The Funding Bill

The Senate, as in Committee of the Whole, proceeded to consider the bill (S. No. 207) for funding the national debt and for the conversion of the notes of the United States.

Mr. Sherman.  I believe the amendment reported by the Committee on Finance, on the 6th of February, after the bill had been recommitted, has not yet been read to the Senate.  I ask that it be read.

The Secretary read the amendment, which was to strike out all after the enacting clause of the bill and in lieu thereof to insert the following :

That the Secretary of the Treasury is hereby authorized to issue registered or coupon bonds of the United States in such form and of such denominations as he may prescribe, payable, principal and interest, in coin, and bearing interest at the rate of five per cent. per annum, payable semi-annually, and bearing date so as to require the payment of an equal amount of the interest quarterly;  such bonds to be payable in forty years from date, and to be redeemable in coin at the pleasure of tile United States after ten years from date, to be issued to an amount sufficient to cover all outstanding or existing obligations of the United States other than the existing five percent. bonds, and to be exchanged for such obligations or disposed of in such manner and on such terms, not less than par, as the Secretary of the Treasury may deem most conducive to the interest of the Government;  and the said bonds and the proceeds thereof shall be exclusively used for the redemption of or in exchange for the existing securities of the United States.

SEC. 2.  And be it further enacted, That the bonds issued under the first section of this act shall be known as the "Consolidated debt of the United States," and the same shall be exempt from taxation in any form by or under State, municipal, or local authority, and the same and the interest thereon, and the income therefrom, shall be exempt from the payment of all taxes or duties to the United States other than such income tax as may be assessed upon other incomes;  and in consideration of the reduction of the rate of interest provided for by this act, there is hereby appropriated out of the proceeds of the duties on imported goods, annually, an amount equal to one per cent. on the bonds issued under this act, which sum shall be reserved and annually applied to the purchase or payment of the national debt.

Sec. 3.  And be it further enacted, That in addition to the sums necessary to pay the interest of the public debt and the maturing funded debt of the United States, there is hereby appropriated, out of any money in the Treasury not otherwise appropriated, a sum which, including the said interest, maturing debt, and the one per cent. reserved as aforesaid, shall amount to $135,000,000 annually, which sum, during each fiscal year after the current fiscal year, shall be applied to the reduction of the public debt in such at manner as may be determined by the Secretary of the Treasury, or as Congress may hereafter direct;  and such reduction shall be in lieu of the sinking fund contemplated by the fifth section of the act entitled "An act to authorize the issue of United States notes and for the redemption or funding thereof, and for funding the floating debt of the United States," approved February 25, 1862.

SEC. 4.  And be it further enacted, That the several bonds of the United States, bearing interest at the rate of six per cent. per annum, and redeemable at the pleasure of the United States after five years from their date, commonly known as the five-twenty bonds, shall after the expiration of five years from their date, at the option of the holder thereof, be exchanged for the bonds authorized by this act;  and such as are now redeemable shall be presented for exchange on or before, the 1st day of November next, and not thereafter, and the residue to be presented within six months after the expiration of five years from their date, and not thereafter;  and such exchange shall be made at such places and under such rules and regulations as the Secretary of the Treasury may prescribe.

SEC. 5.  And be it further enacted, That the holder of any lawful money of the United States, to the amount of $1,000, or any multiple of $1,000, may convert the same into bonds for an equal amount, authorized by the first section of this act, under such rules and regulations as the Secretary of the Treasury may prescribe;  and any holder of any of the bonds provided for in the first section of this act may present the same to the Treasurer of the United States and demand lawful money of the United States for the principal and accruing interest thereon, and the Treasurer shall redeem the same in lawful money of the United States, unless the amount of United States notes then outstanding shall be equal to $400,000,000;  and such bond shall not be so redeemable after the United States have resumed the payment of coin for their notes.

SEC. 6.  And be it further enacted, That any contract hereafter made, specifically payable in coin, shall be legal and valid, and may be enforced according to its terms, anything in the several acts relating to United States notes to the contrary notwithstanding.

Mr. Sherman [May 10, 1823 -- October 22, 1900] addressed the Senate for two hours in explanation of the measure.  His speech will be published in the Appendix.

The Funding Bill.
SPEECH OF HON. JOHN SHERMAN,
of Ohio,
IN THE UNITED STATES SENATE,
February 27, 1868.

The Senate having under consideration the bill (S. No. 207) for funding the national debt and for the conversion of the notes of the United States---

Mr. PRESIDENT:  The attention of the Senate has been so long occupied with grave political questions deeply exciting the public mind that I have no doubt it will appear a dull change in our debate to turn to questions purely of a financial and economic character;  yet, as our constituents are laboring under the burdens of taxation and the acknowledged evils of a depreciated currency and demand relief from us, it becomes the imperative duty of Congress to give attention to this subject.  The House of Representatives is now engaged in the performance of its constitutional duty of diminishing taxes;  and your Committee on Finance deem it their duty to lessen, if possible, the burdens of the public debt and to give increased value to the United States notes, now made the compulsory basis of your circulation.  We have, therefore, reported this bill after careful consideration.  In advocating it I do not appeal to any political bias;  I do not appeal to any sectional interest;  nor have I any pride of opinion;  and I shall only appeal to those considerations which actuate us all alike, the desire to relieve our people from all the burdens of taxation consistent with the public faith.

The Committee on Finance acknowledge that it is the first and highest duty of a Government to maintain inviolate the public credit.  A strict compliance with public engagements is the first duty of every legislative body.  Public credit is the highest property of a nation, its sure reliance in time of danger and war;  it is a more valuable property than any other, and is not to be tarnished or soiled by any consideration whatever.  But, subordinate to this great principle, it is our duty as legislators to relieve our constituents from every exaction not demanded by the national safety or the public interests.  We have a right to take from our people their money to the extent necessary to carry on the ordinary expenses of the Government and maintain the public faith, but not one cent further.  The great mass of makind have nothing to protect except the reward of their daily labor.  This is their only capital.  In every community -- and ours is more favored than most in this particular -- the majority of men depend only upon their daily labor and enjoy nothing of the blessings of civil government except in the protection of the result of their labor.  It is, therefore, our duty to take not one cent from them unless it is demanded by the public exigencies.

It is with this view, and actuated by this principle, that the Committee on Finance have endeavored to make this bill a bill of relief, reducing, if possible, consistent with the public faith, the interest of the public debt, and giving increased value to United States notes.  We have endeavored in this bill to accomplish three results:  first, to reduce the rate of interest with the voluntary consent of the holders of our securities;  second, to make a distinct provision for the payment of the public debt;  and third, to give increased value to United States notes, and to provide for a gradual resumption of specie payments.  All these are objects admitted to be of the highest importance.  The only question is, whether the measure proposed tends to accomplish them.

Present Condition of the Public Debt.

The body of our public debt consists mainly in the form of securities commonly known as the five-twenty bonds.  Nearly all of the debt of the United States is either reduced already to that form of security, or is reducible within a very short period of time.  I have prepared a statement from the official documents showing the amount and time of maturity of the five-twenty bonds.  There are of the first issue, which became redeemable on the 30th of April, 1867, now outstanding $514,780,500.  Of the second issue there will be redeemable on the 31st of October of next year $129,443,800;  there will be redeemable on the 30th of June, 1870, $301,880,250, and on the 31st of October, 1870, $181,427,250.  There are of the seven-thirties, which have either been funded into five-twenties or are in process of being funded, something over $480,000,000, making an aggregate of what might now be regarded as five-twenty bonds of $1,613,442,650, of which a little over $200,000,000 is yet in the form of seven-thirties, and will be funded before the 1st day of July next.  In addition to this, there are of debts that are now matured, or which will mature this summer, an aggregate amounting to $106,042,949, the chief part of which are the compound-interest notes and the three per cent. certificates, making an aggregate of $1,719,485,599, all of which are either redeemable now or become so within five years from this period;  the great body of them, however, are redeemable within the present and the next year.

Redemption of this Debt Must now be Considered.

The first question that arises, Mr. President, is whether it is wise now to provide for the redemption of these bonds.  If we were at liberty to choose we have not the power to choose.  We are compelled to consider this question.  It is already made the subject of political disputes.  While it is being considered by us in Congress it is being considered by the people, and it is daily discussed all over this broad country as to how and when the five-twenties shall be redeemed.  Especially in the West this has been made the subject of political contention.  I might show you by the resolutions of political parties, both Republican and Democratic, that we cannot avoid or evade this issue.  We must meet it.  I have here the resolutions of both political parties in the State of Indiana, both declaring that these bonds ought to be paid in greenbacks and differing only as to the limit of greenbacks.  I have also resolutions adopted in different parts of the country.  The tendency of the Democratic party is to drift into a political declaration that these bonds shall be paid in greenbacks;  and great masses of patriotic men all over the country of the political faith to which the majority of the Senate belong have come to the same conclusion.  We are, therefore, compelled to consider this question.  It will be made the basis of every election next fall in nearly all the north-western States.  No man can be elected to Congress unless he commits himself for or against this proposition.  Therefore we are not at liberty to choose whether or not we will consider this question.

Sir, it was the first topic that was introduced into this session of Congress in both Houses.  My honorable friend from Vermont, [Mr. EDMUNDS,] in a very elaborate speech, and altogether the best yet presented on his side of the case, introduced it on the first or second day of the session.  The same subject was presented in the House of Representatives by a distinguished Representative from the same portion of the country, taking the opposite view.  It is now more discussed than any other question except the question of reconstruction.  It must be met by us here, and in anticipation of the movements of political parties.  If other Senators have not, I certainly have been overwhelmed with propositions of all kinds and character from every part of the country, from every State in the Union, proposing various schemes of finance affecting the very question proposed to be dealt with by this bill.

My own conviction was, that two years ago this question ought to have been settled, and the ground and character and mode and manner of redemption of these bonds ought then to have been settled.  I addressed the Senate on this subject on a bill containing similar provisions to this, on the 22d of April, 1866.[Unfortunately, April 22 was a Sunday, and you did not say anything in the Senate; but you did make the speech on May 22nd]  I will read what I said then:

"Now, Mr. President, the only additional question I need present in this connection is:  is this the time to fund the public debt ?  I say emphatically it is.  I believe we have wasted four or five precious months in doing it.  I believe that the process would have been easier at the beginning of this session than it will be now;  and why ?  In order to fund the public debt of the United States a large amount of currency is necessary;  but it is necessary for us to reduce our currency as soon as possible.  We cannot get back to specie payments without some reduction of the currency.  Every one desires to resume specie payments.  Before we return to specie payments this debt ought to be funded.  It cannot be funded on as favorable terms after we return to specie payments.  The very abundance of the currency obviously enables us to fund the debt at a low rate of interest;  and it is just and right, as this debt was contracted upon an inflated currency, that upon that same currency the debt ought to be funded in its permanent form."

The Policy of Contraction.

Mr. President, I believe that most reflecting men will now admit that if two years ago we had adopted some provision, comprehensive in its character, to fund the public debt and to provide for the redemption of the five-twenty bonds when they became redeemable, it would have been wiser.  At that time no portion of them were redeemable.  The first became redeemable about one year ago;  but the whole country was then filled with the idea of Mr. McCulloch, that the only safety was in contraction, to get back to specie payments before anything was done with the public debt;  and the policy was adopted of authorizing a contraction of the currency without any regard to funding whatever.  That policy was entered into;  and by the act of April 12, 1866, passed against my earnest protest, we gave to the Secretary of the Treasury almost unlimited power over the currency and over the public debt.  We authorized him to convert every form of indebtedness into any form of indebtedness provided for by previous acts.  There was no other limitation upon his power over the public debt or the currency except that he could only reduce the greenback currency at the rate of $4,000,000 per month.  In every other respect he had the most unlimited power.  I have no doubt that he exercised his power conscientiously;  I have never thought otherwise;  but what has been the result ?  Within two years he contracted the legal-tender currency $160,000,000, and the plain United States notes over forty million dollars.  He also converted all the floating-currency debt into gold-interest bonds.  At the time this law was passed, April 12, 1866, the total amount of five-twenty bonds was $666,000,000, and the great mass of the debt was in what are called currency obligations, the principal of which, undoubtedly, could have been paid in currency.  But conscientiously believing, as he did, that the best way to the resumption of specie payments was by a rapid and steady contraction of the currency, he entered upon the policy I have stated.

Now, what has been the result ?  Why, sir, in April, 1866, the price of gold was 125.  It had steadily declined from the close of the war until it had reached its lowest point, I believe, in April, 1866, the very time of the passage of this law.  What was the result ?  I do not attribute it all to that measure;  but what was the result ?  From that time to this gold has advanced, varying between 130 and 140, and has never from that day to this reached the price at which it stood at the passage of the act;  and are we any nearer specie payments now than we were then ?  Not at all.  We have converted our debt into a more oppressive form of obligation.  The interest of the great mass of it is now payable in gold at the high rate of six per cent., and the bonds are less valuable in gold than then.  I still think that if we had looked rather to the funding of the debt with the currency then afloat we could have passed the whole of it into a five per cent. instead of into a six per cent. loan.  The state of the money market from that day to this justifies the assertion that the whole of this maturing and redeemable debt might have been converted at par into a five per cent. ten-forty bond.  If the bill I refer to had passed two years ago a great part of our debt would have gone into the five per cent. loan provided for by it, and the country would have been saved many millions of gold per annum, and would have escaped the dangerous question now presented to us.

Five-Twenty Bonds — The Right to Redeem Them.

Let us now consider the legal meaning of the contract between the United States and the holders of the five-twenty bonds.

Mr. President, this form of debt contains one feature that was considered its chief virtue, and that is the right of redemption after five years.  We all remember the time when this first five-twenty loan was introduced.  Up to that moment the bonds that had been sold were long bonds, payable twenty years after their date, now called the bonds of '81;  but in February, 1862, Congress, for the first time, upon the recommendation of the then Secretary of the Treasury, introduced the idea of retaining the right to redeem the bonds after five years.  That provision was inserted in the act of February 25, 1862, by which after five years the United States had the right to redeem the principal of the bonds upon paying the amount of them.  The right of redemption was considered the most favorable feature of that loan.  The Secretary of the Treasury, in his report to Congress, said it was important to always retain the right to redeem the principal debt with a view at any time to take advantage of the money market and reduce the rate of interest;  and he proposed, and upon his recommendation Congress concurred in the idea, that in future loans a short time should be fixed after which the debt might be redeemed, while a longer time was fixed within which the debt must be paid.  This was a valuable privilege reserved by the United States for a valuable purpose.  We were then engaged in war, and by the experience of nations it was known that during war we must submit to hard and exacting terms in order to borrow money;  but the right to get better terms was reserved at the end of five years.

How Five-Twenties are Redeemable.

Now, the question arises, how may these five-twenty bonds be redeemed ?  Four different modes have been suggested, in regard to each of which I intend to make a few observations:

First.  That these bonds may be paid, the principal in gold, at any time after five years.

Second.  That these bonds may be paid by a new issue of legal tenders similar in character to the kind issued when they were sold.

Third.  That either by selling a new bond or by levying taxes we may draw into the Treasury existing United States notes, and with those pay off or redeem the five-twenties.

Fourth.  The plan suggested by the committee of giving to the holder of the bond at his option the right to take another bond bearing a less rate of interest.

Mr. President, let me briefly present the view taken of these different propositions.  Is the United States bound in law or equity to postpone the redemption of the five-twenties until they rise to par in gold ?  My friend from Vermont discussed this question with great ability, and he affirmed that we were so bound;  that we had no right to redeem these bonds until the bonds rose to par in gold.  That is his position, and he maintained it with great force.

Mr. Edmunds.  If my friend alludes to me as the Senator from Vermont, he does not quite apprehend my position.  It was not that we were bound to postpone, but that if we exercised the option we must pay in what the bond called for, and that was coin.

Mr. Sherman.  Yes.  In other words, that we could not exercise this right until the bonds rose to par in gold.  That would be the legal effect.

Mr. EDMUNDS.  We have the option to pay them in coin after five years.  If we have the coin, we are not bound to wait.  Whether we have the ability is quite a different question.

Mr. SHERMAN.  That comes back to the point that he would postpone the exercise of this right of redemption until these bonds rose to par in gold.

Mr. Cameron.  Will the Senator allow me to interrupt him a moment ?

Mr. Sherman.  Yes, sir.

Mr. Cameron.  I did not understand the Senator from Vermont as saying that we were bound to pay in coin at the end of five years.

Mr. SHERMAN.  Oh, no, not at all;  I understand that;  but we could not exercise the right to redeem after five years until we could redeem them at par in gold.

Mr. CAMERON.  In other words, if we do not exercise the right to redeem after five years, we cannot until the twenty years have gone by.

Mr. SHERMAN.  And then we must pay in gold.

Mr. CAMERON.  Of course;  and long before that we shall be able to pay in gold.

Mr. SHERMAN.  Mr. President, I intend to put this question with the greatest candor, and if possible to present the argument in as fair a light as I can, because I do not wish to misrepresent any one.

As to Old Bonds Issued Prior to 1862.

Now, I confess that this would undoubtedly be the rule as to all the old bonds issued before the act of February 25, 1862;  and why ?  Because those bonds were issued when no one could have contemplated any other mode of payment except in gold;  and therefore the Secretary of the Treasury has always decided, and properly decided, that bonds issued before the legal-tender act took effect must be paid in gold to the last dollar;  and why ?  The bonds issued in 1861, the bonds issued many years ago, were all issued when no one contemplated any other mode of payment, when there was no other money in which to pay except gold and silver coin;  and as a matter of course these old bonds must be paid in that way.  This question was first presented to Secretary Chase and decided by him when a portion of the Texas loan matured in the fall of 1862.  A small portion of that debt matured, and he paid it in gold because it had been issued at an old date.  His decision, to which I shall have occasion to refer in discussing another point of this subject, was not based at all upon the question of legal tender;  it did not raise the question;  but it was decided upon the ground that as gold was paid for those bonds gold must be returned to the bondholder.

A Government may, as a matter of paramount authority, compel its citizens as between each other to receive and pay out its notes as money on preëxisting contracts;  but it cannot debase its money to make the payment of its own debts easier.  We have no right to debase our coin so as to make the payment of our debt easier.  We may, if there is no stipulation to the contrary, pay in that kind of coin or money which existed when the debt was created;  but after we have created a debt and after we have received gold or good money we cannot then debase that coin and pay it in inferior coin.  That principle I admit.  Although we may do it as to contracts between individuals, because we have the power over individuals, we have no right to do it as between ourselves and public creditors.  A nation in dealing with a public creditor stands on a different footing from what it does in transactions between individuals of that nation.  We may prescribe a rule as between our own people;  but subsequent to a contract entered into by us as a nation we have no right to vary the contract between ourselves as a nation and our public creditor.  The only rule is the contract, the law, and we have no right to change that without being guilty of repudiation.  That is the doctrine.  I therefore assume that all the old bonds issued before the legal-tender act are payable in coin.

As to Bonds Issued Under Legal-Tender Act.

But the question is, whether the bonds issued since the legal-tender act took effect may be paid in legal tenders.  Upon this question I may as well state now, the Committee on Finance do not pass any opinion, and in the observations I make on this point I speak for myself, not for them.  They deem the occasion a proper one to offer an exchange to the public creditor, leaving for the future to settle the result of a refusal.  When we look at the law, which is the contract, it so happens that the identical act which provided for the legal tenders also provides for the five-twenty bonds.  Every man who bought a bond bought it under an act which also provides for the legal tenders.  They were contemporaneous.  However, the notes were issued before the bonds were issued.  The notes were all outstanding before a single bond was issued.

Mr. Edmunds.  What was the limit of the legal tenders ?

Mr. Sherman.  I will come to that presently.  Now, this legal-tender clause provides that---

"Such notes herein authorized shall be receivable in payment of all taxes, internal duties, excises, debts, and demands of every kind due to the United States, except duties on imports, and of all claims and demands against the United States of every kind whatsoever, except for interest upon bonds and notes, which shall be paid in coin, and shall also be lawful money and a legal tender in payment of all debts, public and private, within the United States, except duties on imports and interest as aforesaid."

Does not this act, in so many words, declare that while coin shall be paid for the interest of the public debt, yet the notes provided by this act shall be a lawful tender in payment of all public debts ?

Mr. EDMUNDS.  Will my friend permit me to inquire whether he ought not to read what he has read in connection with the succeeding clause, which authorizes the conversion of the legal tenders into bonds ?  Take the whole statute together.

Mr. Sherman.  I will come to that.  I cannot read it all in a minute.  But here is the legal-tender clause which I have read.  Now, I will come to the point.  If this case stood upon this legal-tender clause alone, if there was no other provision of law, would the Senator from Vermont have any doubt of the legal construction of that clause ?

Mr. EDMUNDS.  Probably not;  but there is another provision, and I think my friend will agree that we are bound to look at the whole of the statute in order to get at the meaning of any of its parts, to construe it altogether.

Mr. Sherman.  My friend has already stated all I expected him to state.  He admits the meaning of the legal-tender clause, but answers me now, by reference to another clause in the act, that it could not have been contemplated that under this act the principal of the debt should be paid in legal tenders.  Why ?  Because the clause he refers to limits the amount of legal tenders to $150,000,000, and with this limit it could not be presumed they would fall much below par in gold.

Mr. CAMERON.  If the Senator will allow me---

Mr. Sherman.  Let me answer my friend from Vermont first.

Mr. CAMERON.  I wish the Senator to answer what I shall say at the same time if he will allow me.  It seems to me the remarks the Senator is making would come better after he bad read that clause which relates to the issuing of the five-twenty bonds.  If he will defer his remarks until then he will be able to give us some information;  but I think he is now explaining his opinions upon a part of the text which will have no influence upon the decision of the country when it comes to pay the debt.  In other words, I think that that part of the law creating the debt, authorizing the issue of five-twenty bonds settles the whole question.  I will not interrupt the Senator further.

Mr. Sherman.  Mr. President, I intend to meet all these points as near as I can, and to read the sections of the law;  but I trust Senators will allow me to do it in my own way.

My friend from Vermont admits that if the matter stood on the legal-tender clause there would be no doubt, there could be no resisting the conclusion, that the legal contract between the Government and bondholder was that the interest should be paid in coin and the principal should be paid in the kind of legal tenders specified by this act.  That is the point he wishes to make, and I agree that if these bonds were issued under this act and under the restrictions contained in it, namely, that the legal tenders were confined to $150,000,000, with the right to convert them into bonds, then his argument would be irresistible;  but the misfortune of his argument is, that these restrictions were repealed before the bonds were issued, but I anticipate the argument and wish again to refer to the act of February 25, 1862.  This act further provides that the amount of legal tenders shall be limited to $150,000,000.  It also provides that the holder of these legal tenders may at any time convert them into five-twenty bonds, the very bonds we are now discussing;  and the second section goes on and provides for the issue of those bonds.  If those bonds had been issued and negotiated solely under the act of February 25, 1862, it would have been irresistible logic that it was not contemplated that the $500,000,000 authorized by this act should be paid with $150,000,000 legal tenders, themselves convertible into bonds.  But here is the weakness of the argument, in my opinion, of my friend from Vermont:  no bonds were issued under that act.

Mr. Edmunds rose.

Mr. Sherman.  I trust my friend will not interrupt me, because I have not the time.

Mr. Edmunds.  Certainly not, if my friend does not wish it.

Mr. Sherman.  Every one of these restrictions was removed and repealed before these bonds were negotiated.  In July following, before a single bond was sold, the limitation as to the amount was increased to $300,000,000.  In December following the Secretary had failed to negotiate the five-twenty loan;  and in his report, to which I will now refer, he says to Congress that it is impossible for him, under the restrictions contained in these acts, to sell these bonds;  that after all his efforts he has sold only a few millions;  that the loan has been a failure, and asks us for additional legislation.  I now ask attention to the report.  In a previous part of it he states the failure to negotiate the five-twenty loan, and that he had received but a small amount, comparatively, from it.  He then says:

"The act of last session"---

The one to which I have already referred---

"authorized the Secretary to issue bonds of the United States, already often mentioned as five-twenties to the amount of $500,000,000, and to dispose of them for coin or United States notes at the market value thereof.  In the same act authority was given to issue $150,000,000 in United States notes, which authority was afterward enlarged to $250,000,000;  and it was provided that any holder of such notes to the amount of fifty dollars, or any multiple of fifty, might exchange them for five-twenty bonds at par.

"The effect of these provisions was to make negotiations of considerable amounts impossible;  for considerable amounts are seldom taken, except with a view to resales at a profit, and resales at any profit are impossible under the law."

Then he goes on to say:

"The Secretary respectfully recommends the repeal of both these provisions.  The first imposes, it is believed, a restriction which Congress did not intend;  and the second has been followed by the inconveniences which were feared rather than by the benefits which were expected."

Then he goes on to say:

"Should Congress, however, be of opinion that these clauses should be retained, it will be necessary to provide for other laws, at rates more favorable to the takers than convertibility into five-twenties.  This can be done either by authorizing bonds at longer time or by increasing the rates of interest offered.

"The Secretary cannot recommend either course except as an alternative to no provision at all."

My friend from Maine [Mr. Fessenden] will remember that when we were called upon to consider this question we had to choose between three alternatives:  the repeal of these restrictions which prevented the sale of five-twenty bonds, or selling the bonds at a higher rate of interest, or selling them below par.  We all remember that.  The Senator from Maine, in reporting the bill, stated these alternatives.  Finally, after long consideration -- for the subject was debated over and over again -- the Committee on Finance agreed upon the act to which I will now refer, the act of March 3, 1863.  That act repealed the limit as to the amount of circulation and raised it to $450,000,000;  and it also took away the right to convert, which the Secretary said was the other restriction that prevented the sale of the bonds;  and by an ingenious device, suggested by the then Senator from Vermont, [Mr. Collamer,] it was proposed to limit to the holders of the outstanding greenbacks the right to convert them up to the 1st of July then next;  but if they did not do it by that time the right was to cease.  By this legislation in the act of March 3, 1863, the limitations which prevented the sale of the first five-twenty bonds were repealed, and then, for the first time, this loan was taken.  Then it was that an agency was organized and means were taken to spread these bonds all over the country, and they were sold;  but they were not sold until these restrictions were removed, and they were sold upon a basis of $450,000,000, without the right of redemption, with no privilege whatever except that of being receivable in payment of taxes.  That was the state of the law upon which the legal right of the holders of the five-twenties rests.  They refused to buy these bonds upon the terms of the act of February 25, 1862.  They did buy them under the act of March 3, 1863;  and it is idle to rest their claims upon restrictions repealed before their bonds were issued.

I wish to read a little further, to show that the Secretary of the Treasury, Mr. Chase, a year afterward, in December, 1863, in his report, again stated that Congress, having relieved him from the restrictions of the act of 1862, enabled him to sell the five-twenty bonds.  He says:

"On that day, March 3, 1863, the act to provide ways and means for the support of the Government received the approval of the President and became law.  In addition to various provisions for loans, it contained clauses repealing the restrictions affecting the negotiation of the five-twenties, and thus disengaged that important loan from the embarrassments which had previously rendered it almost unavailable."

Then he goes on and says that every dollar of it was sold in a short time, presenting a remarkable case of success;  but it was not sold, as my friend from Vermont says, under the act of February 25, 1862.  On the contrary, there was an utter failure to sell the loan under that act.  It was sold under the subsequent law which repealed the restrictions of the act of 1862, and it was sold upon a basis of currency amounting to $450,000,000, and when the notes had been so depreciated by our legislation, purposely, for wise purposes, when the right to fund was taken away, and no right was given to these notes except to be paid to the Government in the way of taxes.

As to Representations by Agents.

Now, Mr. President, there is another point in the argument of my friend from Vermont that is much more difficult to answer.  It is true -- and he has collated the proof in his speech very well -- that the various agents of the Government stated that these bonds would be paid in coin, and that creates the embarrassment in regard to this matter that has always affected my mind more than any legal difficulty in the way;  because I think the nation is not only bound to observe the law, but it is bound to pay a reasonable degree of respect to the representations made at the time these bonds were sold.  It is true, as matter of law, that no agent could vary the contract;  that every man who bought these bonds bought them upon the face of the law, and not upon the mere advertisements of agents;  still every wise legislator would consider the extent of those representations and how far they affected the public mind.

It has been sometimes said, and my friend from Vermont said that this was done, and Congress silently acquiesced.  Congress never acquiesced in it.  Congress was not in session when any portion of this loan was sold.  We adjourned on the 4th of March, 1863, and did not convene here until the December following, and within that time all these bonds were sold.  The silence of the subsequent Congress could not change the contract which was made in March, 1863, and has no effect upon the case.

The first reference made by the Senator from Vermont is to the decision of Secretary Chase on the payment of the Texas bonds in December, 1862.  The Senator in his speech states this decision too strongly.  He says that the Secretary of the Treasury then decided that the legal-tender clause did not apply to Government securities.  Now, I will read the decision of the Secretary.  I read from his letter of January 5, 1863, in reply to a resolution of the House of Representatives.  He states that he concluded to pay this loan in coin for these reasons:

"My judgment was determined in favor of payment in coin, not merely by the weighty considerations growing out of its beneficial influences on public credit, but by the circumstance that I found myself able to obtain the deeded specie at a cost so small that payment in coin was, in fact a less inconvenience to the Treasury and a less interference with payments to and for the Army and Navy than payment in notes would have been.  The whole amount of coin required was advanced by moneyed institutions, most of which, it is believed, had no interest in the loan, nor any interest in the transaction, except what arises from the general support of the public credit;  and the advance was made without premium and at an interest of four per cent., and is not to be called for until it can be reimbursed from receipts from customs, dedicated by act of Congress to the payment of interest and to the redemption of the principal of the public debt."

In this decision there is no reference whatever to the right to redeem the new debt in currency.  It was an old debt, and he merely paid it in gold because he thought that would have a beneficial effect on the public credit and because he could negotiate for a loan of gold at a cheaper rate and on more favorable terms than for a loan of paper.  Even if the question had been so decided in that case it would apply to no loan except one which was issued before legal tenders were thought of.  The only decision furnished by the Senator in his ample collections of the representations made by the officers of the Government (which after all, it seems to me, are rather bare) was a letter which he introduced signed by George Harrington, Assistant Secretary, dated May 26, 1863, pending this loan, and a letter of Mr. Field, also Assistant Secretary.  Mr. Harrington said in his letter:

"The five-twenty sixes, payable twenty years from date, though redeemable after five years, are considered as belonging to the funded or permanent debt;  and so, also, are the twenty-years' sixes, into which the three-years' seven-thirty notes are convertible.  These bonds, therefore, according to the usage of the Government, are payable in coin."

The Senator also introduced a letter of Mr. Field when he was Assistant Secretary;  the only other letter introduced from the Treasury Department before these bonds were all negotiated;  and that simply stated as a fact that they would be paid in gold.  There was no reference to the law, no decision upon the terms of the law, but a mere reference to the custom of the Department as to old bonds issued before the legal-tender act, and no doubt it was made upon the common expectation that long before the five years should run out specie payments would be resumed in this country;  and no doubt they would have been if our arms had been victorious during that summer;  but certainly none of these letters can be regarded as a formal construction of the legal-tender act, which is not even referred to.

Mr. President, I will not follow this matter further, because it is not necessary for my argument that I should do so;  but I submit to Senators whether the presentation of the law and the facts in regard to the five-twenty loan does not at least raise a reasonable doubt upon which honest men may disagree.  All that is necessary for my argument is to show that a doubt does rest upon the mode and manner of paying these bonds.  I am not here to advocate either view of the question, although I am willing to express my own opinions.  I merely show you that there is such a doubt that reasonable and honorable men may differ as to whether or not the Government of the United States may pay these bonds in some other way than in coin.  If so, that doubt ought to be removed, or some other bond substituted, and not leave this question unsettled to poison the public credit.

Redemption in New Legal-Tender Notes.

There is a second mode proposed by partisans in which to pay off the five-twenty bonds, and that is by issuing a new batch of greenbacks.  This is a plausible and a dangerous device.  No man can justify it.  Why ?  Because the very acts under which these bonds were issued contain limitations which we cannot and dare not exceed.  These limitations were put in every loan act and finally embodied in the form of a guarantee in the act of June 30, 1864, to which I will now refer.  The limitation contained in the last preceding act, that of March 3, 1863, in force when the five-twenties were negotiated, was $460,000,000.  The act of June 30, 1864, modified and repeated this limitation, as follows:

" Nor shall the total amount of United States notes issued or to be issued, ever exceed $400,000,000;  and such additional sum, not exceeding $50,000,000, as may be temporarily required for the redemption of temporary loan."

This limitation upon the amount of greenbacks was always a part of the loan laws, and why ?  Because the amount of those notes issued would regulate and fix the value of the bonds themselves.  In all the loan acts, therefore, the amount of greenbacks issued from time to time was limited by law, and that limitation was a part of the contract under which the bonds were issued, and hence any proposition which looks to an increase of the legal tenders with a view by this increase to pay off the five-twenties would be a plain, palpable violation of a public engagement, just as much as would be a clipping of the coin, or, to follow the example of the Middle Ages, a debasement of the coin with more alloy.  Every additional greenback issued tends to depreciate the value of the security, and therefore, as the law itself limits the amount, it must be complied with, whatever is the consequence.

I take it, then, that no proposition will ever receive the sanction of Congress in the face of this law, providing that the five-twenties shall be redeemed with any other notes than those in existence at the time they were sold;  that any proposition of that kind would be dishonorable to the country and dishonorable to any one who should seriously propose and advocate it.  It would be to create a depreciated currency in order to evade the payment of an honest debt.

But, sir, aside from that, as an act of public policy, it would be fatal and injurious.  It would reopen the flood-gates of paper money.  It would impair all values;  it would unhinge all standards;  it would affect all prices.  None would suffer from such a debasement of the currency so much as the laboring man.  Labor is the last thing, except real estate, to feel the effect of a change in the currency;  because labor is more abundant than any other commodity.  Labor feels last the advance caused by the inflation of paper money.  I trust this proposition when discussed by the people will be generally repudiated, and I believe it will be.  I regard this limit upon the amount of greenback currency as the sheet anchor of public safety;  that in no event whatever is it to be violated.

Bank Notes and Legal Tenders.

It is sometimes said, why will not the proposed increase of banking circulation have the same effect as the increase of greenbacks.  This question is put in regard to the bill reported by my friend from Missouri [Mr. Henderson] to repeal the limitation upon the amount of banking circulation.  I answer that the effect is very different.  The amount of bank notes may be left free without any legal limit if only the right to present the note for redemption is always enforced.

Mr. MORTON.  Redemption in what ?

Mr. Sherman.  Redemption at present in legal tenders, but we all look to an early resumption of specie payments.  There is no check on banking, there is no use in banks, unless you have specie payments.  Bank notes, unless they are based on the payment of specie or something that is equivalent or will soon be equivalent to specie, are injurious, and therefore I am not in favor of any increase of the bank note circulation unless it is in view of the speedy resumption of specie payments.  But, sir, if bank notes are based on coin, or if they are redeemable in coin, their amount may be left to the demands of trade, to the wants of the community.  The power to present them for payment at any time is a sufficient check on the amount.  That is shown by the experience of many countries.  In England the limit is very rarely reached.  In New York they had a very good State system, which, if it had been extended all over the United States, under the control of the General Government, would have been a wise one.  That was a system of free banking under which any man might bank who would keep up the specie standard, and give the requisite security to the public and redeem his notes in specie.

Redemption of Bonds in Existing Currency.

I come now to the third mode that has been suggested, and that I have necessarily discussed as I have proceeded.  I here again desire to repeat that in what I have to say in regard to the manner of paying or redeeming the bonds, I do not speak for the Committee on Finance, because, in the view which they took of it in the bill which they reported, they did not decide that question.  I merely present the argument.  I say that equity and justice are amply satisfied if we redeem these bonds at the end of the five years in the same kind of money, of the same intrinsic value it bore at the time they were issued.  Gentlemen may reason about this matter over and over again, and they cannot come to any other conclusion;  at least, that has been my conclusion after the most careful consideration.  Senators are sometimes in the habit, in order to defeat the argument of an antagonist, of saying that this is repudiation.  Why, sir, every citizen of the United States has conformed his business to the legal-tender clause. He has collected and paid his debts accordingly.  Every State in this Union, without exception, has made its contracts since the legal-tender clause in currency and paid them in currency.  Indeed, every State in this Union except Massachusetts has gone further, and, as I think, improperly, in paying either principal or interest of prëexisting debts contracted on the basis of gold.

Mr. COLE.  The Senator must except California from that statement.

Mr. Stewart.  And Nevada also.

Mr. Morrill, of Maine.  And Maine also.

Mr. SHERMAN.  Maine paid her interest in paper, even on old debts, and certainly on new.

Mr. Morrill, of Maine.  I think not.

Mr. DIXON.  The Senator should except Connecticut.

Mr. SHERMAN.  Connecticut pays her interest in paper.

Mr. DIXON.  Only on debts contracted since the passage of the legal-tender act.

Mr. Sherman.  That is what I said, and that is all I propose the United States shall do.  In the Pacific States, where they have always had a gold circulation, their contracts are based on coin, and they have always paid gold.  Massachusetts is the only other State that has done what the United States has done, and always will do, pay preëxisting debts in gold.

Mr. DIXON.  Allow me to say to the Senator that Connecticut had no debt before the war.  Her debt has been contracted in view of the legal-tender act, and for that reason she has paid the interest in paper.

Mr. SHERMAN.  Certainly, and that is precisely what I say the United States may lawfully do.  Every citizen of Connecticut, rich and poor, has availed himself of that privilege, and has paid his debts in paper;  and every community, every city, every town, every municipal organization in Connecticut has availed itself of the privilege of paying its debts in paper, and in ninety-nine cases out of one hundred have paid debts contracted before the legal-tender act in paper.

Mr. DIXON.  But the Senator began by saying that there was a wide distinction between the right of a citizen to pay a debt under the legal-tender act and the right of a State or a Government to do it.

Mr. SHERMAN.  I do say that as to preëxisting debts, but as to debts contracted since the legal-tender law took effect, they were contracted in currency, and upon the express stipulation in the law that their principal should be paid in legal tenders and the interest in coin.  If that stipulation was not in the law the right to redeem would only rest upon the general principle that a debt may be paid in the kind of money in which it was contracted.

But public as well as private debts contracted since the legal-tender act do not rest upon inference but upon the express stipulation in the law;  and it is equitable and right that the United States should avail itself of this part of the contract.

Is the Offer to Exchange a Threat.

Sometimes this bill has been regarded as a threat.  We do not so intend it.  We say to the holder of our demand notes, we say to the holder of our bonds, we say to the holder of a compound-interest note, we say to the holder of any public security, except the existing ten-forties, "We will give each of you, at your option, this form of security in exchange for that which you now have;  if you accept this offer by the 1st of November next we will give you certain exemptions;  if not, you stand upon your existing right, and all questions affecting it shall be postponed until the next session of Congress."  It is said that this is a threat.  I do not so regard it.

Mr. Fessenden.  Will my friend allow me to ask him a question, with his permission ?

Mr. Sherman.  Certainly.

Mr. Fessenden.  I ask whether the committee have provided any alternative in case the bondholders do not accept ?

Mr. Sherman.  None.  Their bonds still stand, and no one proposes the alternative adopted by the English Government, which I intend to refer to in a moment, of stopping the interest, or the alternative adopted by our own Government under Hamilton's plan of reducing the interest.  We leave the bondholders to stand precisely as they are, and they will be paid their six per cent. interest in gold until their bonds are redeemed, and they cannot be redeemed under existing laws without further legislation, and that legislation will have to be provided by the present Congress at its next session or by some future Congress.  All that the Committee on Finance do in this bill -- and, perhaps, in discussing the other points I have gone beyond the necessity of the case -- is to offer to all the public creditors these new bonds in exchange for the old, to be done without expense to the Government, to be done without sacrifice by any one, leaving every man to judge for himself whether his interest and substantial equity would not be promoted by this exchange.  If he does not do it he stands by his bond, and then the next Congress or the present Congress at its next session will decide the question whether the redemption of these bonds shall be postponed to some indefinite future when we may be able to pay gold for what we received in depreciated paper.  We do not decide it and do not undertake to decide it, but we simply submit that option.

Even if Senators do not agree in the view that I take of this matter, it is necessary to provide this new loan for this reason:  we must provide for the funding of some one hundred and odd millions of loan that is maturing;  we must provide for the redemption of the compound-interest notes;  we must provide for the conversion of the greenbacks, which we do in another section;  we must provide some bond into which even the floating debt may go;  and it is necessary in making that bond to select, if possible, a bond into which the whole mass of the public debt may from time to time be converted according to our future laws.

Mr. Fessenden.  Are not those obligations convertible into five-twenties as the law now stands ?

Mr. Sherman.  Undoubtedly;  but would any Secretary now convert any more of our currency debt into five-twenty bonds bearing six per cent. interest in gold ?  As I shall show hereafter, there is no such burdensome loan negotiated by any civilized nation in the world as our five-twenty loan, if it is to be paid in gold.  Therefore, I would say, in reply to my friend's question, as I said two years ago, that I never would issue another five-twenty bond, because it is the most expensive form of loan.  Just consider it:  seventy-six dollars of gold will buy a five-twenty bond bearing six per cent. interest in gold, and that bond cannot be redeemed, according to one construction, until the United States are ready not only to pay six per cent. on $100 for the use of seventy-six dollars, but also to pay $100 in gold for what now costs seventy-six dollars.  That is the proposition, and I say I never would issue another five-twenty bond.  I think our great mistake has been that we have funded a great mass of our floating debt already into five-twenties and give to the public creditors the right to demand this large rate of interest for so long a time.

Funding of English Debt.

Now, I wish to show, as we are governed in a great measure by example, that the proposition made by the Committee on Finance is in exact accordance with the course that has been pursued in England six or seven times, and once in our own country.  In England, prior to 1715, the rate of interest was six per cent., which was reduced by an act of Parliament to five per cent., and without negotiation.  In 1725, after the explosion of the South Sea bubble, the rate of interest on the mass of the public debt was reduced from five per cent. to four per cent.  This was done, mainly by negotiation through the great corporations of London, the Bank of England, the South Sea Company, and one of the India companies.  They reduced the interest by issuing four per cent. annuities in payment of five per cents., paying off what were called the dissentients.

In the middle of the eighteenth century the rate of interest all over Europe became lower than ever was known before.  It fell to three percent.  In 1737 it was proposed in England to reduce the interest on the public debt from four to three percent.  I read now from a well recognized authority on finance :

"In 1737 the three per cents. being at 103¾ to 107 the House of Commons came to a resolution that all the public fund, redeemable by law, which carry an interest of four per cent. per annum be redeemed according to the respective provisos or clauses of redemption contained in the acts of Parliament for that purpose, or be converted into an interest or annuity not exceeding three per cent. per annum."

This passed the House of Commons two readings and was lost on the third.  In 1742 a similar attempt was made to reduce the rate of interest, and in 1749, under the administration of Mr. Pelham, it was carried into execution, and we have in Hansard's Debates, and also in the biography of Mr. Pelham, an exact account of this transaction.  Mr. Pelham was warned before he made this proposition of the effect upon himself, but he persisted in it and finally carried it through, after quite an extended argument.  His proposition, in short, was that any holder of any security bearing four per cent. interest might, within a given time, present it; not for redemption, but to receive in exchange a security bearing three and a half per cent. interest for four or five years, and after that bearing three per cent. interest.  Nothing was said about redemption;  but it was understood, no doubt, that in case holders did not accept it their securities would be redeemed.  The result was an angry debate, in which it was alleged that this was a violation of the public faith.  I read a note in Hansard's Debates, taken from Tindal, and also one from Smollet.  Tindal says:

"This was generally looked upon to be a very bold measure in the minister, and some of his best friends, even the day before the vote passed in the House of Commons, endeavored to persuade him against it.  But he appeared determined, and in a few weeks they approved of his steadiness as much as before they blamed his obstinacy."

Smollet says:

"The capital measure which distinguished this session of Parliament was the reduction of the interest on the public funds;  a scheme which was planned and executed by the minister, without any national disturbance or disquiet, to the astonishment of all Europe;  the different nations of which could not apprehend how it would be possible for the Government, at the close of a long, expensive war, which had so considerably drained the country, and augmented the enormous burden of national debt, to find money for paying off such of the public creditors as might choose to receive their principal, rather than submit to a reduction of the interest."

The proposition is given in full in the biography of Mr. Pelham.  He was then Chancellor of the Exchequer, and I find there his speech reported at length, in which he goes over the ground which had been made by the speeches in opposition, which were very much such as have been made on this question.  It was argued that, while there was a right to redeem the public debt, the plan proposed would be substantially a violation of the public faith.  I read from Mr. Pelham's biography what is there said on the subject:

"Duly impressed with the importance of his financial plan, Mr. Pelham suffered no avoidable delay to intervene before be submitted it to the House.  By this promptitude he manifested the decision of a great minister, for the proposal was at first so unpopular or so little understood that even on the very day before the resolutions were brought forward some of his friends endeavored to dissuade him from his purpose;  but their remonstrances were ineffectual.  He persevered in his determination, and the event fully justified his expectations.  On the 28th of November a motion was made for a committee of the whole House, to take that part of his majesty's speech into consideration which related to the national debt.  The expediency of reducing the interest had been so clearly demonstrated by Mr. Pelham, that his plan was unanimously approved."

The great corporations which had aided in the former reduction in the interest of the public debt combined against it, and for two years defeated it.  The House of Commons was firm and threatened to repeal some of their privileges, and finally compelled them to acquiesce.

Mr. Fessenden.  I desire to ask my friend what the character of the security was that it was proposed to reduce the rate of interest upon.  Was there any time within which the Government might redeem it ?

Mr. Sherman.  These were annuities.  There was no stipulation as to redemption.

Mr. Fessenden.  Precisely.  They differ from our securities.  It was not a question there as to the right to redeem.  There is no doubt about our right to redeem.

Mr. Sherman.  There is no doubt about our right to redeem;  but the question is as to the mode of redemption.

Mr. Fessenden.  There was no such question in that case, and hence, I suppose, the ground of opposition.

Mr. Sherman.  There is a still more interesting case, and one more applicable to our present condition, which occurred in England in 1822.  During the wars which probably tested the power of England more than any event in her history -- her wars with Napoleon -- she was compelled to resort to great sacrifices.  She issued all manner of securities;  she sold her bonds at one time at fifty or sixty cents on the dollar;  she issued five per cents., four per cents., and three per cents., and all other forms of security.  After the war was over, before the resumption of specie payments, Mr. Vansittart, then Chancellor of the Exchequer, proposed to fund the public debt by a proposition very similar in language to the one submitted now by the Committee on Finance.  The great mass of their floating debt consisted of five per cent. exchequer bills -- navy bills, as they were commonly called -- which were very much such bills as our five-twenty bonds.  They bore five percent. interest.  Mr. Vansittart introduced his bill on the 25th of February, 1822;  and we have the whole debate in Hansard.  His proposition is in substance like our own.  It simply declared that the holders of those five per cent. bills might present them at such a time for exchange for a four per cent. annuity.  If they did not present their securities their assent was implied.  There was some opposition to the measure.  It was alleged to be a violation of the public faith;  it was before specie payments were resumed in England, when all payments were made in Bank of England notes.  It was finally carried, after debate, and acquiesced in.  His funding bill had this feature: it only proposed a reduction of interest of one half per cent. for the first five years, and then a reduction of one per cent.  He proposed a reduction to four and a half per cent. until 1828, and then a redaction to four per cent.  In this way the navy fives, as they were called, the great mass of the English floating indebtedness, were funded.  One gentleman, opposing it, said he would like to ask the honorable gentleman how, with an impoverished treasury, &c., he was going to pay off £142,500,000.  It is the same objection we hear here.  The answer was that it took a very small amount of currency to pay a very large amount of debt, and if the present holders would not make the exchange others would be found to furnish the money to pay them off.  The plan was carried into execution and was acquiesced in;  and this very debt which was reduced in 1822 and 1828 was afterward twice reduced, and is now part of the three per cent. debt of England.

There is also one case in our own history, and that is the funding system adopted by Alexander Hamilton.  The Constitution of the United States declared that the public debt of the United States should be inviolate, and the new Government assumed the debt of the old confederacy;  but, as a matter of course, it was in a condition of great uncertainty;  the interest had been unpaid for a long time, and there were disputes as to the amount.  Alexander Hamilton, as first Secretary of the Treasury, proposed a plan of funding and grouping together all this mass of indebtedness.  His report on the public credit was regarded by his friends, and has been regarded by the whole world, as a remarkable production;  and yet, what was Alexander Hamilton's funding plan ?  He proposed first, to ascertain the amount of the national debt, which was finally computed to be and was settled at $54,000,000, foreign and domestic.  Did he propose to pay that off in precise conformity with the terms on which the debt was contracted ?  Not at all;  he took that and he also ascertained the amount of the State debts !  Nearly all the States were overwhelmed with debts that grew out of the revolutionary war, and they were ascertained and apportioned; the general aggregate of all was $74,000,000.  How was this funded ?  By offering the fundholders six per cent. bonds for two thirds of their debt, and the other third was paid by three per cent. bonds, some of it by four per cent. bonds, some of it by public lands, and some of it by annuities.  The plan of Alexander Hamilton embraced various forms of loan, all of which was submitted to the voluntary will of the fundholders.  Some of them refused to agree.  What did he do then ?  He only paid them in accordance with the stipulations made as to the rest of the loans.  I will read a short paragraph or two from this document of Mr. Hamilton to show how he regarded the public debt:

"The interesting problem now occurs:  is it in the power of the United States, consistently with those prudential considerations which ought not to be overlooked, to make a provision equal to the purpose of funding the whole debt, at the rates of interest which it now bears, in addition to the sum which will be necessary for the current service of the Government ?

"The Secretary will not say that such a provision would exceed the abilities of the country: but he is clearly of opinion that to make it would require the extension of taxation to a degree and to objects which the true interests of the public creditors forbids.  It is therefore to be hoped, and even to be expected, that they will cheerfully concur in such modifications of their claims, on fair and equitable principles, as will facilitate to the Government an arrangement substantial, durable, and satisfactory to the community.  The importance of the last characteristic will strike every discerning mind.  No plan, however flattering in appearance, to which it did not belong, could be truly entitled to confidence."

Then his first proposition was "that for every hundred dollars subscribed payable in the debt, (as well interest as principal,) the subscriber be entitled at his option either to have two thirds funded at an annuity or yearly interest of six per cent.," the residue to be paid in three per cent. annuities, the interest on which did not commence till 1802.  As an alternative for a part of the debt be proposed a system of annuities in which a small portion of the debt was finally paid.

Mr. Fessenden.  What provision did he make for those who did not agree to the offer ?

Mr. Sherman.  He merely provided for four per cent. interest to be paid to them, two per cent. less than they were entitled to under the law creating the debt.  After speaking of those who might refuse the offer he proceeds to say :

"Hence, whatever surplus of revenue might remain, after satisfying the interest of the new loans, and the demand for the current service, ought to be divided among those creditors (if any) who may not think fit to subscribe to them.  But, for this purpose, under the circumstance of depending propositions, a temporary appropriation will be most advisable, and the sum must be limited to four per cent., as the revenues will only be calculated to produce in that proportion to the entire debt.

"The Secretary confides for the success of the propositions to be made on the goodness of the reason upon which they rest;  on the fairness of the equivalent to be offered in each case;  on the discernment of the creditors of their true interest;  and on their disposition to facilitate the arrangement of the Government, and to render them satisfactory to the community."

Mr. Fessenden.  Four per cent. on the principal.

Mr. Sherman.  But their debts bore six per cent. really.  Subsequently the dissentients came in, but it was after three years, when, by a subsequent law proposed by Mr. Hamilton, they were allowed the same privileges as if they had assented in the first year.  That was the plan of Alexander Hamilton, which finally led to the consolidation of the national debt.  I say the plan now proposed by the Committee on Finance is in accordance with precedent, holds out no threats, deals with all alike, holders of five-twenty bonds, greenbacks, and all.  It gives them a proposition to fund their debt at their own option by the 1st of November next, or if they will not choose to do it, then, as a matter of course, the question is to be decided at the next session of Congress, what provision ought to be made, whether or not Congress will redeem the five-twenty bonds in the currency in which they were contracted or postpone its redemption, paying the interest at six per cent. in gold, until we can redeem the principal in gold.  Whatever view Senators may take of this, they cannot avoid making some provision by some loan less onerous than five-twenties for funding the greenbacks and for funding the floating debt of the United States;  and into that loan, whatever it may be, the whole debt may eventually float.

Terms of the New Loan.

Now, Mr. President, the question is whether the terms of the proposed loan are reasonable and fair, such as we ought to propose to our own citizens, and such as our constituents may reasonably hope to fulfill, such as are equitable and fair as between creditor and tax-payer.  The first question that arises is the exemption from State taxation.

No Government that I have been able to find ever allowed its bonds or securities to be taxed.  The United States never did.  In the absence of stipulations to the contrary the courts have always held that no State or subordinate authority could tax the national securities.  It has been so held by every judge who ever sat upon the supreme bench, because it has happened that cases of the kind were brought before the courts from time to time from the earliest foundation of the Government until the last case in 2 Black, in 1862, and it has been uniformly held that there is no power in the States to tax Government bonds.  It may, it is true, be made a part of the loan that the States shall have a power to tax them, but who would buy such bonds ?  I never would vote for such a provision.  I never would allow a subordinate authority to thus control the public credit of the United States or have a voice in the matter.  The effect in time of war would be disastrous.  Such a power would prevent the citizens of a State where the power was exercised from loaning money upon Government securities.  I take it, therefore, as an axiom, that in no event shall we allow subordinate authorities to tax the national securities.  I need not refer to the authorities on this subject.  I have done that before, and I suppose that Senators are familiar with them.  There are at least five or six different decisions of the Supreme Court to this effect.

The next provision is the exemption from any discriminating property tax.  Men who do not understand the question have proposed to tax Government securities specially, like a special tax on manufactures;  and the proposition has been, perhaps, broached in Congress to tax Government securities one or two per cent. in lieu of all other taxes.  Such a provision would be a clear and palpable violation of the Constitution and of the law.  It would be worse than repudiation;  it would be the meanest kind of repudiation.  Why ?  Because it would be a special discriminating tax on property.  A tax on manufactures is a tax on consumption.  The manufacturer may add that tax to the cost of the article, and the consumer who finally uses the article pays the tax.  That is the principle upon which it rests.  A special tax on property is a diminution of the property.  It cannot be collected from any one else or shared with any one.  It is a direct tax -- as much so as if levied on farms -- and being a direct tax is unconstitutional, unless apportioned among the States according to population.

One of the earliest cases which came before the Supreme Court was the well-known case involving a tax on carriages.  There the court held that it was the use of the carriage which was taxed, and that was a proper tax, because it was a tax on the use of a luxury.  It was the enjoyment or use of the carriage that was taxed, not the property in the carriage.  No special tax can be levied on property.  If this principle once prevailed, that we might select any kind of property and levy a discriminating tax on that property, the time might come when shipping might be selected as the subject of a special tax;  when property in lands, plainly against the intention of the Constitution, might be selected for the levying of a discriminating tax.  We propose, therefore, to avoid all controversy, to put a stipulation in the new loan law exempting these bonds from all discriminating taxation by Congress, but leaving them subject to the same income tax that other income is subject to.

This question was once presented in the English Parliament;  and it is a little remarkable that as early as 1724 a proposition was made to levy a tax of one per cent. on Government securities.  That was before the second reduction of interest I have referred to.  A remarkable pamphlet then appeared on the subject, the writer of which, to this hour, is unknown;  or, at least, it is disputed who wrote it.  This secrecy is as remarkable as the authorship of the Junius papers.  It was a pamphlet on the inviolability of the public securities, which attracted so much attention as utterly to defeat the proposition.  It is preserved now, and is regarded as one of the most remarkable and beautiful productions in the English language.  It answers now, as well as then, the argument for taxing public securities.  From that time to this in England it has never been proposed.  It has not heretofore been proposed in this country, and it ought not to be thought of.

As to the Rate of Interest

There is some difference of opinion;  and you will hear more of it from my friend from Missouri [Mr. Henderson] as to the rate of interest of the new bonds.  The Committee on Finance took great care in deciding this question.  We believed that five per cent. was as low a rate as we could now hope to negotiate a loan.  It is the lowest rate of interest ever provided for in any loan act of the United States, except in the funding scheme of Alexander Hamilton, already referred to, where a certain portion of the debt was funded at three per cent.  I have looked with care into recent foreign loans, and I find that no Government in Europe has recently sold its bonds at a less rate of interest than five per cent.  When the nominal rate was lower they were sold at a discount.  The English loans, during the Napoleonic war, yielded the lender a rate of interest averaging over five per cent.  I have on that subject a number of authorities, and I will refer to one or two of them.

In the compendium of finance which I have before me there is a statement of the amount of the various loans negotiated by the English Government during the second French revolutionary war.  The whole amount of loans negotiated was £420,905,400 sterling, or over two thousand million dollars.  The amount actually received from those loans by the Government was £266,800,000 sterling, or at the rate of about sixty per cent.  The securities were mainly three per cents, though large sums bore four and five per cent., so that the rate of interest actually paid was over five per cent.  In 1815, after Bonaparte had left the island of Elba, when it became necessary for the English Government to negotiate a large loan, they sold £66,000,000 of three and four per cent. consols for £36,000,000 sterling, or about fifty-six cents on the dollar.  I have a statement of the whole national debt of Great Britain, and it is apparent from it that the English Government has paid at the rate of about five per cent. interest.  As a matter of course, this has been done by selling their three and four per cent. securities below par.

So it is in France.  We have all heard about the popular loan in France during the Crimean war, and it was regarded as a remarkable success in its time.  It was undoubtedly very popular in France.  The first loan, on the 14th of March, 1854, was for 250,000,000 francs.  It was sold at the rate of 100 francs of three per cents. for sixty-five francs and twenty-five centimes, and at the rate of 100 francs at four and a half per cent. for ninety-two francs and fifty centimes, making really a little over five per cent.  So the second loan of 500,000,000 francs was issued at the rate of 100 francs of the three per cents. for sixty-five francs.  100 francs of the four and a half per cents. for ninety-two francs.  So the subsequent loan of 750,000,000 francs in 1855 was issued at about the same rate, being a little over five per cent.

I have also a statement of the debts of various foreign countries showing that the rates of the most powerful nations of Europe are nearly always five per cent. or, if less, have been sold under par.  When we reflect that in this country the rate of interest is necessarily higher than in most of the countries of Europe, this being a new country, with a vast development, and active population increasing rapidly all over our diversified area, it is perfectly idle to suppose that the United States can get money at a less rate than five per cent.  The ordinary legal rate of interest in most of the States is seven per cent., and the actual rate among merchants often amounts to ten per cent.  We have by the discrimination made in favor of these bonds reduced the rate to five per cent., and it seems to me that is as low as it is possible to negotiate this loan.  As a matter of course, if I believed it was in the power of the Government without adopting measures injurious to the public interest to negotiate a bond at a less rate of interest, I would gladly do it;  but after full examination of this question the Committee on Finance came to the conclusion that five per cent. was as low a rate of interest as the loan could be negotiated.

There are various reasons why the rate of interest all over the world is now higher than it was one hundred years ago.  The artificial wants of society have been very much increased.  We have railroads and steamboats and telegraphs, vast avenues and sources and demands for wealth and capital that one hundred years ago Benjamin Franklin and Doctor Johnson never thought of.  The railroads in this country at this time are worth more than all the country was worth at the time of the revolutionary war.  All these new elements of social progress make demands for money, and therefore raise the rate of interest.  There is another remarkable fact which causes a general advance of the rate of interest all over the world in this as compared with the last century, and that is the vast addition made to the coinage of the world.  The discovery of gold and silver caused an advance in the rate of interest.  Why ?  Because every man who loans money now, especially on long time, knows that he will be paid off at the end of the period in a commodity with less productive, purchasable power than he loans.  The actual depreciation in gold and silver coin for a number of years has been a little over one per cent. per annum, so that if a man now lends $1,000, payable in gold twenty years hence, he will get back his $1,000 at the end of twenty years with one fifth of its purchasable power shorn off by the additions in the meantime to the value of the gold and silver of the world.  The truth is now that while real estate is advancing money is depreciating.  All productions are advancing, while the relative power of gold and silver coin to other commodities is diminishing.  A productive four per cent. investment in real estate is a more profitable investment than six per cent. in the best bonds in the world.  Why ?  Because those bonds in the future will be paid off in gold and silver coin when it has less purchasable power than it has now, while the lands, by the gradual increase of the country, are increasing in value.  The one diminishes at the rate of one percent. per annum, according to the best statisticians, and the other increases in this country at the rate of one and a half per cent. per annum.

Mr. Stewart.  Allow me to suggest that that depends on the continued production of gold.

Mr. Sherman.  If California and Nevada give out there is plenty of gold in other portions of the world.  There is no danger of any diminution of the quantity.  It has been going on increasing year by year, and I have no doubt this process will go on for a hundred years, perhaps for a thousand years, to come.  The gradual diminution of the relative value of gold and silver has gone on since the dawn of light in the Middle Ages.  In England the difference between the intrinsic value of the pound sterling now and what it was three hundred years ago is nearly six hundred per cent.  I believe Macaulay puts it much higher than that for even two hundred years.  This process is going on continually;  and therefore the rate of interest is increasing as the commodity in which the money is to be eventually repaid is diminishing in value.

Besides that, we have the new wants of mankind -- wants that our ancestors never dreamed of.  The value of the steamboats of this country is more than the whole amount of the national debt at the close of the revolutionary war.  You cannot, therefore, test this question by what England may have done one hundred years ago.  She may have reduced her rate of interest to three per cent.;  but how was it done ?  It was done by selling her bonds in time of war at a discount of twenty, thirty, or forty per cent., and then, when peace came, availing herself of the condition of the money market at favorable moments to reduce the rate of interest.

I say, Mr. President, we cannot negotiate a bond bearing a less rate of interest than five per cent. except first by increasing and depreciating the greenbacks, and that certainly we ought to oppose to the utmost;  or second, by the English plan of selling the loan below par, to which our people are not accustomed, and to which they would not submit.  That resort would increase nominally the public debt.  Even if the rate of interest should be more favorable, the popular judgment would condemn it, because they look upon a debt as a temporary thing to be paid off in full, and not, as in England, a permanent thing, the principal of which is never to be paid, and the interest only to be provided for.

There is this great difference between our system and the English system.  In England they sell their credit below par.  They fix the rate of interest and they sell securities in open market at what they will bring.  In this country we fix the price of our bonds at par and ask money lenders at what rate of interest will you loan us money.  That is the difference.  Why is it so ?  Because in England they do not anticipate the payment of the principal.  I have before me the statement of one of the most eminent writers on English finance, who says that the system of England is a vicious one.  William E. Gladstone, in a recent speech made by him in Parliament, declared that the system of finance by which the English have perpetuated their debt for ages is a vicious one.  Here is what Sir Robert Hamilton says on that subject:

"In the early part of the funding system the capital assigned to the public creditor seldom exceeded the sum advanced by him.  We find only two slight deviations from this rule during the seven years' war and one in the American war, before 1781.  Annuities for years or lives were granted as a bonus on many of the loans during these periods.  Afterward, when the difficulty of raising loans increased, capitals were assigned to the creditors much higher than the sums advanced, and this practice has been continued since to a great extent.

"It has been maintained in the House of Commons on the part of ministry.  And, if we mistake not, even admitted by the Opposition, that it was the duty of a financier to raise the loan at the least annual expense it could be procured for, without regard to the amount of the nominal capital.  We apprehend that this opinion is indefensible, except upon the supposition that all views of discharging the national debt, or any part of it, are forever laid aside;  and that the measures founded on it are very pernicious.  The nation ought to pay no more in discharge of debt than the sum borrowed, together with the interest during the time the debt subsists.  By the system now followed it pays, besides, the excess of the capital assigned above the sum borrowed, in case the redemption be at par;  or, if the price of the funds enable the public to redeem the debt on lower terms, the nation pays, in addition to the sum borrowed, the difference between the price of stock at the times of borrowing and paying, which is always great."

There is another way in which I suppose we might negotiate a bond at a low rate of interest;  and that is, by postponing the payment of the principal to an indefinite period.  That, however, is against the American notions of finance.  Our people have always looked upon a debt as a burden to be paid off as rapidly as possible, and public opinion and good policy would not tolerate the making of a very long loan, and I for one would not, under any circumstances, vote for one which it would not be within the power of the Government to redeem within twenty years.  When we were involved in the war we always reserved the right of redemption.  The idea of redeemability was always ingrafted in all our loans.  I would not desire to see loans made except with that power reserved, so that when a favorable opportunity offered we might step forward in strict accordance with the public faith and redeem the principal of the bonds by paying the amount.

The public is already familiar with the ten-forty five per cent. loan.  They know what it is.  It is known in every cabin in all this land.  A bond at four per cent. or any other less rate of interest would be looked upon as confiscation;  you could not negotiate it;  five per cent. is now about par, and we can sell a five per cent. bond without increasing the greenbacks a single dollar.  I do not desire to see the greenbacks increased beyond their present amount.  There is no necessity for it.  We can reduce the rate of interest from six to five per cent. without increasing the volume of greenbacks, and we can thus save to the people of this country $17,000,000 in gold per annum without deranging the currency, without disordering the money market, without depreciating our credit.  I do not desire to force upon the market a loan bearing a lower rate interest, which will either require more greenbacks to float it, or require us to sell it below par, or require us to prolong the tune of payments.  We can negotiate a five per cent. loan now in the present state of the money market, disordered as it is by political complications, and I desire to secure that, maintaining, however, the right within a reasonable time, say ten years, to make a further reduction to four per cent., if we can, after that to three per cent. or whatever public credit will allow;  but the attempts now to reduce the rate of interest to four per cent. would be regarded in this country and abroad as a species of confiscation.

The Payment of the Principal.

The section of this bill in regard to the payment of the principal of the debt only establishes the general idea that the debt itself shall be paid in a period of time.  The Committee on Finance, after much reflection, agreed to fix the amount which should be annually applicable to the payment of the principal and interest of the debt at $135,000,000.  The amount of the interest now is $129,500,000, so that we appropriate about five and a half millions to the payment of the principal;  but, as a matter of course, this sum being applied annually, while both the principal and the interest of the debt is being reduced;  partly by funding, partly by payment, partly by the operation of this law, the interest will gradually be decreased, and the amount applicable to the principal will thus annually increase.  If all our debt is funded into a five per cent. loan except the long bonds of 1881, and the amount should be $2,200,000,000, leaving outstanding the present amount of greenbacks and no more, the interest on the debt would cease to be a burden, and the difference between the amount appropriated and the amount required to pay the interest would gradually pay off the principal of the debt.  I have a table, prepared at the Treasury Department, showing the precise operation of this plan, by which it will appear that it would pay off the debt by 1909.

This plan is free from the objection made to our former sinking fund, which is a fund placed in the hand of commissioners, to be invested annually.  It is in constant danger of being diverted from its purpose.  This appropriation will, on the contrary, be applied constantly to the payment of the national debt.  It so happens that our debt can be arranged under this funding bill so that some of it will be due every year for many years.  Some of it will be within our reach within periods of two years for more than twenty years to come;  so that by the application of this specific sum we can pay off the principal of the debt.  When the bonds are below par we can buy them in the market;  when they are equal to par we can pay them off;  and under the operations of the bill, which, I believe, received the general assent of the committee, the whole debt will be paid off in a period of forty years.

Conversion of United States Notes.

Mr. President, I desire now to make a few observations in regard to the sections of the bill relating to the United States notes;  and these I consider as vitally important.  We propose to restore to the United States note the right to be funded at the pleasure of the holder into the new bonds whenever he desires.  There is more ground of discontent and more real discontent among the people of this country because of the discrimination made between the bondholder and the holder of the greenback than from any other cause.  You compel every citizen of this country to take the greenback as money, willing or unwilling.  It is the measure of the value of his labor;  and yet it has no purchasable power except the hope that in some future time the United States will redeem it.  It may be forced upon another man in payment of a debt;  it may be applied to pay taxes;  but it cannot be converted into income except at a discount.

A man cannot take United States notes payable on demand to any broker and receive in exchange any form of security issued by the United States.  There is a wide discrimination made between the bondholder and the noteholder, which gives rise to popular clamor and is the cause of a great deal of just complaint.  In 1863 we were compelled for wise purposes to take away the right of the holder of the greenback to fund it, because we wished then to force our loans upon the market;  and while that right was outstanding we could not do it.  Now that the war is over, that the whole process of funding is intended to be voluntary at the discretion of the noteholder, we ought promptly to restore this right to allow the note to be converted at any time into some kind of bond;  and we propose also to allow the bond to be converted into notes keeping within the limit of notes fixed by law.  Then there is no discrimination;  the bondholder and the noteholder are both public creditors;  both depend upon the public faith.  The noteholder may go to the Treasury of the United States and demand his bond;  the bondholder may go also and demand his note.  They are put on a basis of equality.  This destroys all speculation in Government securities.  Both will then stand on the same footing, and both will be of equal value.  The noteholder may at his option draw interest in gold by converting it into bonds, and the popular cry of demagogues that we have provided gold for the bondholder and notes for the people will be silent.

And, sir, there is now no reason why the note issued to the laboring man should now be less valuable than any other form of Government security.  It makes one of those salient points before a popular audience just and correct, which is the cause of complaint, and will be until it is removed.  An important effect of this provision will be to furnish money to redeem the bonds or any other securities that offer, and without resorting to a sale of bonds.  I do not propose, nor do the committee contemplate, the issue of any new greenbacks.  We suppose that the process of funding these notes, they pouring into the Treasury, will furnish ample means to redeem all the outstanding bonds and securities as they become redeemable.  I have no doubt the same process will go on here that occurred in Europe -- a very small amount of money will pay a large amount of bonds.  The mass of the bonds will be exchanged without money.  The transactions paid by money compared with the transactions paid by checks and other forms of paper are as one to a thousand.  The daily balances in the exchanges in the New York clearing-house amount to many millions, and yet the amount of currency to pay these balances is often less than one per cent. of their nominal amount.  Other reasons may be given for the new feature of this bill giving the holder of these bonds the right to convert them into notes.  This is indispensably necessary to guard against sudden contraction and panic.  There are times when the notes will float into bonds so rapidly as to contract the currency, and thus derange business and prevent the movement of crops.  This privilege will give flexibility and movement to the currency of the country.  Every exchange will be a benefit to the Government.  If the holder of a Government security bearing interest surrenders it to the Treasury for a note without interest the United States saves the interest.  If, on the contrary, the notes are funded for a bond the notes may be used in the redemption of other bonds bearing a higher rate of interest.  If the money-market becomes stringent, if currency becomes scarce, the holder may be willing to surrender his bond bearing five per cent. interest in gold in order to get currency with which to pay his debts, and why not give him that privilege ?  It is a benefit to the United States, and it is the only mode by which, during the suspension of specie payments, we may make a flexible currency.

And, sir, this loan will be the great saving fund of the people of the United States.  Every man having money for a time idle will float it into these ten-forty bonds, and while we have the money we shall pay off bonds bearing a higher rate of interest.  When he desires it again, he can come back and get the bond, and so this operation may be carried on with perfect safety.  Now the deposits in the saving banks amount to over five hundred million dollars.  Why should not this money be deposited in the Treasury ?  Why should not these little streams of the savings of the laboring man help to float the public credit ?  The Government of the United States ought not to feel too high to acknowledge the services of such a fund.  They will be useful.  They will enable the depositor to get the full value of his money.  Now he deposits in savings banks, where he gets four or five per cent. interest in paper money.  Under this provision he may put his money in these bonds, and the money thus deposited will enable the Government to pay off bonds bearing a higher rate of interest.  In every view we could take of this proposition, after the most ample consideration, we thought it was a wise provision, and would work well.  The trouble and cost of printing these bonds and exchanging them one for another, being carried on at the Treasury Department or at the depositories, or other proper places of exchange, will be done without cost except that of printing.  It is purely voluntary, and will be adapted to the wants of trade.  It will tend to give increased value to the United States notes;  and my firm conviction is that under this process both notes and bonds will gradually rise, step by step, until they reach the standard of gold, and then this whole process ceases according to the provisions of the bill.  I look upon this provision as the most rapid way to specie payment.

The only other section of the bill to which I have not alluded is that which legalizes contracts in gold.  That is right in itself.  I always supposed that the legal-tender act was not intended to affect the right of the people to negotiate, buy, and sell gold, if they chose.  Some of the courts, however, have decided otherwise.  Whatever the law may be, there is no objection to unlocking the hoards of gold, and allowing the people to deal in it as they choose.  It makes another addition to the currency, and will gradually make our people become accustomed to dealings and transactions in gold and will tend in the right direction.  Where one man lends gold to another man, it is equitable that he should have gold back in payment, and it is very inequitable for the debtor in such a case to refuse to pay it, and make a fraud of the law.  I think it will be beneficial to insert this provision, because dealing in gold will have a tendency toward specie payments.

I have thus, Mr. President, presented the leading provisions of this bill.  I appreciate the difficulties of the subject and the personal responsibility I assume in advocating a measure that may fail of its purpose.  It is far easier to sit quiet, to propose nothing, and criticise the measures of others;  but such I do not understand to be the duty of your Committee on Finance.  We are actuated by the earnest desire to reduce the burdens of the people without injury to the public credit or injustice to the public creditor, by a firm conviction that the offer here made to the bondholder is fair, equitable, and honorable, and that its acceptance would not only save an annual expenditure of $17,000,000 in gold, but would settle, upon a proper basis, all uncertainty as to the mode of payment of the public debt, and still leave open, after a reasonable time, a further reduction of interest, if practicable.  Further than this the committee does not go.  It does not provide for a rejection of this offer;  but I repeat, that if this offer is rejected I will not hesitate to vote to redeem maturing bonds in the currency in existence when they were issued and with which they were purchased, carefully complying, however, with all the provisions of law as to the mode of payment and as to the amount of currency outstanding.  This conclusion I have arrived at against the earnest arguments of personal and political friends and against my own personal and pecuniary interests.

But, Sir, I saw two years ago -- and we all see clearly now -- that the existing relation between the public creditor and the tax-payer, by which the former enjoys all the blessings of a Government without cost, receives without diminution a higher rate of interest than your courts would enforce between citizens, and may demand payment of the principal in gold for paper lent, while your courts refuse to enforce a special contract for the return of gold for gold.  Such a system cannot endure in a Government not entirely despotic without creating discontent that may endanger the fair and equitable performance of the public engagements.  You cannot disguise your knowledge of this growing discontent.  The unavoidable effect of approaching specie payments in reducing prices and shrinking values will increase this discontent.  In that painful process the people will see that the untaxed productive annuities of the bondholder alone will be increased in value, while all other forms of property will be reduced in value.  It is not the interest, nor do I think it will be the desire, of the public creditor to invite this discontent.  The same motive that induced him to trust the Government in its hour of peril will induce him to accept equity from those who are willing to do equity.  And, sir, his patriotism will not be lessened when he reflects that while his money aided in the good cause it has been the most profitable investment of capital he could have made.

Senators often tell us that we must not be influenced by public discontent or clamor.  I agree with this when the discontent is not founded upon substantial equity, but when it is founded upon equity it will make itself felt through you or over you.  And Senators must remember that this is a Government of the people, for the people, and by the people.  It is not, like the Government of Great Britain, a despotic oligarchy, where the rights of property override the rights of persons;  where the laws are made to add to the accumulations of the rich, though hundreds of thousands may thereby be pinched with poverty.  That is the land of entails, where the offices of the church are bought and sold as property, and where all that is good in life -- office, honor, property -- is confined to less than one tenth of the population -- where the laws are studiously framed to exclude the poor from all political rights.  We borrow from these people of kindred blood many of the best guards of liberty, but we must take care not to ingraft on our republican system the leading feature of their present Government, the supremacy of property over labor.

Their wealth consists of vast accumulations of property produced by ages of labor.  A generation adds but little to this aggregate of wealth;  therefore their laws protect property at the sacrifice of labor.  Here all the acquisitions of the past, all the accumulations to this hour, are only equal to the accumulations that will be made by labor during the next ten years.  Our wealth is in the energy and sinews of thirty million free people -- all equal -- each working for himself, with no privileged hand to press him down in the race of life.  It is this that has made our history like the tales of Arabian fiction.  Our railroads alone, built since we were all young, are worth $1,600,000,000, or more than the property of the United States when she took her place among the nations of the earth.  The property of the State of Ohio is now worth more in gold than that of all the colonies when they proclaimed independence;  and yet Ohio was then a pathless wilderness where no white man dwelt.

The entire debt of the Revolution, which Alexander Hamilton approached with terror, which our ancestors debated over for years, upon which parties were formed and dissolved, was $75,740,111.30, including over seventeen million dollars of State debts assumed;  and yet now we appropriate one half of that sum for pensions, and will this year reduce our current expenses more than that sum.  All this vast progress is the result of labor.  To encourage, maintain, and reward labor must be the principal object of our legislation.  Capital can take care of itself.  It has many advantages in competition with labor.  It may be idle -- labor cannot be.  It does not grow hungry;  it does not become cold or sick, while the hand of labor most be supported by food and clothing, and awaits sickness and death.  Capital is only useful to the country as it gives employment to labor, as a means to further development, while all labor tends to create new wealth.

When capital is invested in Government bonds it is useful, so far as further development is concerned, only in supplying the wants of the owner.  When employed in most other pursuits it adds to the national wealth.  Certainly it is not the public interest to make this investment so profitable and attractive as to draw into it the capital of the country or to make it so permanent as to become a privileged aristocracy.  No privilege should be granted to the bondholder that is not granted to the noteholder.  Both are public securities, and both, and equally, can appeal to the public faith.  No privilege should be given to the bondholder unless it is compensated for by some advantage reserved by the Government, and the whole public debt should be made to assume such form that it may be a part of the circulating capital of the country bearing as low a rate of interest as practicable, and only with such exemptions as will maintain it at par with gold.  Whether this bill will promote these objects it is for the Senate to say.  I confidently believe it will.  I do not appeal to any party for the support of this measure, for it affects all alike.  All must contribute to the public taxes, and all will share in the benefit of any relief.

But while we trust our political adversaries may support this as a measure of relief to our constituents, yet the fate of the bill must rest mainly upon the Republican party.  It is my pride and hope that this powerful political organization, having conducted the country with safety and honor through the most memorable scenes of our history, may, still retaining the confidence of the people, gradually guide them back into the channels of peace, reduce their burdens, relieve them from oppressive taxes, and start again in productive labor the millions now waiting to develop the greatest country God ever gave to man.

Now distrust seizes upon every one.  Wild schemes have been proposed, which drive capital from its moorings.  Taxes are bearing heavily upon unprofitable industry, and complaints are made of the burden and distribution of these taxes.  Sectional divisions are already showing their hydra heads, and disputes as to the terms of public engagements cast doubts upon the public faith.  It is in such a time that Congress is able to perform its highest duty -- that of an arbitrator.  Upon questions involving the public debt it is the only arbitrator.  It cannot shrink from this duty.  I trust, sir, before this session closes, that Congress will provide for the redemption of our maturing bonds, thus saving ultimately $17,000,000 a year;  that it will adopt such measures as will gradually make the dollar in greenback in the hands of the laboring man equal to a dollar in gold;  that it will throw off the great mass of our internal taxes, and reduce our ordinary expenses to the lowest practicable limit.  These measures adopted, we may safely leave to our constituents the renewal of trade, the restoration of confidence, and the development of industry.

Mr. Henderson.  I move to amend the amendment of the Committee on Finance, in section one, line seven, by striking out the word "five" and inserting "four," so as to make four per cent. the rate of interest of the proposed loan.  As I did not anticipate this measure would be called up during this week, I am not prepared, and have not my notes with me so as to be able to proceed in submitting any remarks to the Senate this evening on the subject;  but I desire to submit this amendment at present without making any motion in reference to the bill, so that, if any other Senator desires to address the Senate on the subject, he can do so.

Mr. Morrill, of Vermont.  I desire to obtain the floor at an early time for the purpose of submitting some remarks upon this bill, and another that belongs to it, and if the Senator from Missouri does not choose to go on now, or does not prefer to go on next, I will move that it be postponed until such time as shall be convenient to the Senate to take it up again, the earliest convenient time.

Mr. Henderson.  Say Monday.

Mr. MORRILL, of Vermont.  Very well;  I will say Monday next, at one o'clock.

Mr. Cattell. [Alexander Gilmore Cattell, (1816-1894), banker]  Before the question is put on that motion I desire to say a single word.  The chairman of the Committee on Finance, in the course of the interesting speech to which we have just listened, has with great fairness stated that the committee are not a unit upon the various propositions contained in the bill now under consideration, and that in the expression of his views he spoke for himself and not for the committee.  With this statement, perhaps, I ought to be content;  and yet I differ so widely from one of the conclusions to which the Senator arrives that I do not feel at liberty to permit his remarks to go to the country, from which the inference might be drawn that on this point the committee were agreed, without expressing my decided dissent.  I cannot concur in the opinion that we can either legally or morally redeem the five-twenty bonds in currency.  This opinion I expressed fully in committee;  and I desire to say now, inasmuch as the Senator from Ohio declares if the proposition contained in this bill is not accepted by the holders of the five-twenty bonds, he shall feel himself at liberty to vote for their payment in greenbacks, that so long as I have the honor of a seat in this Chamber I shall feel it my conscientious duty to cast my vote in the opposite direction.  All I propose by the bill now before us, and I consider it a wise one in that view, is to submit the proposition for the exchange to the holders of the bonds at their option, giving them a longer bond, with positive and indisputable conditions, and freedom from taxation, as the equivalents for the lower rate of interest.  If they choose to accept the offer, very well;  but if not, they stand just as they do now, on the terms of their bonds, be they what they may.

Mr. Sherman.  I hope that my friend and all the Senate understand me on that point;  that as to what shall be done afterward we are all free, perfectly at liberty.  I certainly did not commit anybody but myself.

Mr. Cattell.  The Senator very fairly stated that the committee did not concur in all the points in the bill, and now disclaims the intention of committing anybody but himself.  I shall feel it my duty, perhaps, at some future time to address the Senate on the subject now before them, but I feel that I could not, as a member of the committee, say less than this on the present occasion.

Mr. WILSON.  I believe the motion is to postpone the bill until Monday or Tuesday.

Mr. Morrill, of Vermont.  Monday next, at one o'clock.

Mr. WILSON.  I hope the vote will be taken on that motion.

The motion was agreed to.