocks, bearing at least six per cent. per annum. They could have the profits of a circulation equal to three fourths of their capital, and bank on whatever deposits they have. This would give them at least ten per cent, interest to pay their expenses and dividends to stockholders. This is enough.

   But I ought perhaps to say, before I close, to my country banking friends that they need not be alarmed. There is no great prospect that we shall return to the system I indicated, nor do much to protect the people from their own eager speculations. When, a few years hence, the people shall have been brought to general bankruptcy by their unregulated enterprise, I shall have the satisfaction to know I attempted to prevent it.

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