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