Volume 11 — THE NATIONAL BANKS AND THE CURRENCY.

Speeches in the Senate, on Amendments to the Bill providing a National Currency, April 27 and May 5, 1864.

April 26th, the Senate having under consideration the bill to provide a National Currency secured by a pledge of United States bonds, and to provide for the circulation and redemption thereof, the Committee on Finance reported an amendment to strike out this clause,—

“And nothing in this Act shall be construed to prevent the taxation by States of the capital stock of banks organized under this Act, the same as the property of other moneyed corporations, for State or municipal purposes; but no State shall impose any tax upon such associations, or their capital, circulation, dividends, or business, at a higher rate of taxation than shall be imposed by such State upon the same amount of moneyed capital in the hands of individual citizens of such State: Provided, That no State tax shall be imposed on any part of the capital stock of such association invested in the bonds of the United States, deposited as security for its circulation,”—

and insert instead thereof another clause, which, after providing for payments to the Treasurer of the United States “in lieu of all other taxes,” further declared,—

“Provided, That nothing in this Act shall be construed to prevent the market value of the shares in any of the said associations, held by any person or body corporate, from being included in the valuation of the personal property of such person or corporation in the assessment of all taxes imposed by or under State authority for State or other purposes, but not at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such State; and all the remedies provided by State laws for the collection of such taxes shall be applicable thereto: Provided, also, That nothing in this Act shall exempt the real estate of associations from either State, county, or municipal taxes, to the same extent, according to its value, as other real estate is taxed.”

Mr. Sumner saw in the report of the Committee a deference to the State banks which he feared might imperil the national system, and he made an effort to secure for the national banks the largest immunity, believing it important to the national credit.

Early in the debate he spoke,[329] and Mr. Fessenden replied to him.

April 27th, Mr. Sumner spoke again.

MR. PRESIDENT,—This question seems to me very simple. The country is now engaged in mortal struggle to establish itself as a nation. It has gone forth to meet Rebellion organized in the name of State Rights. In preparing ourselves for this unparalleled contest, we are compelled to look about in every direction to increase our army, to enlarge our navy, and to multiply our financial resources; but at every stage we are encountered by objections in the name of State Rights. No single proposition is brought forward, having for object the salvation of the Republic by infusing new energy and new vitality, which is not encountered in the name of State Rights. And now, Sir, while considering how to secure financial stability, we are doomed again to encounter the oft-repeated objection. The Rebellion began in State Rights, and all opposition to the measures conceived to crush it is in the name of State Rights. It is hard that we should be obliged to meet State Rights not only on the battle-field, but also in this Chamber.

The Senator from Vermont [Mr. Collamer] complained that it was proposed to sequester so large an amount of property from State taxation. The sum-total of property thus sequestered is $300,000,000[330]; but has the Senator considered how much is sequestered by other agencies to save this Republic? There is the army with all the material of war, there is the navy with all the material of the navy,—all sequestered. Who complains that this vast material, now counted far beyond $300,000,000, is sequestered from State taxation? Does any Senator, in the name of State Rights, claim that the enlarged navy of the Republic, as it floats into a Northern port, shall be brought within the sphere of local taxation, whether State or municipal? Does any Senator say that all the vast material of war, ammunition, cannon, and the like, deposited, for the time being, in any particular locality, shall fall within the sphere of State or municipal taxation? Or does any Senator insist that the public securities shall be left exposed to State taxation? No Senator makes any such complaint. But the complaint is reserved for the present occasion, when it is proposed to create a new agency for the currency of the country.

I know not how the exemption can be sanctioned in one case and not in the other. The reason applicable to one is applicable to the other. It is said that the army and navy are for war, and naturally share exemptions incident to war and its preparations. But it would be difficult to say, that, in this crisis, what you do for the finances is not essentially a war measure, entitled to all the consideration accorded to such measures in a moment of war. What are your army and navy without a Treasury? Milton, in one of his sublimest sonnets, has aptly pictured that statesmanship which was able

In these few words the very likeness is given. All who hear them will confess their truth.

Now, Sir, no Senator complains because we protect the nerve of iron; but the Senator from Vermont registers complaints because it is proposed to protect the much more delicate nerve of gold. What is worth doing is worth well doing; and if it be worth while to organize the finances of this Republic by the proposed banking system, it is worth while to do it well; and can you do it well, if, at the very moment of its organization, you leave its most sensitive part exposed to hostile influence?

The precedent for this exemption is complete. Already you exempt the public stocks and securities from local taxation. Pray, Sir, tell me what policy justifies such exemption which is not equally strong for the exemption of shares in the national banks. Clearly, it was to commend your national stocks that you established the exemption; and for the same reason I ask you now to establish this other exemption. It is strange that the vast sequestration of the national stocks from State taxation should have been made with so little doubt, when Senators question so pertinaciously this smaller sequestration. If it was proper in one case, it is in the other. If it was necessary in one case, it is in the other.

If you allow the State to interfere with the proposed system by taxation in any way, may they not embarrass it? Where shall they stop? Where will you run a line? Undoubtedly, according to the Supreme Court, they cannot tax the bank directly. This would be unconstitutional. But it is said that they may tax the shares. Now I raise no constitutional question. It may be that a tax on shares is constitutional. But I shall not consider it on this ground. I am now arguing against the policy of such tax. It is a question of expediency which I raise, for the sake of the system we are about to establish. But here the rule seems clear. Every consideration urged against taxing the bank directly may be urged against taxing the shares. If it be bad policy in one case, it must be in the other.

I suppose there is no judgment of our Supreme Court which has been more admired than that in the case of M’Culloch v. The State of Maryland.[332] It was pronounced by Chief Justice Marshall, and is as good a specimen of that “pure reason” which belonged to this magistrate as any that can be named. In the course of this elaborate judgment all the topics were considered which enter so peculiarly into this debate. It was there insisted that the tax was unconstitutional. But the words of the Chief Justice seem intended for the present occasion. His object, from beginning to end, was to keep the bank safe from the hostile acts of the States. It was a great effort to uphold a national institution against State Rights. It was, permit me to say, an answer in advance to the Senator from Vermont. I do not like to trouble the Senate, but there are passages so pertinent that I will read them. Here, for instance, the Chief Justice considers the ground of exemption.

Mr. Sumner then proceeded at some length to analyze the judgment of Chief Justice Marshall, reading important parts of it; and he then said:—

Now, Sir, every consideration, every argument, which goes to sustain this great judgment, may be employed against the proposed concession to the States of the power to tax this national institution in any particular, whether directly or indirectly. The reason of the judgment is as strong against an indirect tax as against a direct tax.

After showing the character of the new system as an instrument of national credit, as the Navy-Yard and the Mint are instruments for the public service, he proceeded:—

The very measure under consideration seeks to create a new currency by a system of national banks which shall supersede the existing State banks as agents of currency. Of course the new system must begin in rivalry with the State banks, which in many cases will be hostile. This is no inconsiderable impediment. But this impediment will be increased, if the national banks be exposed to local taxation. It is an untried experiment upon which you are entering. On every account it should be made under the most favorable circumstances,—precisely as when we put stock in the market. The national banks should be commended in every possible way. But, instead, it is proposed to fasten upon them a liability, which, if it do not cause people to avoid them, will at least keep them in rivalry with the State banks, so that the new system cannot become truly effective. It seems to me that there is but one practical course. Naturally, all who are against the proposed system will favor any limitation or burden to impair its efficiency. But all who are for the system, and wish to see it doing all the good it can, will take care that it is not compelled to carry weight. The whole case may be briefly summed up. Would you place the national credit on a sure foundation? Are you for the national banks as a proper agency to this end? If these two objects interest you, then, I say, do not allow them to be sacrificed in subserviency to State Rights.

Mr. Fessenden followed in an earnest speech, vindicating the report of the Committee, to which Mr. Sumner replied.[333] The debate continued for several days.

May 5th, as a substitute for the amendment of the Committee, Mr. Sumner moved the following:—

“In lieu of all other taxes on the capital, circulation, deposits, shares, and other property, every association shall pay to the Treasurer of the United States, in the months of January and July, a duty of one per cent each half-year from and after the first day of January, 1864, upon the average amount of its notes in circulation, and a duty of one half of one per cent each half-year upon the average amount of its deposits, and a duty of one half of one per cent each half-year, as aforesaid, on the average amount of its capital stock beyond the amount invested in United States bonds; and in case of default in the payment thereof by any association, the duties aforesaid may be collected in the manner provided for the collection of United States duties of other corporations, or the Treasurer may reserve the amount of such duties out of the interest as it may become due on the bonds deposited with him by such defaulting association. And each association shall, within ten days from the first days of January and July of each year, make a return, under the oath of its president or cashier, to the Treasurer of the United States, in such form as he may prescribe, of the average amount of its notes in circulation, and of the average amount of its deposits, and of the average amount of its capital stock beyond the amount invested in United States bonds, for the six months next preceding the first days of January and July, as aforesaid; and in default of such return, and for each default thereof, each defaulting association shall forfeit and pay to the United States the sum of two hundred dollars, to be collected either out of the interest as it may become due to such association on the bonds deposited with the Treasurer, or, at his option, in the manner in which penalties are to be collected of other corporations under the laws of the United States; and in case of such default, the amount of the duties to be paid by such association shall be assessed upon the amount of notes delivered to such association by the Comptroller of the Currency, and upon the highest amount of its deposits and capital stock, to be ascertained in such other manner as the Treasurer may deem best. Provided, That nothing in this Act shall exempt the real estate of associations from either State, county, or municipal taxes, to the same extent, according to its value, as other real estate is taxed: Provided, also, That all taxes imposed by this or any future Act on banking associations organized under national legislation shall be applied exclusively to the payment of the interest and principal of the national debt of the United States.”

It will be perceived that the special object of this amendment was to keep the taxation of the national banks in the hands of the National Government. In this aim Mr. Sumner was sustained by Mr. Chase, the Secretary of the Treasury, who, in a communication to the Chairman of the Senate Committee of Finance, May 9, 1864, said:—

“Under ordinary circumstances there might be no insuperable objection to leaving the property organized under the national banking law subject, as are almost all descriptions of property, to general taxation, State, national, and municipal; but, in the present condition of the country, I respectfully submit that this particular description of property should be placed in the same category with imported goods before entry into general consumption, and be subjected to exclusive national taxation.”

Mr. Sumner spoke in the same vein.

Mr. President,—At last, in this discussion, it is clear that we have come to the place where the road branches in two opposite directions: one toward the support of the whole country, and of that improved currency essential not only to the general welfare, but also to the common defence; and the other toward State rights, State taxation, and State banks. Which road will you take, Sir?

Or, stating the case in a different way, it is a question between the national credit, involving the interests of all, on the one side, and certain local pretensions on the other side. It is a question between the whole and a part,—between the life of the Republic and a small percentage of taxation which Senators claim for their States. The enemy is at our gates,—gold is at 180,—and yet Senators hesitate.

All are watching, at this moment, the movement of our forces under General Grant, and are longing for victory. Nothing that the country can do to make him strong is left undone. Men, money, supplies, everything is lavished; and only the day before yesterday the Senate voted another $25,000,000.

There is another field, where the battle is bloodless, but scarcely less important: I mean the field of finance. If our pecuniary resources fail, it is doubtful if the army and navy must not fail also. But victory on this field would give triumphant strength and vigor to all the operations of Government. There is no argument for the army and navy—ay, Sir, for the present support of the Lieutenant-General of the United States, in the field at the head of our military forces—which at this moment is not equally applicable to the support of the Secretary of the Treasury at the head of our financial forces.

How different the treatment of these two officers! Everything is given to the one, almost without debate; but little is given to the other without higgling at every stage.

There are movements pending in the field of national finance hardly less important than those in the field of war. A defeat in finance would be little less disastrous than a defeat in war.

Under these circumstances, and at this critical moment, a measure is brought forward whose real character is discerned in its title: “To provide a national currency secured by a pledge of United States bonds, and to provide for the circulation and redemption thereof.” The primary object of this bill is not, therefore, to establish national banks, but to secure the national currency. For the sake of the currency a system of national banks is to be established; they are the means to the end. But the end sought is an improved currency. Sir, this must not be forgotten. If it were a mere question of a national bank, if it were a question between two rival systems, Senators might take sides. But who will hesitate to give all that is needed, even all that is asked by the proper authorities, for an improved currency? You may seem to give much, when you abandon sources of State taxation; but you can give nothing that will not be returned tenfold, a hundred-fold, when the currency at last becomes fixed and uniform.

Glance only for a moment at the incalculable advantages of a sound currency. Gold will assume its normal place, business will be sure, values will be fixed, fluctuations will cease, inflated prices will pass away. There is not a mart of commerce, there is not a village in the whole country, that will not feel the change. But this great boon cannot be assured without corresponding effort. Like victory in the field of battle, it must be fought for and paid for.

And now, when victory seems within reach, when an improved currency is already begun, Senators hesitate in conceding those facilities without which victory is doubtful. They set up claims for their States, and insist upon certain rights of taxation. If this were a season of peace, I could appreciate the pretension; but when I consider the peril of the country, filling us all with such anxiety,—when I consider that its very being is assailed, and that it is to be defended on the field of finance just as much as on the field of battle,—I feel that every endeavor to hamper the pending measure differs little in character from an effort to hamper our soldiers in the field. We spare nothing essential to our armies; we should spare nothing essential to our currency. Men and money both are necessary; both must be cherished and protected with equal patriotic care.

…

Sir, I am unwilling to be misunderstood. I have no feeling except of kindness for the State banks, especially when they keep within the proper sphere of banks, and do not undertake to supply a currency for the country. But at this moment, when we are seeking to create a new currency, which shall be the foundation of national credit, and of national character too, I confess that I have little sympathy with anything that puts itself in the way. The State banks have performed their task as agents of currency, and the time has come for them to abdicate,—or, if they do not abdicate, at least to conform to the new system.

I do not stop to inquire if any paper issued by State banks as currency can be constitutional,—to consider if the States, which cannot coin money, can yet put paper in circulation as money. I content myself with insisting, that, whatever the constitutional merits of this question, it is no longer expedient that States should be invested with the power. We must have another system. The best interests of the whole country require it, especially at this time of national peril.

It is clear that the State banks are not competent to meet the crisis. They cannot do the business required. Besides, they are in the way. Putting their notes in circulation almost at will, the currency is inflated beyond control. Depreciation naturally ensues. Bankruptcy may follow.

When I say that the State banks are in the way, I do not use too strong language. Authentic tables show the extent to which during the last year the currency has been affected by their interference. I hold in my hand a statement from the Bank Reports for 1862, page 208, and for 1863, page 210. At the risk of wearying the Senate, I will read it.

Statement of the Circulation of the Banks in certain States, on or about 1st January, 1862 and 1863.

1862.1863.

Maine$4,047,780$6,488,478

New Hampshire2,994,4084,192,034

Vermont2,522,6875,621,851

Massachusetts19,517,30628,957,630

Rhode Island3,306,5306,413,404

Connecticut6,918,01813,842,758

————— —————

$39,306,72965,516,155

39,306,729

—————

Total increase in New England States$26,209,426

Being over sixty-six and two thirds per cent.

Similarly in New York, Pennsylvania, and New Jersey, we find the circulation, on or about 1st January:—

1862.1863.

New York$30,553,020$39,182,819

Pennsylvania16,384,64327,689,504

New Jersey3,927,5358,172,398

————— —————

$50,865,198$75,044,721

50,865,198

—————

Total increase in New York, Pennsylvania, and New Jersey,$24,179,523

Being over forty-seven per cent.

Aggregate Increase in the Principal Eastern States.

1862.1863.

New England$39,306,729$65,516,155

New York, Pennsylvania, and New Jersey50,865,19875,044,721

————— —————

$90,171,927$140,560,876

90,171,927

—————

Aggregate increase in Eastern States$50,388,949

Being over fifty-five and three fourths per cent.

These tables speak. They show the range within which the State banks undertake to operate, and their consequent interference with the national system. If it be said that in certain parts of the country, as in New England and New York, the State banks have performed good service, I reply, that, even admitting all that is claimed, the service is local and incomplete. It does not embrace the West.

The present endeavor is to provide a remedy for this trouble by a comprehensive national system, discharging the function performed by the State banks, and embracing the whole country. It is called national because it belongs to the nation, and not to any particular State, and because its origin, aim, and inspiration are all national. It is conceived in no hostility or unkindness to the State banks, but in a patriotic purpose to do what can be done to secure what all desire,—a national currency. The State banks will be welcome to a place in the system, like State troops coming forward for the defence of the Republic; but they cannot be tolerated, if they stand aloof, or refuse to take the post assigned them. At a moment of peril, when the Government is bending all its energies to save the national currency, a mutiny among State banks will be hardly less disastrous than a mutiny among State troops. Every murmur or mutter of such mutiny ought to be repressed at once. All should be summoned to perfect and harmonious coöperation in that cause which embraces the whole country, in every walk of life, whether military or civil.

I know not how others are impressed, but to my mind it is difficult to imagine anything, short of those everlasting principles of human freedom involved in this war, which should at this moment be more carefully watched than the currency of the country. Let this be safe, and everything will be safe,—army, navy, and the whole national cause. Such a currency will constitute an epoch in the history of the country,—ay, Sir, in the history of the world. There have been ministers in other countries and other times whose names are immortal from association with commercial reforms. Colbert was the founder of the commercial system of France; Peel was the founder of free trade in England. But the present Secretary of the Treasury, when the new system is at last triumphant over all obstacles, including the mutiny of State banks and the lukewarmness of Senators, may boast that he has given a currency to his country. Next after the great gift of human freedom there is nothing greater he could give,—nothing that comes home so completely to the business and bosoms of the people, rich and poor, throughout our wide-spread empire. An improved currency is like sunshine, penetrating every corner of the land, under which commerce, business, comfort, civilization, life itself, will put forth blossom and fruit. Nobody in the community too high, nobody too low, not to feel the new-found boon filling every household and travelling on every highway. But it is seen now in another aspect. An improved currency is like a new levy of national troops, a new navy afloat, a new contribution of supplies. It is the herald and assurance of untold success. In itself it is a present daily victory,—fruitful parent of victory everywhere.

Such is the object proposed,—important at any time, inconceivably important at this moment. And the question recurs, Are you for a national, life-giving currency, or are you for the State banks? You cannot be for both; one must yield to the other. If you are for the former, you must abandon the State banks, or compel them to enlist in the national cause.

Massachusetts—which has a larger bank capital in proportion to her population than any other State, and, moreover, looks to taxation of this capital as a chief source of income—has already, by her patriotic Governor, volunteered support to the national banks.

Here Mr. Sumner quoted from the Address of Governor Andrew to the Legislature of Massachusetts, January 9, 1863.

Such is the testimony of Massachusetts, by the lips of her brave Chief Magistrate. Seeing the object before us, he raises no question of State rights, presents no claim of State taxation, makes no plea for State banks.

Sir, it is vain to think that you can keep both systems at the same time. One must yield to the other. But if you sincerely desire the national system to prevail, then must you so endow and protect it that it will be commended to the public, and that investments will naturally seek it. Therefore every privilege you confer, every immunity you give, every exemption you establish in its favor, must naturally contribute to its strength, and make it more effective for its transcendent purposes.

This is the day of sacrifice. Families are offering sons and brothers. States are giving their citizens, and every citizen is contributing according to his means to the safety of the Republic. But there is one other sacrifice now required: it is the sacrifice of the State banks as agents of currency; and this sacrifice requires that the local taxation should be suspended with regard to the national currency, and that all the proceeds of such local taxation should be passed to the credit of the whole country. You must do for the national currency precisely what you do for the national securities. Here are the words of the statute:—

“And all stock, bonds, and other securities of the United States, held by individuals, corporations, or associations, within the United States, shall be exempt from taxation by or under State authority.”[334]

The reason which sustains the exemption in this case is equally applicable in the other.

But we have other exemptions from local taxation.

There are the imports of the country, which no State or municipality can tax.

There are the army and navy, and all the material of war,—ships, arms, munitions, commissariat supplies,—all exempt from local taxation.

There are the public lands of the United States, which no local authority can touch.

There is the Mint, which is untaxed.

There are the public buildings in Washington, the National Capitol, the Executive Mansion, the offices of the heads of Departments, covering large spaces of ground, all secured from local taxation.

But no reason can be assigned for exemption in these cases that does not prevail with regard to the currency. Nay, at this juncture, when our object is, above all things, to secure a national currency, the reason for exemption is of special and unanswerable force.

We have more than once been warned not to slay the goose that lays the golden egg,—meaning by this goose the State banks. But all who use this illustration forget that there is another bird, which lays such eggs as no State banks can hatch,—eggs not merely of gold, but of victory. It is the national credit, which Senators seem willing to abandon, if not to slay; and it is the national credit which I now insist shall be preserved at all hazards.

Mr. President, I was not a sharer in the counsels that originated this measure. Had I been consulted, I know not that I should have originally advised the experiment in its actual form. Clearly, something was necessary for the sake of the currency, and for the sake of the country; and after proper consideration the present system was adopted. Operations under it have already commenced; $60,000,000 of capital have been organized according to its requirements. It is too late to retreat. It only remains that you should go forward, not sluggishly, heavily, reluctantly, but bravely, confidently. The financial enterprise already begun must be finished and protected. Here I cannot hesitate. If the system is to be maintained, if it is not to be utterly abandoned, it must be placed under the most favorable auspices, so at least that it may not fail from any want of care on our part. It should be made strong in itself, and then it should be surrounded with an atmosphere congenial and friendly. For this reason I shall vote to keep it free from all State hostility and even State rivalry, that it may become in reality, as in name, wholly national.

Sir, I am told that it will be unpopular to make this sacrifice, and ancient ghosts are paraded through this Chamber to frighten us from duty. Naturally, all who are against the proposed system will be against the seeming sacrifice. But the people are too intelligent not to see what is demanded by the best interests of the national currency; and unless I greatly err, they will insist that what we do shall be so done as to make our work most effective and most triumphant, to the end that victory may be certain. It is on no narrow ground that I make my appeal. I speak for a national currency which shall be to the whole country like the horn of abundance; and I plead for it now, as essential not only to the general welfare, but also to the common defence.

Mr. Fessenden replied to Mr. Sumner with severity. On the other hand, Mr. Chandler, of Michigan, recognized as a business man, said: “The country owes the Senator from Massachusetts a debt of gratitude for his patriotism and statesmanship. He has risen above small matters, above local, petty interests, and has come up to the standard of the broadest statesmanship, in the argument he has just delivered, which is one of the ablest financial arguments ever delivered on this floor.”

Mr. Sumner’s amendment was lost,—Yeas 11, Nays 24. The amendment of the Committee was then agreed to,—Yeas 29, Nays 8.