Volume 17 — FINANCIAL RECONSTRUCTION AND SPECIE PAYMENTS. (continued 2)

Do Senators consider to what extent the Government determines the rates of interest in the money centres of the country? Not only for itself does it determine, but for others also. Government bonds enjoy preëminence as an investment,—and if the interest is high, they attract the disposable money of the country. Government sixes are worth more than a six per cent. bond of any private corporation or individual, no matter how well secured. Therefore, it is easy to see, so long as we retain our standard at six per cent., so long as we have sixes, will the capital of the country seek these bonds for investment, permanent or temporary, to the detriment of numerous enterprises important to the national development, which are driven to be the stipendiaries of foreign capital. Railroads, especially at the West and South, are sufferers, being sometimes delayed by the difficulty of borrowing money, and sometimes becoming bankrupt from ruinous rates of interest, always in competition with the Government. But what is true of railroads is also true of other enterprises, which are pinched, and even killed, by these exactions in which the Government plays such a part. All are familiar with the recurring appeals for money on bonds even at eight per cent., which is more than can be paid permanently without loss; and even at such a ruinous rate there is difficulty in obtaining the required amount.

Doubtless the excessive interest now demanded is partly due to our fictitious currency, where failed paper is forced upon the market; but beyond this influence is that of our sixes, absorbing disposable capital. I venture to assert, that, if we could at an early day reduce these sixes to fives, there are millions which would be released to seek investment in other securities at six per cent., especially to the relief of the West and South. The reduction of interest to four and a half per cent. and four per cent. would release further millions. A recent incident in the financial history of Massachusetts illustrates the disturbing influence of our sixes. An attempt to obtain a loan in Europe at five per cent. was unsuccessful, chiefly because the National Government offered six per cent.

Therefore, for the sake of public enterprise in its manifold forms, for the sake of that prosperity which depends on human industry, for the sake of manufactures, for the sake of commerce, and especially for the sake of railroads, by which all these are quickened, we must do what we can to reduce the general rate of interest, which is now such a curb on enterprise; and here we must begin with our own bonds. Without any adverse intention, the National Government is a victorious competitor, and the defeated parties are those very enterprises whose success is so important to the country. A competition so destructive should cease. Keeping this before us in the new loan, we shall adopt that form of bond by which the interest will most surely be reduced. Thus, while refunding the national debt, we shall open the way to improvements of all kinds.

This is what I have to say for the present on the refunding propositions of the Committee. Their object is the same as mine. If I differ from them in details, it is because after careful consideration it seems to me that in some particulars their system may be improved.

Proceeding from these pivotal propositions, I find other things where I must again differ. When I first addressed the Senate on this subject, I took occasion to declare my objection to the idea of agencies or offices in the commercial centres of Europe, where interest should be paid. I am not ready to withdraw that objection,—though, if I could be tempted, it would be by the Senator from Ohio [Mr. Sherman], when he held up the prospect of a common money among nations. This is one of the desires of my heart, as it is one of the necessities of civilization; but I fail to see how this aspiration will be promoted by the system proposed,—which must be judged on its own merits, without any such recommendation. It is easy to see that such a system, besides being the beginning of a new policy on the part of the Government, may entail serious embarrassments. Sub-treasuries must be created in foreign capitals, which must be continued so long as the bonds last. Remittances of coin must be semiannual; and should such remittances fail at any time, there must be advances at no little cost to the Government. I cannot imagine any advantage from this new system sufficient to induce us to encounter the possible embarrassments or entanglements which it may cause.

I would not take too much of the time of the Senate, and therefore I pass at once to the proposition of the Committee, being section seven, providing for the very early payment of the national debt.

Mr. President, the payment of the national debt is an American idea, and I would say nothing to weaken it among the people. Whatever we owe must be paid; but it is the part of prudence to make the payment in such way as, while consistent with our obligations, shall promote the national prosperity. In this spirit I approach the proposition of the Committee, in which there is so much of good, only to examine and measure it, in order to ascertain its probable influence, especially on the question of Taxation.

Here it must be borne in mind, that the present measure in all its parts, so far as applicable, and especially with its guaranties and pledges, must be taken as the basis of our new engagements. The provision that so much of the debt shall be paid annually will become in a certain sense a part of the contract, although not so expressed in the bond. Not less than $150,000,000 are set apart annually to be applied “to the payment of the interest and to the reduction of the principal of the public debt.” This is a large sum, and we should consider carefully if such a guaranty or pledge has in it the promise of financial stability. Promising too much is sometimes as bad as promising too little. Our promise must be according to our means prudently employed.

If we assume obligations so large as to bear heavily upon the business of the country and to compel unreasonable taxation, there will be little chance of financial stability. They will become the object of attack, and will enter into the conflict of parties,—and if repealed, the national faith may be called in question. I need not say that business must suffer. A less ambitious effort on our part will be less obnoxious to attack,—thus leaving the bonds to their natural position in the money market, and strengthening all the movements of commerce.

In order to determine the operation of this provision we must look into details. I have the estimates before me, showing our present and prospective liabilities for interest; but I content myself with presenting compendiously the result, in order to determine the question of taxation. Suffice it to say, that under the operation of the present measure there will be in 1871, after the payment of all liabilities for interest, a surplus of $43,000,000 to be applied to the payment of the national debt. With each succeeding year the reduction of interest will rapidly increase this surplus; and when we bring into operation other provisions of the bill, and convert $500,000,000 of sixes into a like amount of four and a half per cents., effecting a further saving of interest, equal to $7,500,000 annually, the surplus revenue, as compared with necessary expenditures, will in a brief period approach $100,000,000 annually.

Here the question arises, Is not this unnecessarily large? Is it not beyond the bounds of prudence and wise economy? Shall we declare in this fundamental measure a determination to redeem the whole national debt within a period of twenty-five years? Can the industries of the country sustain such taxation? I put the question. You shall answer it. The future has its great claims upon us; so also has the present. I submit that the pending measure sacrifices the present. I conclude, therefore, as I began, with another appeal for reduced taxation. At the proper time I shall move an amendment, in order to aid this result.

In the course of the proceedings which followed, the bill of the Committee underwent important amendments, in accordance with the views expressed by Mr. Sumner,—for the Ten-Twenties and Fifteen-Thirties therein proposed, a prolongation to Ten-Forties and Fifteen-Forties being effected,—and the provision for the payment of interest at the money-centres and in the moneys of Europe stricken out. Some of its more objectionable features being thus removed, he gave it a qualified support.

March 10th, the question being on striking out a provision in the bill of the Committee requiring the national banks to exchange the bonds of the United States deposited by them as security for their circulation for those bearing a lower rate of interest, Mr. Sumner said:—

Mr. President,—There is a word which has been introduced into this debate with which we were all very familiar in another relation some years ago. It is the word Coercion. A President of the United States announced in most formal phrase that we could not coerce a State; and now, borrowing a phrase from Mr. Buchanan, we are told we cannot coerce a national bank. Well, Sir, is the phrase applicable? If it be applicable, then I insist that we can coerce a national bank; but I do not admit its applicability. What I insist on has already been so ably and clearly stated by the Chairman of the Committee [Mr. Sherman] that perhaps I need not add another word. I do not like to occupy your time; yet I cannot forbear reminding you, Sir, of the plenary power which Congress has reserved over the banking system in that very Act by which it was established.[224]

The Senator from California [Mr. Casserly] has read to you the clause. We have been reminded to-day by a Senator on this floor that these are formal words, words that often appear in statutes. But are they not significant words? Have they not a meaning? Why are they there? Because they have a meaning; because they reserve to Congress what I call plenary power over the whole system. That system may be readjusted, modified, shaped anew, and the banks cannot complain. They began their existence under that law; they knew the conditions of their being; and they cannot now murmur, if Congress chooses to exercise the prerogative which it reserved at the very inception of the whole system.

Sir, I approach this question, therefore, with the conviction that the whole matter is open to our discretion. Nobody can say safely that what is now proposed is not within the power of Congress. Congress may do it, if the occasion justifies, if in its discretion it thinks best to do it. It may do it, if it thinks that the financial policy of this country will be thereby promoted. The banks are all parties to that policy. May not the country turn around and ask the banks to do their part in this great work of renovation? To a certain extent the banks are in partnership with the Government. May not the Government insist that they shall do their part on this great occasion? Shall this effort of ours to readjust our finances and to save this large interest to our country be thwarted by a pretension on the part of the banks that we have not the power to interfere?

But we are reminded that there is a difference between power and right. How often, Sir, on other occasions, have I so insisted in this Chamber! A great, broad, vital distinction there always is between power and right. A nation or an individual may have a power without right. Now is there not here a right as well as a power? I cannot doubt it. I cannot doubt that Congress may rightfully exercise what I cannot doubt is an existing power. Why should it not? It could exercise it—who can doubt?—with reference to the public interests, to promote the national credit. It will not exercise it in any spirit of wantonness, in any spirit of injustice,—but to promote the national credit. Is not that a rightful object? No one will say the contrary. Why, then, shall we hesitate?

We are reminded that these banks have secured certain privileges, and it is said often that those are vested, and the old phrase “vested rights” has been repeated. But how can they have vested rights under a statute which contains the provision just read to us, securing to Congress full power to change it in every respect? What, then, is the simple aspect of this question? It is that certain securities have been lodged with the Government by these banks on which they transact their business, and now in readjusting the national debt it is deemed advisable and for the public interests that the securities should be at a lower rate of interest than when they were originally deposited. Is it not right for Congress to require that? I cannot see the wrong in it. I cannot see any doubt on the question. To my mind it is clear; it is absolutely within the province of Congress, in the exercise of the discretion which it originally retained over this whole subject.

I hope, therefore, that in this debate we shall not be pressed too much with the suggestion that we cannot coerce these banks. If the occasion requires, and if the term be applicable, then do I say we may coerce these banks to the extent of obliging them to take these securities at a reduced rate of interest. I find no Repudiation in that. I find nothing wrong in that. I find nothing in it but a simple measure in harmony with this great process of Financial Reconstruction in which we are now engaged. I call it Financial Reconstruction; and in this work ought not the banks to take their place and perform their part?

Now, Sir, I have a criticism on this section. It does not go far enough. The Committee propose that the banks shall take one third of the three different kinds of bonds, the five, the four and a half, and the four per cents. I think they ought to be required to take all in fours, and I propose to give the Senate an opportunity of expressing its judgment on that proposition. I may be voted down; perhaps I shall be; but I shall make a motion, in the honest endeavor to render this bill a practical measure, which can best succeed. I wish to mature it; I wish to put it in the best shape possible; and for the sake of the banks, and in the interest of the banks, I wish such a measure as shall have a reasonable chance of stability in the future. If you allow the banks gains that are too large, there will necessarily be a constant opposition, growing and developing as their gains become more conspicuous. Why expose the system to any such criticism? Let us now revise it carefully, place it on sure, but moderate foundations, so that it will have in itself the elements of future stability.

To my mind that is the more politic course, and I am sure it is not unjust. You and I, Mr. President, remember very well what was done on another occasion. The State banks were taxed out of existence. It was the cry, “Tax them out of existence! do not let them live! drive them from competition with these new children of ours, the national banks!” It was done. Was not that coercion? If the phrase is to be employed, there was an occasion for it. But I am not aware that it was argued, certainly it was with no great confidence argued, that to do that was unjust. It was a measure of policy wisely adopted at the time, and which we all now see has answered well. But if we could tax the State banks out of existence, can we not, under the very specific terms of the Act of Congress to which these national banks owe their existence, apply a rule not unlike to them? We do not propose to tax them out of existence, but we propose to require that they shall lodge with the Government securities at a lower rate of interest.

Something has been said, perhaps much, in this debate, with regard to the burden that this will impose upon the banks. The Senator from Ohio [Mr. Sherman] has already answered that objection, and I do not know that I can add to his answer; and yet I am not aware that he reminded the Senate that in this very bill there is a new and important provision in favor of the banks, or in favor of all bondholders,—being an exemption from all taxation, not only State and municipal, but national.

There is but one other remark I will make, and that is, we all know, unless I am much deceived, that the banks have during these last years made great profits. I am told that the profits of the national banks are two or three times greater than those of the old State banks, which we did not hesitate to tax out of existence. Now is not that a fact in this case? Is it not an essential element? Should it not be taken into consideration on this occasion? If these national banks are the recipients of such large profits, should we not exercise all the power that belongs to us to compel them to their full contribution to this great measure of Financial Reconstruction? I cannot hesitate in my conclusion.

March 11th, Mr. Sumner moved the addition of a section providing for the resumption of specie payments,—being the seventh section of the original bill,—remarking:—

Mr. President,—Interested as I am in this bill, desirous of its passage hardly less than the Senator from Ohio, I am bound to say, that, in my judgment, the passage of this single section would be worth more than the whole bill. It would do more for the credit of the country; it would do more for its business. It would help us all to the completion of Financial Reconstruction. How often have I insisted that all our efforts to fund and refund are to a certain extent vain and impotent, unless we begin by specie payments! That, Sir, is the Alpha of this whole subject; and until Congress is ready to begin with that, I fear that all the rest will be of little avail. It is in the light of expedient rather than of remedy. There is the remedy.

The proposition was negatived,—Congress not being yet ready for this step.