THE NATIONAL FINANCES.
The hour for the consideration of the joint resolution [S. 6] concerning the receipt by the United States Treasurer of United States bond coupons for payment of duties, etc., having arrived, [see pages 172 and 173]--
Mr. CAVEN said:
Mr. PRESIDENT--The war for the preservation of the Union having ended, and reconstruction well advanced, public attention is centering upon questions of national finance.
The war necessarily involved the creation of a large debt, and while it cannot be paid or disposed of by Legislative resolutions, and while the great and ultimate remedies are industry, economy and final honest payment, yet no doubt judicious statesmanship can do much to alleviate the burden. Prominent among the financial questions of the day is the problem of "How to return to specie payment."
It is almost universally regarded as important to return as soon as practicable to a specie basis, placing the paper currency of the country for commercial uses upon an equality with gold, and relieving the nation of two classes of money values, and carrying many important results in its train.
Gold is the recognized currency of the world, and is the true standard of values amongst all the civilized nations of the earth. We speak of gold commanding a premium, when correctly speaking it should be said that the paper currency of the country is at a discount.
Prior to the war, gold and the paper of solvent banks were accepted as equal for commercial uses, or so nearly so as to be inappreciable in effect: and when gold and silver were the only legal tender, and when every holder of bank bill and every creditor could demand the gold, yet it was rarely done.
All history teaches that upon the outbreak and during the continuance of a war, gold rapidly advances to a premium as compared with paper, and such was the result in this country during our recent civil war. In times of alarm, of danger and uncertainty, each one seeks to secure his wealth condensed into small bulk so as to be readily concealed or removed, and available anywhere in the world in the event of necessary fight.
Gold has an intrinsic value which no accident, national misfortune or unwise legislation can destroy. Gold is its own ultimate and absolute security. The gold coined by a nation would be as valuable if the nation that coined it were blotted from the face of the earth as it stood in the front rank of firmly established nations, while paper money is merely a promise to pay gold, and its real value is dependant upon the ability of the obligor to redeem it, and its commercial value is dependent upon the confidence of community in that ability. It is, however, true that when the Government makes its own paper issues a legal tender, such paper, for all business uses, becomes money, as nothing else can be collected for a debt by process of law.
The peculiar causes for the depreciation of our United States notes were several:
- --A want of confidence in the stability of the Government; in its ability for self-preservation; and even if preserved; in its ultimate ability to redeem its paper issues.
- --A sudden expansion of the paper page: 247[View Page 247] currency governed by no fixed law of supply, the Government being able to supply in unlimited quantities and liable to do so to meet the great exigencies of a war involving our national existence.
- --The demand for gold for export to make good the balance of trade against this country by reason of an excess of imports over exports.
- --The demand for gold to pay duties on imports, necessarily made payable in gold in order to procure the means wherewith to pay the interest on the public debt.
These, then, are the causes why gold is at a premium, and in order to arrive at a specie basis it will be necessary to remove these four causes and the question is: "Can it be accomplished by legislation?"
During times of excitement and alarm, whilst the condition of war existed and its termination uncertain, all legislation to prevent, regulate or control fluctuations in gold premium was found to be worse than useless, almost always resulting in increasing the evil it was intended to cure. Legislation did not have to deal with the ordinary business of trade, but with those intangible elements--those uncertain quantities, the excited hopes, fears and panics of the masses; the avarice, speculations and gamblings of the desperate and the bad; no one knowing what a day might bring forth--the very fate of the nation hanging upon a battle unfought, depending upon a victory or defeat, and no human foresight able to determine which the next telegraph might announce, and thus all legislation was broken down and overwhelmed by an everchanging and imperious law which knew no master; the creature of all manner of sudden and uncertain influences, which no prophecy could fortell for an hour, no calculation could estimate, and no sagacity, prudence, wisdom or precaution provide for. Immediately upon and for some time after the war commenced, even among the most patriotic and hopeful, confidence in the ability of the Government to sustain itself was to some extent impaired. The entire South in arms, and many sympathizers in the North, was calculated to alarm the most faithful, and their very anxiety for the preservation of the Union exaggerated their apprehensions of its overthrow. So that, while the enemies of the Government were employing every desperate effort to overthrow it, the bare possibility that they might succeed gave greater apprehensions to its best friends than if they had been more indifferent and less patriotic, so that their very patriotic anxiety, in its effect, resulted as a loss of confidence. At times the situation looked gloomy, and the truest and best, even those who were periling all for its salvation were despondent, and so expressed themselves, and thus the Government had not at all times the confidence of its best friends in its final triumph, and thus the good and the bad, the traitor and patriot, all contributed to the creation of a feeling that the Government might fail--the one because he hoped it with a devilish hope, and the other because he feared it with a patriotic anxiety that rendered him liable to over estimate the real danger.
At one time in the dark hours of the Republic--July, 1864--gold was $2 85, its highest. It is now $1 35. The war has ended; the Government has demonstrated its ability for self preservation and confidence in the Government has been restored, and hence the original and chief cause has already been removed, and the effect has been to bring us half way back to specie payments, and that gold still remains at a premium is the result of incidental and secondary causes and influences which survive the original disturbing cause.
The chief cause, as we have seen, was one that could not be controlled by legislation, and the failure of efforts heretofore to so control it, might lead to the conclusion that nothing could in the future be accomplished; but since the restoration of peace and confidence, the remaining causes are in some measure artificial and much more, if not entirely, amenable to legislation.
The Government during a certain period, was compelled to resort to the issue of large amounts of paper currency, greatly depreciated by the double reasons that a want of confidence extended to the paper itself, and also because of the sudden expansion to a great amount, and thereby giving greatly increased nominal values or prices to all commodities.
Gold ceased to be a currency. It was not long found in the hands of the masses, but accumulated in bank vaults, and in the Government Treasury, and became an article of trade, and was bought and sold for prices varying as any other goods--indeed, more so; varying not only from day to day, but from hour to hour.
This issue of paper has ceased, confidence in the paper has been fully restored, and yet gold remains at a premium, is still an article of trade, and for this there must, of course, he causes: and the question is, what are they, and what the remedy, if any?
One of the causes of the premium on gold, as we have seen, was the great expansion of the paper currency, and by some it is maintained that the road, and only road to specie payments, is by a contraction of that currency, and that to this end the government should withdraw the legal tender paper.
Theoretically a specie basis means that there is as much gold as paper. It means that page: 248[View Page 248] every one who has a dollar in paper can present it to the party issuing it and demand and without delay receive for it a dollar in gold.
The Comptroller of the Treasury, in his annual report of November, 1867, estimates the amount of coin in the United States at three hundred million dollars, and the paper currency is six hundred and ninety million dollars. To return to specie payment through contraction, means to withdraw three hundred and ninety million of the paper currency.
If the country were free from debt to contract would do but little harm. The effect would be to reduce prices, but this would be self-adjusting and equalizing. If one-half of the currency were withdrawn, it would reduce prices one-half--wages, say from two dollars per day to one dollar--but as everything else would be reduced one-half, the one dollar would purchase as much as the two dollars formerly would have done.
But there is a giant in the way, a point of departure from which all financial calculations must be made; the mountain to which Mahomet must come--the public debt. In addition to the National debt there is a large amount of indebtedness by States, counties, cities and individuals, all contracted under an expanded currency, depreciated not only by its excessive volume, but also from a want of confidence, carrying its depreciation beyond the mere result of volume. To contract the currency one-half is, in effect, to double the burden of existing indebtedness of thousands of millions by decreasing by one-half the means with which to pay, while the amount to be paid remains the same.
Taxation is in no way a producer; it is exclusively a consumer, and must be paid from the surplus earnings of the people.
To illustrate the effect of contraction on existing indebtedness, let us suppose that a laboring man owed a note for $100 and was receiving $3 per day wages, and could support himself on $2, the surplus would pay his debt in 100 days. Contract the currency one-half and he would receive wages of one dollar and a half per day and can also live on one-half what it cost him before, as everything else has been affected the same as wages, and this would leave a surplus of fifty cents per day, requiring two hundred days work to pay his debt. His note promised one hundred dollars before contraction, and it only promises one hundred dollars after contraction, yet so far as the burden of payment is concerned, the effect has been to double his debt, for he must pay two hundred days labor for what was worth when he received it one hundred, and which he could have paid with one hundred, and labor is a proper and final standard of comparison, as from it all production is derived, and by labor all debts must at last be paid.
Contraction would depreciate the prices of commodities. There are thousands of dealers with stocks of merchanize for which they are indebted, and a rapid reduction of prices would render them unable to pay, and long credits would be required as a postponement of emergency, and many would lose largely and some utterly fail.
The estimate of coin in the country is 300,000,000 dollars. The National Bank currency amounts to about $300,000,000 and the United States notes and fractional currency to about $390,000,000, and hence to return to specie payments by reducing the currency to the amount of coin, would require the withdrawal of the entire amount of Government notes now in circulation, and this would either have to be done by paying the notes or funding them; and to pay them would require increased taxation, while the whole country is urging a reduction, and such taxation would be a double edged sword, for the tax is increased and the payment of it takes away the means with which to pay taxes at all, and the heavier the tax the more rapidly it extinguishes such means; for it is not thrown back into circulation, and hence the people would be slow to see the benefit of largely increasing an already heavy taxation, simply to deprive themselves of the best paper currency the nation ever had, producing distress and bankruptcy; and the wisdom of changing a non interest bearing debt, which supplies the country with a safe and favorite currency, by funding it into an interest-bearing debt, and gold interest at that, is not very apparent.
To contract by funding into bonds would be a self defeating measure, as the very process of funding is continually lessening the means with which to fund, and as money became scarce, it would create such necessities that it could be loaned at higher rates of interest than bonds would yield, for interest on money would go up as the premium on gold went down, and one of the inducements to invest in gold bearing bonds is to obtain the premium; but, as the funding progressed, if it had the effect desired, that is, to approach specie payment by bringing down the premium on gold, the effect of every dollar invested in a gold interest bond would be to decrease the inducement to invest further, and in addition, such funding is increasing the gold interest bearing debt; when, on the contrary, the great object is to lessen it, for it is the necessities growing out of that debt that creates the demand for gold, and causes the premium, and hence to increase that debt as a, policy looking to a return to specie payments, is anticipating a reverse effect from that which it would produce. It would be an attempt to cheapen an article, of which the supply is limited, by increasing the demand for it. Gold is now at a page: 249[View Page 249] premium because of the demand and necessity for its use and could we hope to bring down the premium by increasing that demand and necessity? Remove an evil by increasing the cause?
There are, however, contracting causes at work: the growth of the country, its increase of population and increasing commerce is working out the effect, of contraction by increasing daily the necessities for money while its volume remains stationery. There is an immense vacuum in the South, trade is prostrated, and a renewal of active commerce there, which must soon come, will gravitate to it a large amount of capital, which must of course, be withdrawn from that now in circulation in the North.
A return, then, to specie payments through a contraction, by the withdrawal of the United States notes, is not possible, and if it were, would in many respects be disastrous.
To repeal the Legal Tender act, with the United States notes in circulation, would be bad faith, leaving in circulation a large amount of paper which declared upon its face that it was a legal tender in payment of all debts, which it would not be, and leaving all debts payable in gold, if demanded, which would be impossible; and a return to specie payments means that all debts can be collected in gold if demanded.
If the Government were to commence with drawing United States notes, intending to withdraw them all, with a view to return to specie payments, that moment the National Banks would commence to withdraw their circulation, while they could obtain legal tenders with which to redeem it; for, if the legal tenders were withdrawn, the banks could not sustain a run on them for gold for a single day, and the demand for one hundred and eighty million dollars per year for customs would naturally direct the attention of importers to any bank on which they might happen to hold a note, in preference to buying it at a premium; and from that hour not a loan could be obtained or renewed, and the banks would mutually exchange their bills; and by the time the legal tenders were withdrawn, the National Banks notes would also be withdrawn; and the country left without any currency except its gold, resulting in panic and depreciation of prices so sudden as to bankrupt every person in debt and depending upon sales to meet it; annihilating incomes and other sources of taxation for years to come, and leaving the nation with an enormous debt, incurred under an exceedingly inflated and depreciated currency, to be paid in specie; and a debt too, not incurred as a source of profit, for which there was not only no financial equivalent in the shape of material wealth, but was actually incurred to take away the bone and muscle of the country from active industry and production, and affirmatively to employ it in waste and destuction as a measure of national self defense and preservation.
While, then, the nation has, no doubt or will realize benefits commensurate with the sacrifices it has made (for it cannot be that one drop of patriot blood has been shed in vain,) yet, financially speaking, at least for the present, the country is as much poorer than it would have been if the war had not occurred, as the debt it owes--added to the losses by actual destruction--and also of what failed to be produced.
The premium on gold is in great measure occasioned by a necessity for its daily and continually recurring use, in large quantities, for custom duties, and to the fact that one-third of the entire coin of the country has been for years locked up in the United States Treasury.
If, then, some plan can be devised to obviate for a time this necessity for its use, and for all time its hoarding in the public Treasury, it would effect much toward a return to specie payments.
We have seen that there were four causes for gold premium:
- --A want of confidence in the Government.
- --The expansion of the paper currency.
- --The demand for gold for export.
- --To pay duties on imports.
The first cause has been removed, confidence has been restored, and gold premium has been reduced one-half.
The second cause--the expansion of the currency, has ceased, and some degree of contraction effected. On the first day of December, 1866, the paper circulation of the country amounted to nine hundred million six hundred and forty-four thousand and fifty-one dollars and on the first day of December, 1868, to six hundred and eighty-four million three hundred and fifty-seven thousand nine hundred and seventy-nine dollars and fifty cents, or a contraction of two hundred and sixteen million two hundred and eighty-six thousand, seventy-two dollars and fifty cents, being a fraction over twenty-four per cent., so that this cause has not only ceased, but has in a good measure been corrected.
As for the third cause, the export of gold, we are a gold producing country, producing from seventy million to one hundred million dollars per annum, having inexhaustible mines and can produce gold cheaper and in greater quantities than the rest of the world, and can, therefore, afford to export it precisely as we could iron or any other metal.
Our exports of gold are large, but the report of the Comptroller of the Treasury, of November 4, 1867, after deducting forty-three million dollars for possible errors, shows that there page: 250[View Page 250] has been an actual gain in the last six years of twenty-five million dollars of coin in the country, so that our product is greater than our export, and as the drain is less than the supply, our exports should not be, standing alone, a sufficient cause to continue gold at a premium; and our cotton export will, in a few years, no doubt, turn the balance of trade in our favor, and then our gold product will be retained at home.
The fourth cause, however, yet remains: Our imports are large, and the duties must all be paid in gold, this being necessary to procure the means with which to pay the interest on the public debt. Nearly the whole of this debt is represented by bonds with interest coupons payable semi-annually in gold. The Treasury collects and for six months hoards gold to pay these coupons, and when payments are made for interest, the necessity for gold to pay duties on imports enables the payee to sell his gold at a premium, and just here we seem to have traced to its source the present remaining cause of the difference between gold and paper, viz: One-third of the gold of the country locked up in the Treasury, and nearly all of the other two-thirds running through it every year; and this it is that keeps gold at a premium and always will, for it is regulated by the laws of demand and supply, just as any other commodity; and as the supply is limited and the demand great, it commands a high price, and will continue to do so so long as this condition exists; so long as gold is a commodity and not a medium of exchange; and the question is, is there a remedy?
If means to pay the interest on the bonds could be found without requiring gold, we could then dispense with the collection of import duties in gold, and thus at once strike down the great and leading demand. The average customs realized during the last 3 years was one hundred and seventy three million, three hundred and ten thousand, twenty dollars and sixty-five cents and the entire debt except about eighty million dollars has been funded, and will require about $130,000,000 coin per year to pay the interest; and if the past can be assumed as a basis for calculating the future, the customs could be relied upon for a surplus over all necessities for interest to the amount of forty three million dollars per annum.
If the Government would permit the import duties to be paid directly in coupons due, or receive them one year or eighteen months in advance of becoming due, it would throw into the market from one hundred million to one hundred and fifty million of what would be equivalent to gold.
The advantage of receiving the coupons in advance of being due are obvious. At present the holder can not realize the gold until due; but make receivable to-day coupons that are not due for a year or a year and a half, and holders will sell for less than the present price of gold, for they can have for a year or more the use of the money, and one hundred and fifty million dollars of coupons become a competition with gold, and they commenced bidding each other down and the coupons are an inexhaustible supply, or, at least, an ample and continual supply until their final exhaustion; and such final exhaustion is the final and absolute relief sought; that, in fact, being the great end to be accomplished, everything else being means to such end.
The customs receipts will amonnt to more per annum than the coupons becoming annually due. When all due in one year or a year and a half are taken up, extend the same rule to two or three years, and keep the time so extended as to continually keep a large amount of competing coupons on the market, for just in proportion to the length of time they can be used in advance of due, just in that proportion is the inducement to holders to place them on the market; and as there is now eighty-eight million dollars in gold in the Treasury, and as the customs in any one year will absorb all the coupons payable in fifteen months, the time can be continually extended; and when the coupons have all been paid a year or two in advance, the Government can then gradually disburse the gold in the Treasury for the necessity of retaining it will have ceased. The Government obligations will all have been paid in advance and as no demand can be made on it for gold, it need not and would not retain it in its vaults. If coupons were made receivable two or three years before due, they would, no doubt sell at a discount, as also the bonds divested of them; and if the Government had funds to spare, it could, no doubt, purchase them to a great advantage, or permit duties to be paid with the bonds themselves.
Gold no longer being required in excess of supply, would cease to command a premium; and there being no speculative, gambling or forced demand, holders would not long permit it to remain idle, and it would come again in to general circulation; and as it does so, the Government can then gradually withdraw its own notes to an equal amount, or else withdraw the National Bank currency, which the gold, according to the best estimates, would exactly supply or replace. This would leave ninety million dollars more paper in circulalation than coin, but confidence being fully restored the nation could easily carry this excess.
Instead, then, of collecting and hoarding gold to pay the coupons,receive the coupon themselves for duties and dispense with the necessity for the gold; or, perhaps, a simpler plan would be to issue notes in exchange for coupons, and make such notes receivable for duties.
page: 251[View Page 251]The Secretary of the Treasury is now authorized to receive deposits of gold; and issue therefor what are known as gold certificates, and which are receivable in payment of import duties, and the object might be gained by the Secretary receiving coupons as deposits of gold, which they represent, and are to him vouchers for the disbursement of gold, and upon such deposits issue gold certificates not payable at the Treasury, but receivable for duties.
One of the effects of a return to specie payments would be a great advance in the price of our bonds held abroad. These bonds pay six per cent. interest in gold, while in London the usual rate of bank interest is two per cent; in Paris two and one half; in Hamburgh one and a half, and in all these places, in open market, one half per cent less, and in but few countries of Europe is the rate of interest more than three or four per cent.
English consols only pay three per cent., and until quite recently have sold at about ninety-four, realizing about three and one-fifth per cent interest.
Until quite recently United States sixes sold in London for about seventy-one, thus realizing interest at the rate of eight and one-half per cent in a city where money is loaned freely at two per cent. According to an article recently published in the newspapers. Russian five per cents sell in London at eighty-six, or twenty-one per cent higher than our sixes, and so of Egypt and Peru. Peruvian five per cents, were stated to be about the same price as United States sixes, and their sixes are twenty per cent higher, and that bonds of the Cape of Good Hope sold in London at one hundred and seven; of the island of Ceylon at one hundred and twelve, and of New Zealand at ninety-five, and all of these counties greatly in debt and badly governed. Bonds of the State of Massachusetts (six per cents) sell in London at a premium--those of the United States at seventy-one. Within a short time United States sixes have advanced to seventy-five, while consols have fallen to ninety-two, being in sympathy with the fall of gold in this country; but at these prices consols only pay three and one-fourth per cent, interest, while United States sixes pay eight per cent--nearly two and one half times as much as consols.
It cannot be that in the opinion of the monied men of Europe, United States bonds are a more hazardous investment than those of Egypt, Peru, the Cape of Good Hope or New Zealand; and yet they are sold for less, and the reason is because they can be bought from us here at home for such lower price.
A Londoner buying bonds pays for them in gold; the gold or its equivalent is sent to New York. English gold is at a premium over American of nine and thirty-six hundreths per cent. on account of the difference in the standard of purity between the coin of the two countries. If, then, we add nine and thirty-six hundreths per cent, premium to American gold, and go into the market of New York to buy bonds, it will be found that the price paid is about the same as the London quotations. The premium on sterling exchange, of course, is not always the precise difference in the purity of the coin, but is sometimes greater and sometimes less, and hence the premium should be added, whatever it may happen to be.
If we were to return to specie payments tomorrow, United States bonds would in a few days be par in the city of London, and in a very short time command a premium; for, at one hundred and eighty-four they would be as good an investment as British consols at 94, and at one hundred and eleven would pay as well as New Zealand bonds, and at one hundred and seven as well as the bonds of the Cape of Good Hope, and at 300 would pay as well as open market loans in London or Hamburg; and if we had returned to specie payments I have no doubt that our bonds bearing four per cent, interest could be sold in Europe at par, and if so, such new bonds should be issued and sold, and with the proceeds redeem all the six per cents on which the Government option has matured.
It is important, then, if we sell any more bonds abroad, that we should return to specie payments, for we are losing, and have lost thirty per cent, and over, on all bonds sold to Europe, and we had better export gold than sell bonds, as for gold we receive full value, while for the bonds only about two-thirds.
While the effect of a return to specie payments would advance the price of bonds abroad, it would, in one respect, have a tendency to reduce the price here, for one of the profits of an investment in bonds here is the fact that the interest is payable in gold, and gold commands a premium; but a return to specie payments takes off the premium, and hence the bond becomes a less profitable investment, yet if the bonds had advanced largely in Europe, the effect would probably be to sustain prices here.
There are some interests that would be opposed to a return to specie payments, as, for instance, the holders of bonds, and also manufacturers of goods that come in competition with foreign merchandize, the duty on which must be paid in gold, and the preminm operates as a tariff; and also the holders of large stocks of imported goods, on which the duty has already been paid, as such goods, immediately upon a return to specie payments, would fall an amount equal to the previous gold premium.
There are also some interests that would be aided by a return to specie payments through contraction, as, for instance, ship building and page: 252[View Page 252] cotton growing. During the war a stimulous was given to cotton growing in Egypt and other countries until they can now, in a good measure, supply foreign markets at prices as low as we can, and this country could more certainly compete with others in cotton raising by a reduction in the price of labor, which reduction would be effected by a contraction of the currency.
Ship building has almost been annihilated because of cheaper labor elsewhere. A citizen of the United States can buy gold at say one hundred and thirty-four take it to Canada and have a ship built, paying eighty-seven cents per day for labor, equal to one dollar sixteen cents in currency, while in the United States the wages demanded and heretofore paid were 4 dollars per day, or three and one-half times as much as in Canada, and a return to specie payments without contraction would more thoroughly destroy this interest, because it cheapens gold without cheapening labor, and gold could be bought cheaper to take to Canada, while wages in the United States would remain the same. Labor in Canada in ship building costs about eighty-seven cents in gold per day, and the gold here costs one dollar and sixteen to one dollar and twenty cents; but if gold were par, the gold which would pay for a day's wages in Canada would cost but eighty-seven cents, while here the same day's labor would cost four dollars; and in England ships can be built cheaper even than in Canada. There was a meeting near London in December, 1867, of seven thousand ship-wrights out of employment, seeking charity, who declared themselves willing to work for one shilling per day--equal to twenty-three cents of our money.
A contraction of the currency, which as a necessary consequence would have the effect to lower laborers' wages, would benefit ship building and cotton growing. We can not protect cotton growing nor our ship building against foreign competition as we can other manufactures and productions by a tariff for ships built abroad and cotton raised abroad, for foreign markets do not have to pass our custom houses, and the prostration of the ship building interest illustrates what would become of other manufactures had we no tariff to protect our laborers against the low priced labor of Europe--labor being always at least two hundred per cent. higher in this country than in Europe, and our ship builders recieve 17 times as much as the ship builders assembled near London one year ago were willing to accept.
As exported cotton is paid for in gold the grower receives the benefit of the premium, and the gold dollar is worth more to him than the paper dollar, and a return to specie payments without contraction would deprive him of that advantage, for then the gold dollar received from England would be worth no more to him than one of our own paper dollars.
These two interests are, then, in a measure lost to the country, as they can only be fully fostered by contraction but contraction does not reduce the fixed indebtedness of the country and especially the public debt, the great center and dictator of the financial system, and about which everything else must revolve, while contraction does increase the burden of the payment of such debts, and hence contraction is not likely to be resorted to for the benefit of one or two interests at the expense of all others.
The means to pay this debt must be collected by the tax on incomes, sales, &c., all of which would be reduced by contraction. The surplus is less, and though under a general contraction it might be just as valuable for every other purpose, yet it would not go so far in the payment of the fixed debt, for that is so mary dollars, and if every dollar in circulation were doubled in purchasing value, yet it would only pay one dollar of existing debt.--Contraction, then, reduces the surplus of individual profits, and this debt must be paid out of the surplus of individual wealth.
If it were decreed that the volume of currency should remain the same as at present, and yet that every debtor should pay his creditor two dollars for each one he now owed him, the proposition that the debt had been doubled would be very simple and self-evident; and also if it were decreed that the present indebtedness should remain fixed and should be paid with a currency reduced one-half, that the effect would be to double the burden of the debt is as simple a proposition as the first.
In the one instance the currency remains fixed and the debt is doubled, and in the other the debt remains fixed and the currency is made scarcer by one-half; but in both cast the relation of debt to the volume of currency has been changed alike; that is, the debt increased as two to one, or the currency decreased as one-half to one.
If an income this year under the present volume of currency were two thousand dollars, it would pay fifty dollars income tax; but contract the currency one-half and that income under the same conditions would be only one thousand dollars, on which nothing would be paid. One hundred dollars will pay as much of the existing debt with the present volume of currency as it would were it contracted one-half; but after the contraction fifty dollars would be worth as much in current business, and would be as hard to procure as one hundred dollars was previously, while it would only pay one-half as much old debt; and as contraction would inevitably make times hard and distress debtors, whenever it commenced to pinch, there would be a strong popular opposition to it, to which legislators would ne- page: 253[View Page 253] cessarily yield, and hence anti-contraction becomes the despot of the situation.
As, however, there are great benefits to be derived from a return to specie payments, especially, as it affects our foreign trade, yet to do so through contraction is not only undesirable, but impossible. Some other means should be adopted, if any there be, and it would seem that the adoption of a system which dispensed with an arbitrary demand and necessity for gold, that puts an end to gold gambling, would do much to effect this result, as no one would buy gold and pay a premium for it when there was no profitable use could be made of it; and ceasing to be an article of trade, it would soon come into circulation, and in a year or two the Legal Tender act might be repealed, and yet the people would use greenbacks or National Bank notes as freely and with greater confidence than formerly bank paper, and gold would not be demanded, for the greater convenience of paper than metal will insure its use in preference, when the people have confidence in it, and this they do and would have for Government paper to a greater extent than heretofore in any other.
We have now three hundred million dollars in gold idle, except for duties, and six hundred and eighty-four million dollars of depreciated paper in circulation, while the silver of the country is all idle. If the gold were ushered into circulation, and three hundred million dollars of paper withdrawn, the volume of currency would be the same as at present; there would be neither contraction or expansion; prices and values undisturbed, and the relations of debtor and creditor unchanged; and yet the remaining paper would be brought to par, and the point to be gained is this substitution of the gold for paper by a transition so gradual as to avoid financial perturbation.
It might be however, that to make one hundred million to one hundred and fifty million dollars of coupons at once receivable for duties, and dispensing with gold entirely and bringing it to par might operate as a shock to some of the business interests of the country, and hence it might be more cautious to authorize the Secretary to issue bills in the similitude of Government notes, and of all denominations and make them exchangeable for coupons and receivable for duties, and authorize him to commence, and in the first month issue and exchange one million of such notes, and increasing one million each month, and at the end of about fifteen months this issue would pay the whole duties, and then we would have arrived at a specie basis so gradually and quietly as to have avoided all financial shocks and disturbances.
Various plans have been suggested, but in many respects impracticable, and the question is one of magnitude and difficulty, and the best plan will no doubt have its difficulties; but it is clear that one grand essential feature of any plan of resumption must be that the Government first places itself in such a condition as to be sale from a run on the Treasuary for gold which it cannot supply. If the Government, with seventy million dollars in gold in the Treasury, were to proclaim that gold would be paid for all claims presented, it is to be feared that the gold speculators would, in a few days, present United States notes enough to withdraw every dollar of gold in the Treasury and then the Government would be at their mercy, for gold must be had to pay the coupons, and the speculators having all the gold under their control, the Government would be compelled to buy and pay them their own price; and the Government would be kept continually redeeming its paper with gold, dollar for dollar, and buying back the same gold ut a high premium, simply to be again instantly demanded in exchange at par for the very paper with which it had just been bought at a high premium.
Neither can gold be hoarded until sufficient has accumulated to place the Government beyond this contingency. With the amount now in the Treasury it would require three years at least to run up the accumulation to two hundred million dollars, and the continual withdrawal from circulation of gold during this period would have the effect to increase the premium; for the gold, although becoming continually scarcer and scarcer must yet be had to pay duties, and the effect would be for three years' to be going farther and farther from specie payments to make preparations for an instantaneous return to it.
Let us keep in view the point to be gained, and that is, to bring down the premium on gold without inflation or contraction, and without financial disturbance, to withdraw the paper and substitute the gold. This can not be done by depreciating the gold, but by appreciating the paper; and this can not be done so long as the Government itself, by law, creates an arbitrary and artificial discrimination against the paper. And neither will contraction bring us to specie payments, for the cause of the premium is the demand for gold to pay duties; but if one-half of the paper currency were withdrawn, yet not one dollar of the balance could be used for the payment of duties. The demand for gold for that purpose would be as great and imperative as before.
The joint resolution proposes a plan which at once takes away this demand. It makes the importer independent of the gold market, for he can pay duties with coupons, of which the market will be full, and it also makes the Government independent of the gold market, for the surrender of the coupons for duties extinguishes the claim against it for gold, and a redemption of all its gold coupons a year or more in advance enables the Government to page: 254[View Page 254] disburse the gold now in the Treasury, and also enables it to withdraw the United States notes. To release the immense sum of gold in the Treasury and send it into circulation is a more direct road to specie payments than to systematically gather into the Treasury to remain idle for years almost all the gold in the nation.
Suppose from this day the demand for gold for custom duties should cease, and in addition the Government should commence to withdraw its notes, at the same time sending seventy million dollars of long-hoarded gold into circulation how long could gold be sold at a premium? There would be no buyers.
Not to return to a specie basis, is to continue a financial condition without foundation--the football of party politics, and disastrously affecting our foreign trade; and yet to return through contraction is ruin, bankruptcy and possibly repudiation.
The plan suggested in the joint resolution seems to meet the necessary conditions to secure the good and avoid the evil.
Mr. FISHER spoke against the resolution, claiming that gold is principally demanded now for two purposes only--to pay duties on imports, and buy foreign goods. For the latter purpose gold alone can be used. He could see nothing in the resolution beyond a proposition to pay interest before it is due, while he could not see that it would relieve the country. He was of opinion that but a small portion of the Senator's argument was applicable to the resolutions under consideration, which, if carried out, would have the effect to hoard gold in the Treasury of the United States, without interest. He could see no approximation in the Senator's plan to the resumption of specie payment. And, if the plan were adopted, it is a matter of mere speculation how much the price of gold would be effected by it. We never can return to specie payment until we have the specie 10 redeem our currency with, and how this is to be brought about is in the future. He could see nothing in the plan proposed that would help the country financially, in the least degree. He could see no good to grow out o the measure, and hence should oppose the resolution.
Mr. WOLCOTT reminded the Senate that the committee to which this resolution was referred reported on it unanimously, and in favor of its lying on the table. He insisted that the statement made by the Senator from Marion [Mr. Caven] concerning the amount of gold in the country, [three hundred million dollars,] was a wild statement, and stated that in the hands of the national banks there was now but twelve million dollars, and in th hands of the Government about seventy million or eighty million dollars. If gold was released, it would go abroad. The only thing that keeps it here is the necessity for paying import duties with it. The depreciation of our currency was produced by the four causes named by the Senator, and others; for instance the great magnitude of the public debt, and the political and moral causes with which we are surrounded; and they are all still existing--they have not been reduced to a single one. There is no remedy by the legislation the gentleman proposes.
The report of the committee was concurred in, and so the resolutions lay on the table.
