“An Act to Forbid the Further Retirement of United States Legal Tender Notes
“Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That from and after the passage of this act it shall not be lawful for the Secretary of the Treasury, or other officer under him, to cancel or retire any more of the United States legal tender notes. And when any of said notes may be redeemed or be received into the treasury under any law, from any source whatever, and shall belong to the United States, they shall not be retired, canceled, or destroyed, but they shall be reissued and paid out again and kept in circulation: Provided, That nothing herein shall prohibit the cancellation and destruction of mutilated notes and the issue of other notes of like denomination in their stead, as now provided by law.
“All acts and parts of acts in conflict herewith are hereby repealed.”
I recommended the passage of this law, as I believed that the retirement of the greenbacks pending the preparation for resumption, by reducing the volume of the currency, really increased the difficulties of resumption.
The session of Congress closed on the 26th of June, 1878. During the recess the business of the department proceeded in the ordinary way, without any event to attract attention, but all that happened tended in the right direction. The crops were good, confidence became assurance, and all business was substantially based upon coin.
In consequence of the sale of four and a half per cent. bonds for resumption purposes the return of Mr. Conant to London became necessary. His numerous letters advised the department of the current of financial operations in Europe. There was some fluctuation in the relative price of United States notes and coin, chiefly caused by our demand for gold and the appearance in the market of bonds of other countries. At one period the sale of four and a half per cent. bonds became more rapid than the contract provided for, and this rapid accumulation of coin tended to advance its price, which I desired to avoid, and, therefore, strictly limited the sale of the four and a half per cent. bonds to $5,000,000 a month, thus preventing an unusual demand for coin. During this period there was a constant effort of banks and bankers, chiefly in New York, to have some exceptional privilege in the purchase of four per cent. bonds. This was in every case denied. The published offer of the sale of these bonds was repeated during every month, and the terms prescribed were enforced in every instance without favor or partiality.
On the 12th of July W. S. Groesbeck, one of the members of the monetary commission about to assemble in Europe, applied to the department for information that would enable the American conferees to assure the conference that the United States would resume by the time fixed, and should therefore be regarded by the conference as not in a state of suspicion. I responded to his letter as follows:
“Treasury Department, }
“Washington, D. C., July 15, 1878.}
“William S. Groesbeck, Esq., Cincinnati, Ohio.
“Dear Sir:—Your letter of the 12th instant was received during my temporary absence, and I comply with your request with pleasure.
“Accompanying this I send you sundry documents, duly scheduled, which contain in detail the law and my views on the resumption question.
“Among these papers is a letter from the treasurer of the United States, of date July 6, showing the exact coin on hand for all purposes, a careful examination of which will prove to you our ability to resume at the time fixed by law.
“It will be perceived that we have on hand in the treasury coin enough to cover all our coin liabilities of every name and nature, and also thirty five per cent. of the aggregate amount of United States notes outstanding, with an excess of $2,474,822. We have also $7,139,529 of fractional silver coin, which will be used for current expenses.
“Of the United States notes outstanding, at least sixty millions are held in the treasury, either as the property of the United States or as special funds for purposes prescribed by law, which cannot readily be diminished.
“In addition, the secretary is authorized to sell bonds for the purchase of coin or bullion, and he may use United States notes for the same purpose. Our revenue, both in coin and currency, is more than sufficient to pay all current expenses covered by the appropriations of Congress.
“Considering that the United States notes are scattered over a vast country, are in great favor and demand, and extremely popular, I feel entire confidence in the ability of the treasury to resume on the 1st of January next, and the leading bankers and brokers of New York are of the same opinion.
“I know of nothing that can prevent the United States from taking its place among the specie-paying nations at this time, except the possible repeal by Congress of the resumption act, and this I do not anticipate.
“Very respectfully,
“John Sherman, Secretary.”
CHAPTER XXXIV. A SHORT RESPITE FROM OFFICIAL DUTIES. Visit to Mansfield and Other Points in Ohio—Difficulty of Making a Speech at Toledo—An Attempt to Break up a Meeting that Did Not Succeed—Various Reports of the Gathering—Good Work of the Cincinnati “Enquirer”—Toledo People Wanted “More Money”—Remarks Addressed to the Cincinnati Chamber of Commerce—Visit to Lancaster, the Place of My Birth—My Return to Washington—I Begin to Exchange Silver Dollars for United States Notes—My Authority to Do So Before January 1 Questioned—The Order is Withdrawn and Some Criticism Follows—Instructions to the United States Treasurer and Others— Arrangements with New York Clearing House.
In the latter part of August, 1878, I made a visit to Ohio, first going to Mansfield where I was cordially received. In the evening I was serenaded, and after the band had played several times I went to the steps of the hotel and made a few impromptu remarks, reported as follows by the local paper:
“Fellow Citizens:—I thank you heartily for the courtesy of this serenade, and especially the members of the band who have favored us with their excellent music. I will be here with you but for a few days, and welcome with joy the sight of home, and the familiar faces and scenes around me. I do not desire to say anything of politics, or of matters upon which we do not agree, but prefer to meet you all as old acquaintances and townsmen, having common interests and sympathies as to many things as to which we do agree. And I especially congratulate you upon the bountiful harvests, fruitful orchards and reviving prosperity with which you are blessed. I will be glad to shake hands with any of you, and to talk with you free from all artificial restraints.”
I went from Mansfield to Toledo, where I had agreed with the state central committee to make a speech, and where the opposition to resumption was stronger than in any other city in the state. Here the so-called National party had its origin. I knew a great many of the citizens of Toledo and the prevailing feeling on financial topics. I, therefore, carefully prepared a speech, covering all the leading questions involved in the campaign, especially all that related to our currency. The meeting was held August 26, in a large opera house, which would seat 2,500 people. I found it full to overflowing. Every particle of space in the aisles was occupied and it was estimated that 3,000 people were gathered within its walls. I will give the narrative of a correspondent of the St. Paul “Pioneer Press,” who was an eyewitness of the scenes that followed:
“Secretary Sherman was not received with that hearty greeting common to a man of such prominence at first, while the organization that had been picketed in different parts of the hall at once commenced hissing at the first sight of the tall, slender form of the speaker. Until his introduction the emotion was the same, and as soon as he commenced to speak he was interrupted with jeers and insults from what Nasby, in his paper, called the ‘hoodlums of the city,’ who came organized and determined to break up the meeting without giving the speaker a chance to be heard, by shouting at the top of their voices such insults as ‘You are responsible for all the failures in the country;’ ‘You work to the interest of the capitalist;’ ‘Capitalists own you, John Sherman, and you rob the poor widows and orphans to make them rich;’ ‘How about stealing a President;’ ‘Why don’t you redeem the trade dollar?’
“These, with many other like flaunting sneers, were constantly indulged in by the disorderly element, which had been distributed with care throughout the hall. So boisterous and moblike was their behavior that it was apparent several times that it would be impossible to maintain order, and notwithstanding the speaker stated that if any gentlemen wished to ask any question, upon any point that he might discuss, in their order, he would be glad to answer them, and invited criticisms, but one such question was asked by Mr. F. J. Scott, one of the leading lights of the Nationals, who wished to know the difference between ‘fiat’ money and greenbacks; the speaker replied: ‘Fiat money is redeemable nowhere, payable nowhere, for no amount without security, at no time, and without a fixed value; while greenbacks are redeemable in specie at par, at a fixed time, and secured by the pledge of the government.’
“By this ready, pointed and satisfactory answer the speaker turned the tide, and the applause was hearty in his favor. When answering Judge Thurman the speaker alluded to the charge made by him that the ‘Republican party was the enemy of the country.’ Then, after calling attention to the war record of the Democratic party, the speaker said: ‘Who is the enemy of the country?’ [A voice from a ‘hoodlum,’ ‘John Sherman.’] ‘Why,’ says the speaker; ’because he has brought greenbacks up to par value, and is in favor of honest money?’ This was another cause for an outburst of applause and approval to the speaker, although it was very doubtful, in the beginning of the speech, whether he could carry enough of the vast audience, with the large disturbing element opposing intermingled among them, with him. But long before the closing of his discourse it became apparent that John Sherman is able to defend his position, even in the camp of the enemy, while the ungentlemanly acts of the disorganizing element were disgusting to the better element of their party. It also effectively revived the lukewarm Republicans in this community, and it may be well said that John Sherman did what no other man could have done, that is, to go to a place like Toledo, stand before an organized party which was determined to prevent his speaking, while his own party was lukewarm toward him —it was frequently asserted here ‘John Sherman had not a single friend in the city’—and during his speech of two hours turn the popular tide in his favor, as was evident he did from the hearty applause he received as he proceeded in his remarks; and it is safe to say that no man in these United States could have done the Republican cause, in this place, the good that Secretary Sherman did by his speech, and the ‘Toledo National hoodlums,’ in their efforts to break up the meeting, ’gave the old man a reception,’ as was remarked on the streets; but throughout his speech he kept his temper, kept cool and considerate, made remarks of cheer by saying, ‘This is only a love feast,’ and ‘We will feel better natured after a while, as we become better acquainted,’ etc., etc.”
The narrative given by the correspondent is perhaps a little exaggerated, but the general outlines are correct, as I very distinctly remember. The result was that my carefully prepared speech was knocked into “pi,” and I had to depend upon the resources of the moment to make a speech suitable to the occasion and the crowd. The Cincinnati “Enquirer,” to which, as to other papers, a copy of the prepared address had been sent, had two stenographers in Toledo to report the speech as made and telegraph it to the paper. They did so and the speech as reported and published in the “Enquirer” was so much more sensational and better than the prepared speech that it was selected by the Republican state committee for publication as a campaign document. This enterprise of an unfriendly newspaper resulted to my advantage rather than my detriment, for on account of the interruptions the speech reported was much more readable than the other.
No doubt the feeling in Toledo grew out of the long depression that followed the panic of 1873, that for a time arrested the growth and progress of that thriving and prosperous city. The people wanted more money, and I was doing all I could, not only to increase the volume of money by adding coin to our circulation, but to give it value and stability. I have spoken in Toledo nearly every year since, and have always been treated with courtesy and kindness, and many of my best friends now in Toledo are among those who joined in interrupting me, and especially their leader, Mr. Scott.
From Toledo I went to Cincinnati. I have been for many years an honorary member of the Chamber of Commerce of Cincinnati, a body of business men as intelligent and enterprising as can be found anywhere. It has been my habit to meet them once a year and to make a short speech. This I did on August 28. The “Gazette” reported my visit as follows:
“Secretary Sherman was on ’change yesterday, and, at the close of the business hour, he was introduced by President Hartwell, and was greeted with applause, after which he spoke as follows:
‘Gentlemen:—It gives me pleasure to meet so many of the active business men of Cincinnati, even for a brief period. In the office which I hold I have a great deal to do with merchants, like these engaged in the exchange of the products of our industries, and I congratulate you, first of all, that this fall, by the bounty of Divine Providence, you will have to market the largest crop we have ever gathered in this country since the world was born.
‘In every part of our country, with but few exceptions, and only as to certain crops, are crops greater than ever before, and you will have to buy and sell them.
‘The only point of an unpleasant nature, that occurs to me, affecting the industrial interests which you so largely represent, is the misfortune which has befallen large portions of the south, where yellow fever, one of the worst enemies of human life, now has spread a pall of distress among our southern brethren. I am glad, fellow-citizens, that you are doing something to contribute to the relief of their sufferings, because business men, above all others, are to be humane and generous to those who are in distress.
‘That this will, to some extent, affect the business of gathering cotton, I have no doubt will occur to you all, but you can only hope that it will be but a brief season until the frost will dissipate the distress of the south and the cotton crop may be safely gathered.
‘There is another thing I can congratulate you upon as business men, that is—our currency is soon to be based upon the solid money of the world. I do not want to talk politics to you, and I do not intend to do so, but I suppose it is the common desire of all men engaged in business to have a stable, certain standard of value, and although you and I may differ as to the best means of obtaining it, and as to whether the means that have been adopted have been the proper means, yet I believe the merchants of Cincinnati desire that their money shall be as good as the money of any country with which we trade. And that, I think, will soon be accomplished.
‘Now, gentlemen, I do not know that there is any other topic on which you desire to hear from me. I take a hopeful view of our business affairs. I think all the signs of the times are hopeful. I think it a hopeful fact that, after this week, there will be an end of bankruptcies, that all men who believe that they are not in a condition to pay their debts will have taken the benefit of the law provided for their relief, and, after Saturday next, we will all stand upon a better basis—on the basis of our property and our deserved credit.
‘It has been the habit, you know, of one of your able and influential journals to charge me with all the bankruptcies of the country. If a grocer could not sell goods enough to pay expenses, and a saloon keeper could not sell beer enough to get rich, and took the short way of paying his debts, this paper would announce the fact that he had “Shermanized.” [Laughter.] And if a bank was robbed, or the cashier gobbled the money in the safe and left for parts unknown, this able editor announced that the bank had “Shermanized.” And thus this paper contributed largely to the very result it denounced. You understand how this thing works.
‘But we have passed through this severe crisis. It has been common in all countries and all states that carry on extensive commercial transactions with each other. I believe that we are through with this one; a ray of hope has dawned on us, and we are certainly entering upon a career of prosperity. Every sign of business is hopeful. We have paid off immense amount of our debts. We do not owe Europe anything of consequence. We have gone through the debt paying process. A few years ago we were running in debt at the rate of $100,000,000 a year, but lately we have been paying off our debt at the rate of $100,000,000 a year. From this time on we will be more prosperous. Take heart, you men of Cincinnati; you men who represent the great interests in this great city; you who live in the heart of the great west, take heart in the transaction of your business, because I believe you have reached a solid basis upon which to conduct your business profitably, the basis of solid coin.’”
From Cincinnati I went to Lancaster, the place of my birth, and where my eldest sister, Mrs. Reese, resides. I need not say that the visit was a pleasant one, for it was necessarily so. A great many among those whom I saw had been my associates in boyhood, and, as a matter of course, the topics of conversation were mainly of the past. A dispatch to the Cincinnati “Gazette” of the date of August 30, briefly describes my visit and gives the substance of a few remarks I was called upon to make by an impromptu gathering in the evening at the residence of my sister:
“The Lancaster band serenaded Secretary John Sherman this evening, at the residence of his sister, Mrs. General Reese. A very large crowd assembled on the occasion, and, in response, Senator Sherman made one of the neatest, pleasantest, and most satisfactory little talks heard here for many a day. Of course he began by touching upon his early boyhood, and some of the incidents of the same spent here in old Lancaster, the place of his nativity; told of his incipient struggles in life with the rod and chain on an engineer corps in the Muskingum valley; how he was ushered into the sterner vicissitudes of life, and how he drifted into politics; and then, without using the occasion for party purposes, without making a political speech, he explained in well selected language his position as an officer of the government; what was the course prescribed for him to do, how he was doing it, and concluding with a most clear and intelligible exegesis of the resumption act; what it was, its intent, purpose and meaning; and with convincing nicety and clearness, and evident satisfactoriness, was his explanation given, that he was frequently interrupted by spontaneous applause from the crowd. He told how the credit of the country was advancing as we near the solid foundation of hard money; how the American people were the most favored, the greatest blest, the freest and most prosperous people on the earth; how the signs of the times in busy shops and abounding field told of the disappearing hard times, and the dawning of an era of greater peace and prosperity.”
I returned to Washington, and at once proceeded to arrange with the treasurer and assistant treasurers of the United States to make the change from currency to coin easy. I conferred with General Hillhouse, assistant treasurer at New York, upon the subject and had his opinions verbally and in writing. I conferred freely with James Gilfillan, treasurer of the United States, and, as a result of these conferences, on the 3rd of September, I directed the treasurer of the United States, upon the receipt by him, from any person, of a certificate, issued by any assistant treasurer, designed depositary, or national bank designated as a public depositary of the United States, stating that a deposit of currency had been made to his credit in general account of the sum of one thousand dollars, and any multiple thereof, not exceeding ten thousand dollars, to cause a shipment to be made, from some mint of the United States to the person in whose name the certificate was issued, of a like amount of standard silver dollars, the expense of transportation to be paid by the mint.
The sole purpose of this order was to facilitate the circulation of standard silver dollars for all purposes as currency, but not to issue them so as to be used directly in making those payments to the government which were required to be made in coin. I wished to avoid their deposit for silver certificates. Officers receiving deposits of currency were expected, as far as practicable, to see that the silver dollars were put in circulation. Shipments, however, were to be made only to points in the United States reached through the established express lines by continuous railway or steamboat communication.
I regarded this as practically the resumption of specie payments in silver dollars, but the chief object aimed at was to secure a general distribution of these dollars throughout the United States, to the extent of the demand for them, without forcing them into circulation.
General Hillhouse recommended the payment of silver for all purposes, not only for circulation, but for the payment of bonds and customs duties. This I fully considered, but thought it best for the present to get into ordinary circulation among the people, in points remote from the ports of entry, as much silver coin as practicable, before offering it freely in cities where it would be immediately used for customs duties. I said: “If, within a month or so, we are able to reduce our stock of silver to five or six millions, I should not hesitate a moment to offer it then freely in New York and elsewhere, and run the risk of doing without gold revenue for awhile.”
On September 7 I issued the following order:
“Treasury Department, September 7, 1878. “Hon. James Gilfillan, Treasurer of the United States.
“Sir:—On and after the 16th day of this month you are authorized, at the treasury in Washington, and at the several sub-treasuries in the United States, to exchange standard silver dollars for United States notes.
“Very respectfully,
“John Sherman, Secretary.”
The question was raised in the public prints, and in the department, whether I had legal authority, under the existing laws, to pay silver dollars in exchange for United States notes before the 1st of January. It was plausibly urged that the payment of this coin in advance of the time fixed for resumption was the exercise of authority not authorized by law. I, therefore, on the 13th day of September, three days before the previous order would take effect, directed the treasurer of the United States as follows:
“Treasury Department, September 13, 1878.
“Hon. James Gilfillan, Treasurer United States.
“Sir:—Some question has been made whether the issue of silver dollars in exchange for United States notes, before January 1, next, is in entire accordance with the legislation of Congress bearing on the subject, and, therefore, you will please postpone the execution of department order of the 3rd instant until further instructions, and withhold from transmission to assistant treasurers the order of the 7th.
“Silver dollars will be issued as heretofore, in the purchase of silver bullion, in payment of coin liabilities, and in the mode pointed out in your order of July 19, as modified.
“With a view to their payment on current liabilities, you will request that each disbursing officer estimate the amount he can conveniently disburse.
“Very respectfully,
“John Sherman, Secretary.”
This change of my opinion was the subject of much criticism in the public prints. Some complained that I was unfriendly to the silver dollar and sought to prevent its use, and others complained that its use before the 1st of January as a substitute for gold coin was a violation of the law. My only purpose was to accustom the people to the use of the silver dollar in the interior of the country at places where it could not be used in the payment of customs duties. These could only be paid in coin, and, in view of resumption, I desired to strengthen the treasury as much as possible by the receipt of gold coin. The charge that I was guilty of changing my mind did not disturb me when I was convinced that I had exceeded my authority in the issue of the first order.
At that time there was an evident reluctance to pay coin into the treasury for four per cent. bonds sold, when, within a brief period, United States notes could be paid for such bonds. I therefore directed the treasurer of the United States: “Where deposits with national banks on account of subscriptions to the four per cent. loan have not been paid into the treasury within ninety days after the deposit was made, you will at once draw for the amount of such deposits, to be forthwith paid into the treasury, and as such deposits accrue under this rule, you will make such withdrawals until the whole is paid.”
I also directed the chief of the loan division as follows:
“No doubt most of the depositaries will place coin to their credit within the period of the call outstanding after subscriptions are made, according to the circular of the 1st ultimo, but if this is not done, the deposit must be withdrawn at the expiration of ninety days from the date of subscription.”
I also advised August Belmont & Co., that the department expected that by the 1st of October the remainder of the coin then due upon the four and a half per cent. bonds, both from the American sales and those made in London, would be paid into the treasury; that it was deemed best that this should be done, so that the account of this loan might be closed as soon thereafter as the books could be made up. This request was promptly complied with.
Early in October there were many rumors in circulation charging that prominent capitalists and speculators were combining to defeat resumption. Among them Jay Gould was mentioned as being actively engaged in “bearing” the market. About this period I received from him the following letter:
“578 Fifth Avenue, Oct. 17, 1878. “Hon. John Sherman.
“Dear Sir:—Referring to recent newspaper statements that I have been interested in movements either to tighten money or create a scarcity of gold and thus interfere with natural and early resumption, I beg to say that they are without the slightest foundation. On the contrary I feel a very deep interest in your efforts, so far eminently successful in carrying the country to a successful resumption.
“If resumption is made a real success it will be accompanied with substantial business prosperity and do more to strengthen and retain the ascendency of the Republican party than any and all other reasons.
“The real causes of the recent disturbances in the money market are the following:
“First. Government bonds have come back from Europe faster than investment orders would absorb them—the surplus are carried on call loans and have absorbed several millions of dollars.
“Second. The financial troubles in England are retarding the rapid movement of western produce. The elevators at Chicago and Milwaukee are full of grain; at Chicago alone about 7,000,000 bushels. The currency sent west to pay for this grain will not be released until the grain is marketed.
“Third. A large amount of foreign capital usually lent on call in Wall street has been transferred to London and Liverpool as money commands (or has until recently) better rates there than in New York.
“I remain, yours very truly,
“Jay Gould.”
The purchase of four per cent. bonds sensibly increased in October. As the six per cent. bonds could not be paid within ninety days after the call, the purchasers of the four per cent. bonds claimed the right to pay for such bonds in United States notes, which on the 1st of January would be redeemable in coin. To this I replied that as the sale of four per cent. bonds was solely for the purpose of refunding the six per cent. bonds, the proceeds of the sale must be such as could be lawfully paid for called bonds. “Under existing law the treasury is required to and will redeem in coin, on and after January 1, 1879, United States legal tender notes, on presentation at the sub-treasury in New York, and will then receive such notes in payment for four per cent. bonds. The department does not anticipate any change in the law that would operate to prevent this, but cannot stipulate against any act which Congress in its judgment may pass.”
Every facility which the law allowed to promote the easy change in the basis of our currency was carefully considered and adopted. The chief measure adopted was to promote exchanges in the clearing house in New York, so that only the balance of debits or credits would actually be paid. I requested Assistant Secretary French to examine whether, under existing law, such an arrangement was in the power of the department, and called his attention to previous correspondence in 1875 in the department on this subject. He came to the conclusion that the existing law would not justify such an arrangement. John Jay Knox, comptroller of the currency, however, favored the admission of the assistant treasurer of the United States at New York as a member of the clearing house. He said:
“The proposition is favored by the banks generally, and it is believed that the representation of the treasury department in the clearing house will facilitate the transaction of business between the department and the banks, and I therefore respectfully suggest that application be made for the admission of the assistant treasurer in New York to the Clearing House Association, provided it shall be found that there is no legal objection thereto.”
General Hillhouse also was strongly in favor of the plan proposed. He said:
“The plan of going into the clearing house was proposed in correspondence with the department several years ago, as a remedy for the risk incurred in the collection of checks, and if there are no legal impediments in the way, it would very much simplify the business of the office if it could be adopted. The effect in connection with resumption would also, I think, be good, as it would place the banks and the treasury on the same footing with respect to the use of United States notes in settlements, and thus aid in maintaining them at par with gold in all the vast transactions connected with our internal trade and commerce. I have not given the question sufficient thought to speak with confidence, but it seems to me a very important one, and well worthy of careful consideration.”
A committee of the clearing house called upon me and the subject was thoroughly considered. Mr. Gilfillan wrote to General Hillhouse as follows:
“Treasury of the United States.} “Washington, November 9, 1878. } “Sir:—By direction of the secretary, I have the honor to request that you will submit to the Clearing House Association of the banks of your city the following propositions, and, upon obtaining the assent of the association to them and communicating that fact to the department, you are expected to act in conformity with them.
“First. Hereafter, drafts drawn upon any bank represented in the Clearing House Association in the city of New York, received by the assistant treasurer in that city, may be presented to such bank at the clearing house for payment.
“Second. Hereafter, drafts drawn on the assistant treasurer at New York may be adjusted by him at the clearing house, and the balances due from the United States may be paid at his office in United States notes or clearing house certificates.
“Third. After the 1st of January next, payment of checks presented to the assistant treasurer by any bank connected with the clearing house may be made by him in United States notes.
“Very respectfully,
“James Gilfillan, Treasurer United States.
“Hon. Thomas Hillhouse, Assistant Treasurer United States, New
York.”
General Hillhouse, on the 12th of November, advised me of the receipt of this letter, and that the propositions of the treasurer were referred to the Clearing House Association, that a meeting would be held and there was little doubt but that they would be accepted.
On the same day the Clearing House Association, fifty out of fifty-eight banks, members of the associations, being present, unanimously adopted the following resolutions:
“Resolved, That in order to facilitate the payment of drafts and checks, between the treasurer of the United States and the associated banks, the manager of the New York clearing house is authorized to make such an arrangement with the assistant treasurer as will accomplish that purpose through the medium of the clearing house.
“Resolved, That the reported interview between the members of the clearing house committee and the Secretary of the Treasury, with the views expressed by them to him in the paper presented to this meeting upon the subject of the restoration of specie payments, meets the cordial approbation of this association, and that the practical measures recommended for the adoption of the banks in respect to their treatment of coin in their business in the public, and with each other, be accepted and carried into practical operation; and, in pursuance thereof, it is hereby further
“Resolved, That the associated banks of this city, after the 1st of January, 1879, will, first, decline receiving gold coins as ‘special deposits,’ but accept and treat them as lawful money; second, abolish special exchanges of gold checks at the clearing house; third, pay and receive balances between banks at the clearing house, either in gold or United States legal tender notes; fourth, receive silver dollars upon deposit only, under special contract to withdraw the same in kind; fifth, prohibit payments of balances at the clearing house in silver certificates, or in silver dollars, excepting as subsidiary coin, in small sums (say under $10); sixth, discontinue gold special accounts, by notice to dealers, on 1st of January next, to terminate them.
“Resolved, That the manager of the clearing house be requested to send copies of the proceedings of this meeting to clearing houses in other cities, with an expression of the hope that they will unite in similar measures for promoting the resumption of coin payments.”
I accepted in the following note:
“Treasury Department, }
“Washington, D. C., November 13, 1878.}
“George S. Cox, President American Exchange National Bank, New York.
“Sir:—Your letter of yesterday, advising me of the adoption by the Clearing House Association of the result of our recent interview, is received with much pleasure.
“The end we all aim at, a specie standard and a redeemable currency, is greatly promoted by the judicious action of the banks, and I will, with greater confidence, do my part officially in securing the maintenance of resumption.
“John Sherman, Secretary.”
This arrangement, entered into with care, proved to be a measure of very great advantage to the government as well as to all business men engaged in the great commercial operations of New York. The necessary details to carry this agreement into effect were arranged between General Hillhouse, for the United States, and W. A. Camp, manager of the New York clearing house.
CHAPTER XXV. INVESTIGATION OF THE NEW YORK CUSTOMHOUSE. A General Examination of Several Ports Ordered—No Difficulty Except at New York—First Report of the Commission—President Hayes’ Recommendations—Letter of Instructions to Collector C. A. Arthur —Second Report of the Commission—Losses to the Government by Reason of Inefficiency of Employees—Various Measures of Reform Recommended—Four Other Reports Made—The President Decides on the Removal of Arthur, Cornell and Sharpe—Two Letters to R. C. McCormick on the Subject—Arthur et al. Refuse to Resign—The Senate Twice Refuses to Confirm the Men Appointed by the President to Succeed Them—Conkling’s Contest Against Civil Service Reform—My Letter to Senator Allison—Final Victory of the President.
At the beginning of the administration of President Hayes, and for months previous, there had been complaints as to the conduct of business in the principal customhouses of the United States. This was especially called to my attention, and at my suggestion the President directed an examination into the conduct of the customhouses at New York, Philadelphia, New Orleans, San Francisco and perhaps other ports. Examinations were made by intelligent business men selected in the various ports, and full reports were made by them, and printed as public documents. Many changes were made, and reforms adopted, founded upon these reports, and there was no difficulty except only at the port of New York, where more than two-thirds of all the customs revenue was collected. Chester A. Arthur was then collector of the port, A. B. Cornell was naval officer, and George H. Sharpe was appraiser.
On the 23rd of April, 1877, I designated John Jay, Lawrence Turnure, of New York, and J. H. Robinson, Assistant Solicitor of the Treasury, as a commission on the New York customhouse. They were requested to make a thorough examination into the conduct of business in that customhouse. Full instructions were given and many specifications were made in detail of all the points embraced in their examination.
On the 24th of May they made their first report, preferring to treat the general subject-matter separately. This report related chiefly to appointments upon political influence without due regard to efficiency. I promptly referred it to the President, and received the following letter:
“Executive Mansion, } “Washington, May 26, 1877.} “My Dear Sir:—I have read the partial report of the commission appointed to examine the New York customhouse. I concur with the commission in their recommendations. It is my wish that the collection of the revenues should be free from partisan control, and organized on a strictly business basis, with the same guarantees for efficiency and fidelity in the selection of the chief and subordinate officers that would be required by a prudent merchant. Party leaders should have no more influence in appointments than any other equally respectable citizens. No assessments for political purposes, on officers or subordinates, should be allowed. No useless officer or employee should be retained. No officer should be required or permitted to take part in the management of political organizations, caucuses, conventions, or election campaigns. Their right to vote, and to express their views on public questions, either orally or through the press, is not denied, provided it does not interfere with the discharge of their official duties.
“Respectfully,
“R. B. Hayes.
“Hon. John Sherman, etc.”
My answer to the commission was as follows:
“Treasury Department, May 26, 1877. “Gentlemen:—Your first report on the customhouse in New York, of date the 24th instant, has been received, and the reduction proposed by you of twenty per cent. of the number of persons employed therein is approved.
“So far as these offices are created by law, vacancies will be made and left for the action of Congress. The reduction of the other employees, the number of whom and whose compensation are not fixed by law, will be made as soon as practicable.
“I am much gratified that the collector, the naval officer, and the surveyor of the port, concur with you in the proposed reduction.
“The hours of employment, after the 31st of this month, will be from 9 o’clock a. m. till 4 o’clock p. m., excepting where a longer time is prescribed by law. This corresponds to the hours of clerical service in this department. This rule will be strictly enforced, and absence will be the cause of reduction of pay or removal. Strict attention to duty will be required, and other business will not be allowed to interfere with the full discharge of the duty attached to the office.
“I notice that you do not suggest a mode of carrying into effect the reduction of the force recommended, and I cannot, with due regard to the remaining subjects of your inquiry, ask you to extend your investigation into the personnel of each employee, his character, efficiency, and merits. This must be mainly left to the collector, who, by law, is authorized to employ, with the approval of the Secretary of the Treasury, proper persons as deputy collectors, weighers, gaugers, and measurers, in the several ports within his district. Thus, nearly all the officers of the customhouse are appointed by the collector, and, with the approval of the Secretary of the Treasury, may be removed at pleasure. He will be promptly called upon, under special orders, to perform this delicate and onerous duty. It is very important that it should be executed with due regard to the efficiency and merit of the employees, and so as best to promote the public service.
“In order that a rule might be furnished him, I called upon the President for instructions to govern alike the collector and myself in the execution of this duty. A copy of his answer is hereto annexed. You will see from it that he approves your recommendations, and that he wishes the customhouse conducted free from partisan control, on a strictly business basis, with the same guarantees for efficiency and fidelity in the selection of the chief and subordinate officers that would be required by a prudent merchant; that the public business should not be affected injuriously by the interests or influence of party leaders or party struggles; and that, while an officer should freely exercise his political rights as a citizen, he should not use his power as an officer to influence the conduct of others.
“I believe the opinions expressed by the President will meet with your hearty approval, and they are in harmony with your report.
“Permit me to add the thanks of this department for your care, ability and industry in conducting this inquiry.
“Very respectfully,
“John Sherman, Secretary.
“Messrs. John Jay, L. Turnure, and J. H. Robinson,
“Commission on Custom House, New York.”
I inclosed a copy of the report of the commission to Collector Arthur, with the following letter of instruction:
“Treasury Department, May 28, 1877. “Sir:—Inclosed I send you a copy of the first report of the commission on the New York customhouse, recommending a large reduction of the employees in the various offices in your collection district, and the approval and adoption of that report.
“It only remains now to execute this order, upon the principles and in the spirit stated by the President. This task, always an unpleasant one, when it requires the removal of employees, falls mainly upon you, subject to my approval. It may not be amiss now for me to state, in advance, somewhat in more detail, my views as to the mode of reduction. The extent of the reduction is fully stated in the report, and we are thus relieved from that portion of the task.
“I notice by the report that you have an exceptionally large proportion of experienced officers still in the service. You will have no difficulty in selecting, from these, the more efficient and trustworthy to fill the more important positions, and when these are carefully selected, you will have secured for the duties of greatest trust, active, efficient, and experienced officers. It must happen that among those longest in service some are disabled by age and infirmity. It is often the most painful, but necessary, duty, to dismiss there, or reduce them to positions which they are still able to fill. The government is fairly entitled to the services of those who are fully able to discharge personally the duties of their office, and who are willing to give their entire attention to their official duty. If they cannot, or do not, do this, it is no injustice to remove them.
“In the selection of inferior officers, the only rule should be the one daily acted upon by merchants—to employ only those who are competent for the special work assigned them, whose industry, integrity, and good habits give guarantees for faithful services, honestly rendered. This reduction will enable you to transfer those now employed on work for which they are not fitted, to other work for which they are competent, and to reward exceptional merit and ability by promotion.
“It is impossible, in a force so large as yours, that you should know the peculiar qualities and merits of each employee, and it is important, in making selections, that you secure this information through committees of trusted officers, and in proper cases to test the intelligence, ability, and qualifications of an officer or applicant for office by written questions or an oral examination. In many cases the partiality and influence of relations secure several persons of the same family in office, thus causing complaints and favoritism. As a rule, it is best in all cases to have but one of the same family under your jurisdiction, and no just complaint can be made if this rule is impartially enforced.
“The President properly lays great stress on excluding from a purely business office active participation in party politics. Naturally, in a government like ours, other things being equal, those will be preferred who sympathize with the party in power; but persons in office ought not to be expected to serve their party to the neglect of official duty, or to promote the interests of particular candidates, or to interfere with the free course of popular opinion, or to run caucuses or conventions. Such activity of office-holders is offensive to the great mass of the people who hold no office, and gives rise to complaints and irritation. If any have been appointed for purely political reasons, without regard to their efficiency, now is a good time to get rid of them.
“Where actual misconduct is proven, such as receiving gratuities or bribes, or oppression or insolence in office, or even the want of common courtesy, or drunkenness or other bad habits tending to degrade the officer, or absence from or neglect of duty—in all such cases I know it will be your pleasure to dismiss the employee.
“The payment of taxes is not pleasant at best, but if rudely enforced by oppression or discreditable officers, it renders the tax as well as the tax-collector odious.
“I do not fix any time within which this reduction must be made, but shall expect it to be completed by the 30th day of June proximo. So far as the reduction is specifically made by the adoption of the report, it should be made by the 1st day of June, and it should be made as to each particular division or department of the customhouse as early as practicable.
“After all, the success of this movement for reform of old abuses, which existed for many years before you became collector, will depend mainly upon your good sense and discretion. I assure you I will heartily sustain and approve any recommendation you may make that appears to me to tend to make the New York customhouse—not only what it now is, the most important, but what it ought to be— the best managed business agency of the government.
“Very respectfully,
“John Sherman, Secretary.
“C. A. Arthur, Esq., Collector of Customs, New York.”
When the inquiry commenced there was no purpose or desire on the part of the President or anyone to make a change in the officers of the New York customhouse. This is apparent from my letter to Collector Arthur. The commission proceeded with their examination, and on the 2nd of July made their second report. This contained specific charges, but of a general character, against persons employed in the customhouse. They found that for many years past, the view had obtained with some political leaders that the friends of the administration in power had a right to control the customs appointments; and this view, which seemed to have been acquiesced in by successive administrations, had of late been recognized to what the commission deemed an undue extent by the chief officers of the service. These gentlemen, on the ground that they were compelled to surrender to personal and partisan dictation, appeared to have assumed that they were relieved, in part, at least, from the responsibilities that belonged to the appointing power.
The collector of the port, in speaking of the “ten thousand applications,” and remarking that the urgency for appointments came from men all over the country, added, “the persons for whom it is made bear their proportion of the responsibility for the character of the whole force.”
The surveyor had said:
“I had, within the last two weeks, a letter, from a gentleman holding a high official position, in regard to the appointment of an officer whom he knows had been dropped three times from the service for cause. He has also been to see me about him, and the last time he came he admitted to me that he had been engaged in defrauding the revenue; and yet he writes me calling my attention to the case, and requesting his appointment.”
The collector, in his testimony before the commission, said that “the larger number of complaints probably come from the surveyor of the port,” and, on being asked their character, said:
“Some are for inefficiency, some are for neglect of duty, some for inebriety, and some for improper conduct in various ways; some for want of integrity, and some for accepting bribes.”
The commission further stated:
“The investigation showed that ignorance and incapacity on the part of the employees were not confined to the surveyor’s department, but were found in other branches of the service—creating delays and mistakes, imperiling the safety of the revenues and the interests of importers, and bringing the service into reproach. It was intimated by chiefs of departments that men were sent to them without brains enough to do the work, and that some of those appointed to perform the delicate duties of the appraiser’s office, requiring the special qualities of an expert, were better fitted to hoe and to plow. Some employees were incapacitated by age, some by ignorance, some by carelessness and indifference; and parties thus unfitted have been appointed, not to perform routine duties distinctly marked, but to exercise a discretion in questions demanding intelligence and integrity, and involving a large amount of revenue.
“The evidence shows a degree and extent of carelessness which we think should not be permitted to continue. This point was illustrated to some degree by the testimony of the chiefs of the appraiser’s department, the important duties of which would certainly justify a reasonable exactness. The invoices, which are recorded in that office, and which are sent out to the different divisions to be passed upon and then returned to the chief clerk, are found to exhibit, on their return, errors on the part of the several divisions —according to one witness, nearly eight hundred errors a month— although the number by the appraiser was estimated at a lesser figure. A part of these errors may be assigned to a difference of opinion as to the classification of the goods; but fully one-half are attributed to carelessness. At the naval office it was stated that the balance in favor of the government, of the many and large errors which they discover in the customhouse accounts of the liquidation of vessels and statements of refund, amounts to about a million and a half of dollars per annum.”
The commission entered into a full statement and details as to irregularities, inefficiency and neglect of duties in different departments of the customhouse, and recommended various measures of reform, both in the laws regulating the customs service and its actual administration. A copy of this report was immediately sent to Collector Arthur and Naval Officer Cornell, with instructions to recommend to me the number of each grade for each branch of his office, with various details designated by me, and to carry into execution the general recommendations of the commission. I added:
“You will please take your own way, by committee of your officers or otherwise, to fix the number of each grade requisite to conduct the business of your office, and make report as early as practicable.”
The third report was made on the 21st of July, and related to the management of the department of weighers and gaugers.
The fourth report, made on the 31st of August, related to the appraiser’s office. In acknowledging the receipt of this report on the 12th of September, I stated:
“The recommendations made by you will be fully examined in detail, and be acted upon cotemporaneously with the proposed change in the leading officers of that customhouse.”
Two other reports were made, dated October 31 and November 1, 1877, the latter containing suggestions as to the recommendations of legislative amendments to various existing laws and usages.
After the receipt of the report of August 31 the President, who had carefully read the several reports, announced his desire to make a change in the three leading officers of the New York customhouse. He wished to place it upon the ground that he thought the public service would be best promoted by a general change, that new officers would be more likely to make the radical reforms required that those then in the customhouse. The matter was submitted to the cabinet, and I was requested to communicate with these officers, in the hope that they would resign and relive the President from the unpleasant embarrassment of removing them. On the 6th of September I wrote to Richard C. McCormick, Assistant Secretary of the Treasury, who was then at his home near New York on account of illness, the following letter. I knew that Mr. McCormick was on friendly terms with Collector Arthur, and that he might better than I inform him of the wish of the President to receive the resignations of himself, and Messrs. Cornell and Sharpe:
“Treasury Department, } “Washington, D. C., September 6, 1877.} “Dear Governor:—After a very full consideration, and a very kindly one, the President, with the cordial assent of his cabinet, came to the conclusion that the public interests demanded a change in the three leading offices in New York, and a public announcement of that character was authorized. I am quite sure that this will, on the whole, be considered to be a wise result. The manner of making the changes and the persons to be appointed will be a subject of careful and full consideration, but it is better to know that it is determined upon and ended. This made it unnecessary to consider the telegrams in regard to Mr. Cornell. It is probable that no special point would have been made upon his holding his position as chairman of the state committee for a limited time, but even that was not the thing, the real question being that, whether he resigned or not, it was better that he and Arthur and Sharpe should all give way to new men, to try definitely a new policy in the conduct of the New York customhouse.
“I have no doubt, unless these gentlemen should make it impossible by their conduct hereafter, that they will be treated with the utmost consideration, and, for one, I have no hesitation in saying that I hope General Arthur will be recognized in a most complimentary way.
“Things are going on quietly here, but we miss you very much. Hope you will have a pleasant time and return to us in fresh health and vigor.
“Very truly yours,
“John Sherman.
“Hon. R. C. McCormick.”
On the next day I wrote him a supplementary letter:
“Treasury Department, }
“Washington, D. C., September 7, 1877.}
“Dear Governor:—Your note of yesterday is received.
“The action of the President on the New York customhouse cases turned upon the general question of change there, and not upon Cornell’s case. It happened in this way: General Sharpe, in a very manly letter, withdrew his application for reappointment as surveyor of the port. In considering the question of successor the main point, as to whether the changes in the New York customhouse rendered necessary a general change of the heads of the departments, was very fully and very kindly considered, and, without any reference to Cornell’s matter, until it was thought, as a matter of public policy, it was best to make change in these heads, with some details about it which I will communicate to you when you return. When that was seen to be the unanimous opinion, it was thought hardly worth while to single out Mr. Cornell’s case, and act upon it on the question that affected him alone. If he was allowed to resign from the committee, it would undoubtedly be upon an implied supposition that he would be continued as naval officer. I think even yet he ought to do as he proposed to Orton, but we could not afford to have him do it with any such implied assent, and, therefore, it was deemed better to make the formal announcement agreed upon. You know how carefully such things are considered, and, after a night’s reflection, I am satisfied of the wisdom of the conclusion.
“I want to see Arthur, and have requested him to come here. You can say to him that, with the kindest feelings, and, as he will understand when he sees me, with a proper appreciation of his conduct during the examination by the commission, there should be no feeling about this in New York. At all events, what has been done is beyond recall.
“Very truly yours,
“John Sherman.
“Hon. R. C. McCormick.”
Mr. McCormick complied with my request, and orally reported his interview on his return to Washington. We were given to understand that these officers did not wish to be removed pending the investigation, as it would seem that they were charged with the acknowledged defects and irregularities which they themselves had pointed out. The President was quite willing to base his request for their resignation, not upon the ground that they were guilty of the offenses charged, but that new officers could probably deal with the reorganization of the customhouse with more freedom and success than the incumbents. I also saw General Arthur, and explained to him the view taken by the President and his desire not in any way to reflect upon the collector and his associates, Cornell and Sharpe. I believed that at the close of the investigation by the commission these gentlemen would resign, and that their character and merits would be recognized possibly by appointments to other offices.
Acting on this idea, on the 15th of October, I wrote the following letter to Arthur:
“Washington, D. C., October 15, 1877. “Dear Sir:—I regret to hear from Mr. Evarts that you decline the consulship at Paris which I supposed would be very agreeable to you.
“As the time has arrived when your successor must be appointed, I submit to you whether, though your resignation might be inferred from your letters on file, it would not be better for you to tender it formally before your successor is appointed.
“The President desires to make this change in a way most agreeable to you, and it would be most convenient to have it announced to-morrow.
“An early answer is requested.
“Very truly, etc.,
“John Sherman.
“General C. A. Arthur, Collector Customs, New York.”
It soon became manifest that these gentlemen had no purpose to resign, and that Senator Conkling intended to make a political contest against the policy of civil service reform inaugurated by President Hayes. On the 24th of October, 1877, the President sent to the Senate the nominations of Theodore Roosevelt to succeed Arthur as collector, Edwin A. Merritt to succeed George H. Sharpe as surveyor, and L. B. Prince to succeed A. B. Cornell as naval officer. All of them were rejected by the Senate on the 29th of October. On the 6th day of December, during the following session, Roosevelt, Prince and Merritt were again nominated, and the two former were again rejected. Merritt was confirmed as surveyor on the 16th of December.
This action of the Senate was indefensible. There was not the slightest objection to Roosevelt or Prince, and none was made. The reasons for a change were given in the report of the Jay commission. Even without this report the right of the President to appoint these officers was given by the constitution. To compel the President to retain anyone in such an office, charged with the collection of the great body of the revenue from customs, in the face of such reasons as were given for removal, was a gross breach of public duty. No doubt the Democratic majority in the Senate might defend themselves with political reasons, but the motive of Mr. Conkling was hostility to President Hayes and his inborn desire to domineer. The chief embarrassment fell upon me. I wished to execute the reforms needed in the collector’s office, but could only do it with his consent. The co-operation required was not given, and the office was held in profound contempt of the President. If the rejection of these nominations had been placed upon the ground of unfitness, other names could have been sent to the Senate, but there was no charge of that kind, while specific and definite charges were made against the incumbents. Other names were mentioned to the President, and suggestions were made, among others by Whitelaw Reid, whose letter I insert:
“New York, March 29, 1878. “My Dear Mr. Sherman:—Leaving Washington unexpectedly this morning, I was unable to call again at the treasury department in accordance with your polite invitation of last night. I have, however, been thinking over the customhouse problem of which you asked my opinion. It seems to me, more and more clear, that, if a new appointment is to be made, it should be controlled by two considerations: First, the appointee should be a man who can be confirmed; and, second, he should be a man equal to all the practical duties of the place, which are necessarily and essentially political as well as mercantile.
“To nominate another man only to have him rejected would do great harm, and the confirmation cannot, by any means, be taken for granted. I believe it is possible to select some well-known man, who has carefully studied the subject of revenue collection, and could bring to the task executive skill, experience, and sound business and political sagacity, and that such a nomination could be confirmed. I assume, of course, that any movement of this sort would be based upon the previous removal of the present incumbent, for good cause—of which I have been hearing rumors for some time.
“Pray let me renew more formally the invitation to dine with me, on the evening of the 10th of April, at seven o’clock, at the Union League Club, to meet Mr. Bayard Taylor just before his departure for Berlin. I sincerely hope you can arrange your movements after the Chester visit so as to make it possible.
“Very truly yours,
“Whitelaw Reid.
“Hon. John Sherman, Secretary of the Treasury, Washington, D. C.”
The President would not make other appointments during the session of the Senate, as the implication would arise that the rejections were based upon opposition to the persons named, and he, therefore, postponed any action until the close of the session.
After the close of the session, on the 11th of July, 1878, the President gave temporary commissions to Edwin A. Merritt as collector to succeed C. A. Arthur, and Silas W. Burt to succeed Cornell as naval officer, and these gentlemen entered upon the duties of their respective offices.
On the following December it became necessary to send their nominations to the Senate. I had definitely made up my mind that if the Senate again rejected them I would resign. I would not hold an office when my political friends forced me to act through unfriendly subordinates. I wrote a letter to Senator Allison as follows:
“Washington, D. C., January 31, 1879. “My Dear Sir:—I would not bother you with this personal matter, but that I feel the deepest interest in the confirmation of General Merritt, which I know will be beneficial to us as a party, and still more so to the public service. Personally I have the deepest interest in it because I have been unjustly assailed in regard to it in the most offensive manner. I feel free to appeal to you and Windom, representing as you do western states, and being old friends and acquaintances, to take into consideration this personal aspect of the case. If the restoration of Arthur is insisted upon, the whole liberal element will be against us and it will lose us tens of thousands of votes without doing a particle of good. No man could be a more earnest Republican than I, and I feel this political loss as much as anyone can. It will be a personal reproach to me, and merely to gratify the insane hate of Conkling, who in this respect disregards the express wishes of the Republican Members from New York, of the great body of Republicans, and, as I personally know, runs in antagonism to his nearest and best friends in the Senate.
“Surely men like you and Windom, who have the courage of your convictions, should put a stop to this foolish and unnecessary warfare. Three or four men who will tell Conkling squarely that, while you are his friends, you will not injure our party and our cause, would put a stop to this business. Arthur will not go back into the office. This contest will be continued, and the only result of all this foolish madness will be to compel a Republican administration to appeal to a Democratic Senate for confirmation of a collector at New York. It is a most fatal mistake.
“I intended to call upon some of the Senators this morning, but I am very much pressed, and will ask you to show this in confidence to Senator Windom, as I have not time to write him.
“Very truly yours,
“John Sherman.
“Hon. W. B. Allison, U. S. Senate.”
I wrote to Senator Justin S. Morrill a much longer letter, giving reasons in detail in favor of confirmation and containing specific charges of neglect of duty on the part of Arthur and Cornell, but I do not care to revive them.
Conkling was confident of defeating the confirmations, and thus restoring Arthur and Cornell. The matter was decided, after a struggle of seven hours in the Senate, by the decisive vote in favor of confirmation of Merritt 33, and against him 24, in favor of Burt 31, against 19. From this time forward there was but slight opposition to the confirmation of Hayes’ appointments. The reforms proposed in the customhouse at New York were carried out.
This termination of the controversy with Arthur and Cornell was supported by public opinion generally throughout the United States. I insert a letter from John Jay upon the subject.
“N. Y. C. H., 24 Washington Square,}
“New York, February 3, 1879. }
“The Honorable John Sherman.
“My Dear Sir:—Allow me to thank you for the two papers you have kindly sent me, in reference to the customhouse, the last of which, the firm message of the President with your second conclusive letter, reached me to-day.
“Whatever may be the result in the Senate, and I can scarcely believe that, after so full an exposure, the nomination will be rejected, the plain-thinking people of this country will appreciate the attitude taken by the government as the only one consistent with the duty of the executive and the general welfare.
“It will give new hope and confidence to the great body of Republicans, and to many who can hardly be called Republicans, who look to the administration for an unflinching adherence—no matter what the opposition—to the pledge of reform on which the party was successful in the last election, and on fidelity to which depends its safety in the next.
“The country is infinitely indebted to you for redeeming its faith by a return to honest money. A new debt will be incurred of yet wider scope if you succeed in liberating the custom service from the vicious grip of the immoral factions of office holders and their retainers, who have made it a scandal to the nation with such gigantic loss to the treasury and immeasurable damage to our commerce, industry and morals.
“I hope that the President will feel that all good citizens who are not blinded by prejudice or interest are thoroughly with him in the policy and resolve of his message that the customhouse shall no longer be ‘a center of partisan political management.’
“With great regard I have the honor to be, dear Mr. Sherman,
“Faithfully yours,
“John Jay.”
CHAPTER XXXVI. PREPARATIONS FOR RESUMPTION OF SPECIE PAYMENTS. Annual Report to Congress on Dec. 2, 1878—Preparations for Resumption Accompanied with Increased Business and Confidence—Full Explanation of the Powers of the Treasurer Under the Act—How Resumption Was to Be Accomplished—Laws Effecting the Coinage of Gold and Silver —Recommendation to Congress That the Coinage of the Silver Dollar Be Discontinued When the Amount Outstanding Should Exceed $50,000,000 —Funding the Public Debt—United States Notes at Par with Gold— Instructions to the Assistant Treasurer at New York—Political Situation in Ohio.
The annual report made by me to Congress on the 2nd of December, 1878, contained the usual formal information as to the condition of the treasury, and the various bureaus and divisions of that department. It was regarded as a fair statement of public affairs at a time of unusual prosperity. The revenue in excess of expenditures during the year amounted to $20,799,551.90.
The statement made by me in this report, in respect to the resumption of specie payments on the 1st day of January, 1879, is so closely a narrative of what did happen before and after that date that I deem it best to quote the language of the report. I then said:
“The important duty imposed on this department by the resumption act, approved January 14, 1875, has been steadily pursued during the past year. The plain purpose of the act is to secure to all interests and all classes the benefits of a sound currency, redeemable in coin, with the least possible disturbance of existing rights and contracts. Three of its provisions have been substantially carried into execution by the gradual substitution of fractional coin for fractional currency, by the free coinage of gold, and by free banking. There remains only the completion of preparations for resumption in coin on the 1st day of January, 1879, and its maintenance thereafter upon the basis of existing law.
“At the date of my annual report to Congress in December, 1877, it was deemed necessary, as a preparation for resumption, to accumulate in the treasury a coin reserve of at least forty per cent. of the amount of United States notes then outstanding. At that time it was anticipated that under the provisions of the resumption act the volume of United States notes would be reduced to $300,000,000 by the 1st day of January, 1879, or soon thereafter, and that a reserve in coin of $120,000,000 would then be sufficient. Congress, however, in view of the strong popular feeling against a contraction of the currency, by the act approved May 31, 1878, forbade the retirement of any United States notes after that date, leaving the amount in circulation $346,681,016. Upon the principle of safety upon which the department was acting, that forty per cent. of coin was the smallest reserve upon which resumption could prudently be commenced, it became necessary to increase the coin reserve to $138,000,000.
“At the close of the year 1877 this coin reserve, in excess of coin liability, amounted to $63,016,050.96, of which $15,000,000 were obtained by the sale of four and a half per cent., and $25,000,000 by the sale of four per cent. bonds, the residue being surplus revenue. Subsequently, on the 11th day of April, 1878, the secretary entered into a contract with certain bankers in New York and London —the parties to the previous contract of June 9, 1877, already communicated to Congress—for the sale of $50,000,000 four and a half per cent. bonds for resumption purposes. The bonds were sold at a premium of one and a half per cent. and accrued interest, less a commission of one-half of one per cent. The contract has been fulfilled, and the net proceeds, $50,500,000, have been paid into the treasury in gold coin. The $5,500,000 coin paid on the Halifax award have been replaced by the sale of that amount of four per cent. bonds sold for resumption purposes, making the aggregate amount of bonds sold for these purposes, $95,500,000, of which $65,000,000 were four and a half per cent. bonds, and $30,500,000 four per cent. bonds. To this has been added the surplus revenue from time to time. The amount of coin held in the treasury on the 23rd day of November last, in excess of coin sufficient to pay all accrued coin liabilities, was $141,888,100, and constitutes the coin reserve prepared for resumption purposes. This sum will be diminished somewhat on the 1st of January next, by reason of the large amount of interest accruing on that day in excess of the coin revenue received meanwhile.
“In anticipation of resumption, and in view of the fact that the redemption of United States notes is mandatory only at the office of the assistant treasurer in the city of New York, it was deemed important to secure the co-operation of the associated banks of that city in the ready collection of drafts on those banks and in the payment of treasury drafts held by them. A satisfactory arrangement has been made by which all drafts on the banks held by the treasury are to be paid at the clearing house, and all drafts on the treasury held by them are to be paid to the clearing house at the office of the assistant treasurer, in United States notes; and, after the 1st of January, United States notes are to be received by them as coin. This will greatly lessen the risk and labor of collections both to the treasury and the banks.
“Every step in these preparations for resumption has been accompanied with increased business and confidence. The accumulation of coin, instead of increasing its price, as was feared by many, has steadily reduced its premium on the market. The depressing and ruinous losses that followed the panic of 1873 had not diminished in 1875, when the resumption act passed; but every measure taken in the execution or enforcement of this act has tended to lighten these losses and to reduce the premium on coin, so that now it is merely nominal. The present condition of our trade, industry, and commerce, hereafter more fully stated, our ample reserves, and the general confidence inspired in our financial condition, seem to justify the opinion that we are prepared to commence and maintain resumption from and after the 1st day of January, A. D. 1879.
“The means and manner of doing this are left largely to the discretion of the secretary, but, from the nature of the duty imposed, he must restore coin and bullion, when withdrawn in the process of redemption, either by the sale of bonds, or the use of the surplus revenue, or of the notes redeemed from time to time.
“The power to sell any of the bonds described in the refunding act continues after as well as before resumption. Thought it may not be often used, it is essential to enable this department to meet emergencies. By its exercise it is anticipated that the treasury at any time can readily obtain coin to reinforce the reserve already accumulated. United States notes must, however, be the chief means under existing law with which the department must restore coin and bullion when withdrawn in process of redemption. The notes, when redeemed, must necessarily accumulate in the treasury until their superior use and convenience for circulation enables the department to exchange them at par for coin or bullion.
“The act of May 31, 1878, already referred to, provides that when United States notes are redeemed or received in the treasury under any law, from any source whatever, and shall belong to the United States, they shall not be retired, canceled, or destroyed, but shall be reissued and paid out again and kept in circulation.
“The power to reissue United States notes was conferred by section 3579, Revised Statutes, and was not limited by the resumption act. As this, however, was questioned, Congress wisely removed the doubt.
“Notes redeemed are like other notes received into the treasury. Payments of them can be made only in consequence of appropriations made by law, or for the purchase of bullion, or for the refunding of the public debt.
“The current receipts from revenue are sufficient to meet the current expenditures as well as the accruing interest on the public debt. Authority is conferred by the refunding act to redeem six per cent. bonds as they become redeemable, by the proceeds of the sale of bonds bearing a lower rate of interest. The United States notes redeemed under the resumption act are, therefore, the principal means provided for the purchase of bullion or coin with which to maintain resumption, but should only be paid out when they can be used to replace an equal amount of coin withdrawn from the resumption fund. They may, it is true, be used for current purposes like other money, but when so used their place is filled by money received from taxes or other sources of income.
“In daily business no distinction need be made between moneys, from whatever source received, but they may properly be applied to any of the purposes authorized by law. No doubt coin liabilities, such as interest or principal of the public debt, will be ordinarily paid and willingly received in United States notes, but, when demanded, such payments will be made in coin; and United States notes and coin will be used in the purchase of bullion. This method has already been adopted in Colorado and North Carolina, and arrangements are being perfected to purchase bullion in this way in all the mining regions of the United States.
“By the act approved June 8, 1878, the Secretary of the Treasury is authorized to constitute any superintendent of a mint, or assayer of any assay office, an assistant treasurer of the United States, to receive gold coin or bullion on deposit. By the legislative appropriation bill, approved June 19, 1878, the Secretary of the Treasury is authorized to issue coin certificates in payment to depositors of bullion at the several mints and assay offices of the United States. These provisions, intended to secure to the producers of bullion more speedy payment, will necessarily bring into the mints and treasury the great body of the precious metals mined in the United States, and will tend greatly to the easy and steady supply of bullion for coinage. United States notes, at par with coin, will be readily received for bullion instead of coin certificates, and with great advantage and convenience to the producers.
“Deposits of coin in the treasury will, no doubt, continue to be made after the 1st of January, as heretofore. Both gold and silver coin, from its weight and bulk, will naturally seek a safe deposit, while notes redeemable in coin, from their superior convenience, will be circulated instead. After resumption the distinction between coin and United States notes should be, as far as practicable, abandoned in the current affairs of the government; and therefore no coin certificates should be issued except where expressly required by the provisions of law, as in the case of silver certificates. The gold certificates hitherto issued by virtue of the discretion conferred upon the secretary will not be issued after the 1st of January next. The necessity for them during a suspension of specie payments is obvious, but no longer exists when by law every United States note is, in effect, a coin certificate. The only purpose that could be subserved by their issue hereafter would be to enable persons to convert their notes into coin certificates, and thus contract the currency and hoard gold in the vaults of the treasury without the inconvenience or risk of its custody. For convenience, United States notes of the same denomination as the larger coin certificates will be issued.
“By existing law, customs duties and the interest of the public debt are payable in coin, and a portion of the duties was specifically pledged as a special fund for the payment of the interest, thus making one provision dependent upon the other. As we cannot, with due regard to the public honor, repeal the obligation to pay in coin, we ought not to impair or repeal the means provided to procure coin. When, happily, our notes are equal to coin, they will be accepted as coin, both by the public creditor and by the government; but this acceptance should be left to the option of the respective parties, and the legal right on both sides to demand coin should be preserved inviolate.
“The secretary is of the opinion that a change of the law is not necessary to authorize this department to receive United States notes for customs duties on and after the 1st day of January, 1879, while they are redeemable and are redeemed on demand in coin. After resumption it would seem a useless inconvenience to require payment of such duties in coin rather than in United States notes. The resumption act, by clear implication, so far modifies previous laws as to permit payments in United States notes as well as in coin. The provision for coin payments was made in the midst of war, when the notes were depreciated and the public necessities required an assured revenue in coin to support the public credit. This alone justified the refusal by the government to take its own notes for the taxes levied by it. It has now definitely assumed to pay these notes in coin, and this necessarily implies the receipt of these notes as coin. To refuse them is only to invite their presentation for coin. Any other construction would require the notes to be presented to the assistant treasurer in New York for coin, and, if used in the purchase of bonds, to be returned to the same officer, or, if used for the payment of customs duties, to be carried to the collector of customs, who must daily deposit in the treasury all money received by him. It is not to be assumed that the law requires this indirect and inconvenient process after the notes are redeemable in coin on demand of the holder. They are then at a parity with coin, and both should be received indiscriminately.
“If United States notes are received for duties at the port of New York, they should be received for the same purpose in all other ports of the United States, or an unconstitutional preference would be given to that port over other ports. If this privilege is denied to the citizens of other ports, they could make such use of these notes only by transporting them to New York and transporting the coin to their homes for payment; and all this not only without benefit to the government, but with a loss in returning the coin again to New York, where it is required for redemption purposes.
“The provision in the law for redemption in New York was believed to be practical redemption in all parts of the United States. Actual redemption was confined to a single place from the necessity of maintaining only one coin reserve and where the coin could be easily accumulated and kept.
“With this view of the resumption act, the secretary will feel it to be his duty, unless Congress otherwise provides, to direct that after the 1st day of January next, and while United States notes are redeemed at the treasury, they be received the same as coin by the officers of this department, in all payments in all parts of the United States.
“If any further provision of law is deemed necessary by Congress to authorize the receipt of United States notes for customs dues or for bonds, the secretary respectfully submits that this authority should continue only while the notes are redeemed in coin. However desirable continuous resumption may be, and however confident we may feel in its maintenance, yet the experience of many nations has proven that it may be impossible in periods of great emergency. In such events the public faith demands that the customs duties shall be collected in coin and paid to the public creditors, and this pledge should never be violated or our ability to perform it endangered.
“Heretofore, the treasury, in the disbursement of currency, has paid out bills of any denomination desired. In this way the number of bills of a less denomination than five dollars is determined by the demand for them. Such would appear to be the true policy after the 1st of January. It has been urged that, with a view to place in circulation silver coins, no bills of less than five dollars should be issued. It would seem to be more just and expedient not to force any form of money upon a public creditor, but to give him the option of the kind and denomination. The convenience of the public, in this respect, should be consulted. The only way by which moneys of different kinds and intrinsic values can be maintained in circulation at par with each other is by the ability, when one kind is in excess, to readily exchange it for the other. This principle is applicable to coin as well as to paper money. In this way the largest amount of money of different kinds can be maintained at par, the different purposes for which each is issued making a demand for it. The refusal or neglect to maintain this species of redemption inevitably effects the exclusion from circulation of the most valuable, which, thereafter, becomes a commodity, bought and sold at a premium....
“When the resumption act passed, gold was the only coin which by law was a legal tender in payment of all debts. That act contemplated resumption in gold coin only. No silver coin of full legal tender could then be lawfully issued. The only silver coin provided was fractional coin, which was a legal tender for five dollars only. The act approved February 28, 1878, made a very important change in our coinage system. The silver dollar provided for was made a legal tender for all debts, public and private, except where otherwise expressly stipulated in the contract.
“The law itself clearly shows that the silver dollar was not to supersede the gold dollar; nor did Congress propose to adopt the single standard of silver, but only to create a bimetallic standard of silver and gold, of equal value and equal purchasing power. Congress, therefore, limited the amount of silver dollars to be coined to not less than two millions nor more than four millions per month, but did not limit the aggregate amount nor the period of time during which this coinage should continue. The market value of the silver in the dollar, at the date of the passage of the act, was 93¼ cents in gold coin. Now it is about 86 cents in gold coin. If it was intended by Congress to adopt the silver instead of the gold standard, the amount provided for is totally inadequate for the purpose. Experience not only in this country, but in European countries, has established that a certain amount of silver coin may be maintained in circulation at par with gold, though of less intrinsic bullion value. It was, no doubt, the intention of Congress to provide a coin in silver which would answer a multitude of the purposes of business life, without banishing from circulation the established gold coin of the country. To accomplish this it is indispensable either that the silver coin be limited in amount, or that its bullion value be equal to that of the gold dollar. If not, it use will be limited to domestic purposes. It cannot be exported except at its commercial value as bullion. If issued in excess of demands for domestic purposes, it will necessarily fall in market value, and, by a well-known principle of finance, will become the sole coin standard of value. Gold will be either hoarded or exported. When two currencies, both legal, are authorized without limit, the cheaper alone will circulate. If, however, the issue of the silver dollars is limited to an amount demanded for circulation, there will be no depreciation, and their convenient use will keep them at par with gold, as fractional silver coin, issued under the act approved February 21, 1853, was kept at par with gold.
“The amount of such coin that can thus be maintained at par with gold cannot be fairly tested until resumption is accomplished. As yet paper money has been depreciated, and silver dollars, being receivable for customs dues, have naturally not entered into general circulation, but have returned to the treasury in payment of such dues, and thus the only effect of the attempt of the department to circulate them has been to diminish the gold revenue. After resumption these coins will circulate in considerable sums for small payments. To the extent that such demand will give employment to silver dollars their use will be an aid to resumption rather than a hindrance, but, if issued in excess of such demand, they will at once tend to displace gold and become the sole standard, and gradually, as they increase in number, will fall to their value as bullion. Even the fear or suspicion of such an excess tends to banish gold, and, if well established, will cause a continuous drain of gold until imperative necessity will compel resumption in silver alone. The serious effect of such a radical change in our standards of value cannot be exaggerated; and its possibility will greatly disturb confidence in resumption, and may make necessary large reserves and further sales of bonds.
“The secretary, therefore, earnestly invokes the attention of Congress to this subject, with a view that either during the present or the next session the amount of silver dollars to be issued be limited, or their ratio to gold for coining purposes be changed.
“Gold and silver have varied in value from time to time in the history of nations, and laws have been passed to meet this changing value. In our country, by the act of April 2, 1792, the ratio between them was fixed at one of gold to fifteen of silver. By the act of June 28, 1834, the ratio was changed to one of gold to sixteen of silver. For more than a century the market value of the two metals had varied between these two ratios, mainly resting at that fixed by the Latin nations of one to fifteen and a half.
“But we cannot overlook the fact that within a few years, from causes frequently discussed in Congress, a great change has occurred in the relative value of the two metals. It would seem to be expedient to recognize this controlling fact—one that no nation alone can change—by a careful readjustment of the legal ratio for coinage of one to sixteen, so as to conform to the relative market values of the two metals. The ratios heretofore fixed were always made with that view, and, when made, did conform as near as might be. Now, that the production and use of the two metals have greatly changed in relative value, a corresponding change must be made in the coinage ratio. There is no peculiar force or sanction in the present ratio that should make us hesitate to adopt another, when, in the markets of the world, it is proven that such ratio is not now the true one. The addition of one-tenth or one-eighth to the thickness of the silver dollar would scarcely be perceived as an inconvenience by the holder, but would inspire confidence, and add greatly to its circulation. As prices are now based on United States notes at par with gold, no disturbance of values would result from the change.
“It appears, from the recent conference at Paris, invited by us, that other nations will not join with us in fixing an international ratio, and that each county must adapt its laws to its own policy. The tendency of late among commercial nations is to the adoption of a single standard of gold and the issue of silver for fractional coin. We may, by ignoring this tendency, give temporarily increased value to the stores of silver held in Germany and France, until our market absorbs them, but, by adopting a silver standard as nearly equal to gold as practicable, we make a market for our large production of silver, and furnish a full, honest dollar that will be hoarded, transported, or circulated, without disparagement or reproach.
“It is respectfully submitted that the United States, already so largely interested in trade with all parts of the world, and becoming, by its population, wealth, commerce, and productions, a leading member of the family of nations, should not adopt a standard of less intrinsic value than other commercial nations. Alike interested in silver and gold, as the great producing country of both, it should coin them at such a ratio and on such conditions as will secure the largest use and circulation of both metals without displacing either. Gold must necessarily be the standard of value in great transactions, from its greater relative value, but it is not capable of the division required for small transactions; while silver is indispensable for a multitude of daily wants, and is too bulky for use in the larger transactions of business, and the cost of its transportation for long distances would greatly increase the present rates of exchange. It would, therefore, seem to be the best policy for the present to limit the aggregate issue of our silver dollars, based on the ratio of sixteen to one, to such sums as can clearly be maintained at par with gold, until the price of silver in the market shall assume a definite ratio to gold, when that ratio should be adopted, and our coins made to conform to it; and the secretary respectfully recommends that he be authorized to discontinue the coinage of the silver dollar when the amount outstanding shall exceed fifty million dollars.
“The secretary deems it proper to state that in the meantime, in the execution of the law as it now stands, he will feel it to be his duty to redeem all United States notes presented on and after January 1, next, at the office of the assistant treasurer of the United States, in the city of New York, in sums of not less than fifty dollars, with either gold or silver coin, as desired by the holder, but reserving the legal option of the government; and to pay out United States notes for all other demands on the treasury, except when coin is demanded on coin liabilities.
“It is his duty, as an executive officer, to frankly state his opinions, so that if he is in error Congress may prescribe such a policy as is best for the public interests.
“The amount of four per cent. bonds sold during the present year, prior to November 23, is $100,270,900, of which $94,770,900 were sold under the refunding act approved July 14, 1870. Six per cent. bonds, commonly known as 5-20’s, to an equal amount, have been redeemed, or will be redeemed as calls mature. This beneficial process was greatly retarded by the requirement of the law that subscriptions must be paid in coin, the inconvenience of obtaining which, to the great body of people outside of the large cities, deterred many sales. This will not affect sales after resumption, when bonds can be paid for with United States notes. The large absorption of United States securities in the American market, by reason of their return from Europe, together with the sale of four and a half per cent. bonds for resumption purposes, tended to retard the sale of four per cent. bonds. As, from the best advices, not more than $200,000,000 of United States bonds are now held out of the country, it may be fairly anticipated that the sale of four per cent. bonds, hereafter, will largely increase.
“Prior to May, 1877, United States bonds were mainly sold through an association of bankers. Experience proves that under the present plan of selling to all subscribers on terms fixed by public advertisement, though the aggregate of sales may be less, their distribution is more satisfactory. Under a popular loan the interest is paid at home, and the investment is available at all times, without loss, to meet the needs of the holder. This policy has been carefully fostered by other nations, and should be specially so in ours, where every citizen equally participates in the government of his country. The holding of these bonds at home, in small sums well distributed, is of great importance in enlisting popular interest in our national credit and in encouraging habits of thrift, and such holding in the country is far more stable and less likely to disturb the market than it would be in cities or by corporations, where the bonds can be promptly sold in quantities.
“The three months’ public notes required by the fourth section of the refunding act, to be given to holders of the 5-20 bonds to be redeemed, necessarily involve a loss to the government by the payment of double interest during that time. The notice should not be given until subscriptions are made or are reasonably certain to be made. When they are made and the money is paid into the treasury, whether it is kept there idle during the three months or deposited with national banks under existing law, the government not only pays interest on both classes of bonds during the ninety days, but, if the sales are large, the hoarding of large sums may disturb the market. Under existing law this is unavoidable; and, to mitigate it, the secretary deemed it expedient during the last summer to make calls in anticipation of subscriptions, but this, though legal, might, in case of failure of subscriptions, embarrass the government in paying called bonds. The long notice required by law is not necessary in the interest of the holder of the bonds, for, as the calls are made by public notice and the bonds are indicated and specified by class, date, and number, in the order of their numbers and issue, he, by ordinary diligence, can know beforehand when his bonds in due course will probably be called, and will not be taken by surprise.
“The secretary therefore recommends that the notice to be given for called bonds be, at his discretion, not less than ten days nor more than three months. In this way he will be able largely to avoid the payment of double interest, as well as the temporary contraction of the currency, and may fix the maturity of the call at a time when the interest of the called bonds becomes due and payable.”
Soon after the passage of the act authorizing the coinage of the standard silver dollar, and an attempt being made to procure the requisite bullion for its coinage to some extent at the mints on the Pacific coast, it was found that the producers and dealers there would not sell silver to the government at the equivalent of the London rate, but demanded in addition thereto an amount equal to the cost of bringing it from London and laying it down in San Francisco. These terms, being deemed exorbitant, were rejected, and arrangements were immediately made to bring the capacity of the mint at Philadelphia to its maximum, with a view to meet the provisions of law, which required two millions of silver dollars to be coined in each month, and the available supplies of silver from domestic sources being entirely insufficient for the coinage of this amount, the foreign market was indirectly resorted to and an amount sufficient to meet the requirements of law secured.
In July, 1878, the principal holders of bullion on the Pacific coast receded from their position and accepted the equivalent of the London rate, at which price sufficient bullion was purchased to employ the mints of San Francisco and Carson on the coinage of the dollar.
At the date of my report, United States notes were practically at par with gold. The public mind had settled into a conviction that the parity of coin and currency was assured, and our people, accustomed to the convenience of paper money, would not willingly have received coin to any considerable amount in any business transactions. The minor coins of silver, were received and paid out without question at parity with gold coin, because the amount was limited and they were coined by the government only as demanded for the public convenience. The silver dollar was too weighty and cumbersome and when offered in considerable sums was objected to, though a legal tender for any sum, and coined only in limited amounts for government account. Every effort was made by the treasury department to give it the largest circulation, but the highest amount that could be circulated was from fifty to sixty millions, and much of this was in the southern states. All sums in excess of that were returned to the treasury for silver certificates. These were circulated as money, like United States notes and bank bills. This was only possible by the guarantee of the government that all forms of money would be maintained at parity with each other. If this guarantee had been doubted, or if the holder of silver bullion could have had it coined at his pleasure and for his benefit at the ratio of sixteen to one, the silver dollar would, as the cheaper coin, have excluded all other forms of money, and the purchasing power of silver coin would have been reduced to the market value of silver bullion.
On the 3rd of December, 1878, I wrote the following letter:
“Hon. Thomas Hillhouse,
“United States Assistant Treasurer, New York.
“Sir:—I have this day telegraphed you as follows:
‘After receipt of this you will please issue no more gold certificates.’
“In compliance with the above instructions you will not, until further advised, issue gold certificates either in payment of interest on the public debt or for gold coin deposited.
“It is desired that you issue currency in payment of coin obligations to such an amount as will be accepted by public creditors.
“Very respectfully,
“John Sherman, Secretary.”
After resumption, United States notes were in fact gold certificates, being redeemable in coin. On the 4th, I again wrote to General Hillhouse as follows:
“Your letter of yesterday is received. The necessity of the recent order about coin certificates became apparent to the department, and the only doubt was as to the date of issuing it. After full consideration, it was deemed best to make it immediate, so that no more certificates could be asked for. By the 21st of this month the large denominations of greenbacks will be ready for issue to you, and after the 1st of January they will be received for customs duties and paid out for gold coin deposited with you. I am led to suppose that considerable sums of gold coin will be deposited with you soon after that date. It is important that the business men of New York should see the propriety of such a course, with a view to aid in popular opinion the process of resumption.
“I would be pleased to hear from you as to whether any additional force in your office will be necessary in view of resumption. Every reasonable facility should be given to persons who apply for coin, and we should be prepared for a considerable demand during the first month.
“I will be in New York some time this month, and will confer with you as to any matters of detail.”
I received the following reply:
“Office of United States Assistant Treasurer,} “New York, December 5, 1878. } “Sir:—I have received your letter of the 4th instant. The issue of gold certificates, however convenient to the public, had long ceased to be of any advantage to the government, and in view of resumption it had become a positive injury, by enabling speculators to carry on their operations without the risk and expense of handling the actual coin. So far as I have discovered, the banks and the business community generally regard the withdrawal of the certificates as a wise measure. They may be put to some temporary inconvenience thereby, but they cannot fail to see that, in the use of this and all other legitimate means of making the great scheme of resumption a success, the secretary is really promoting their interests, and that in the end they will be greatly benefitted by the establishing of a sound and stable currency, which is the object in view.
“Very respectfully,
“Thomas Hillhouse,
“Assistant Treasurer United States.”
On the 5th I wrote him as follows:
“In reply to your letter of the 4th instant, inquiring whether you are at liberty to pay out the standard silver dollars in exchange for gold coin, you are authorized to pay out the standard silver dollars to any amount which may be desired in exchange for gold coin.
“In reply to your letter of yesterday, I have to advise you that it was the purpose of the order referred to to prohibit the issue of gold coin certificates for any purpose, including the redemption of called bonds. It is believed that the reasons for issuing such certificates have ceased to exist, and that those outstanding should be redeemed and not reissued.
“No public end is subserved by receiving coin deposits for private parties to be held for their benefit, but gold will be received in exchange for United States notes of any denomination desired, and such exchange is invited.”
On the 18th I wrote him:
“I have concluded to direct the prepayment of the coupons maturing January 1, in coin or United States notes, as desired by the holder, and interest on registered stock, as soon as you can receive the schedules, which will be about the 28th. While I wish no hesitation about paying gold to anyone desiring it, it is better to get people in the habit of receiving currency rather than coin.”
On the 18th General Hillhouse wrote me:
“Since my letter of yesterday gold has sold at par, the prevailing rate being one sixty-fourth to three sixty-fourth premium. The indications now are that the combinations which were presumed to be operating to keep up the premium have failed so far in their object, and that, unless unlooked for circumstances should intervene, the premium will be more likely to fall below the present rate than to advance.”
On the 27th I sent the following instructions to the treasurer:
“Treasury Department, December 27, 1878.
“Hon. James Gilfillan, Treasurer United States.
“Sir:—In connection with the department’s circular of the 14th instant concerning the resumption of specie payments, you are directed, on and after the 1st proximo, to keep no special account of coin with any public disbursing officer, and to close any account of that description at that time standing on your books, keeping thereafter but one money of account in your office.
“Similar instructions have this day been sent to the several independent treasury officers.
“Very respectfully,
“John Sherman, Secretary.”
On the 28th I wrote the First National Bank of New York:
“Your letter of yesterday is received. I do not see my way clear to issue another call until the one now outstanding is covered by subscription. There is still a deficit of about $4,000,000 on the 71st call. There is not, however, the slightest objection to your stating authoritatively, or, if desired, I will do so in response to a direct inquiry, that every dollar of the proceeds of four per cent. bonds sold during the present year had been applied on calls for refunding, and it is my purpose to continue this unless I give public notice to the contrary.
“I feel the more inclined to refuse to make a call by reason of the probable requisition that may be made for the Halifax award, and I do not wish by any chance to impair the resumption fund.”
During the latter part of December the air was full of rumors of a combination in New York for a run upon the sub-treasury on the opening of the new year. The alarm was so great that the president of the National Bank of Commerce in that city, who was also chairman of the clearing house committee, at three o’clock p. m. on the 30th, with the advice of other bankers, sent me, by special messenger, an urgent request for the transfer to his bank, on the following day, from the sub-treasury, of $5,000,000 in gold, in exchange for a like amount in United States notes, to enable the banks, he said, to meet a “corner” in gold. To this there could be but one reply. The treasury had no power to make the transfer, even if it desired to do so. I therefore declined the proposition, and did not believe in a “corner.”
During the exciting events connected with resumption and refunding I did not overlook the political condition in Ohio, and wrote a letter in regard to it, which I think proper here to insert, as it presents my view at its date:
“December 26, 1878. “My Dear Sir:—Much obliged for your kind letter of the 21st.
“My official duties engross my time so much that I scarcely catch a glimpse of home affairs by reading the newspapers, and your intelligent view is therefore the more interesting. It seems to me that the nomination of General Garfield for governor and Foster for lieutenant governor would be a very excellent arrangement, but I understand that it is not agreeable to them. Garfield has no desire for the position, while Foster feels that he ought to head the ticket. An understanding that Garfield is to be Senator might embarrass us in certain doubtful districts, where the chief contest would be upon that office. Still such a ticket would be universally conceded to be very strong and would inspire confidence, and would be entirely satisfactory to me. Indeed, I wish to be in a condition to support our political friends in anything they may do in the convention, without taking an active part in it.
“The contingency that you refer to with which my name is connected is still to remote to talk about. I never supposed that a person occupying my office, open to attack and compelled to say no to so many persons, could be sufficiently popular to justify any party in running him for the presidency, and, therefore, I have always dismissed such suggestions as the kindly compliments of the hour. Certainly it has not gained my mental consent, nor is it considered by me as one of the probabilities of the future. If I should get the maggot in my brain it would no doubt be more likely to hurt than help.
“The tendency of public opinion is evidently towards General Grant, whose absence and good conduct are in his favor, while the involuntary feeling of Republicans would be in favor of nominating him as a remonstrance against the violence in the south, and notice that it must end.
“However, a year hence will be time enough to settle this matter.
“I send my hearty greetings for the holiday season, and remain,
“Very truly yours,
“John Sherman.
“Hon. Richard Smith, Cincinnati, O.”
About this time I received the following letter:
“United States Legation, }
“Mexico, December 15, 1878.}
“Hon. John Sherman, Washington, D. C.
“My Dear Sir:—Allow me to send you, as a New Years’ greeting, my hearty congratulations on your successful management of our national finances and on the resumption of specie payments, which I have no doubt will be an accomplished fact when this letter reaches you.
“The nation owes you a great debt for your courage, persistence and wisdom in adhering to your policy for re-establishing and maintaining our government credit. To your conduct I attribute the present honorable position of the Republican party, more than to any other one influence. I believe that neither the country nor the party will forget your services.
“Very truly,
“John W. Foster.”
CHAPTER XXXVII. REFUNDING THE NATIONAL DEBT. Over $140,000,000 of Gold Coin and Bullion in the Treasury January 1, 1879—Diversity of Opinion as to the Meaning of Resumption— Effect of the Act to Advance Public Credit—Funding Redeemable Bonds Into Four per Cents.—Letters to Levi P. Morton and Others— Six per Cent. Bonds Aggregating $120,000,000 Called During January, 1879—The Sale in London—Charges of Favoritism—Further Enactments to Facilitate the Funding—Difficulty of Making Sales of Four per Cent. Bonds to English Bankers—Large Amounts Taken in the United States—One Subscription of $190,000,000—Rothschild’s Odd Claim— Complimentary Resolution of the New York Chamber of Commerce.
On the 1st of January, 1879, when the resumption act went into effect, the aggregate amount of gold coin and bullion in the treasury exceeded $140,000,000. United States notes, when presented, were redeemed with gold coin, but instead of the notes being presented for redemption, gold coin in exchange for them was deposited, thus increasing the gold in the treasury.
The resumption of specie payments was generally accepted as a fortunate event by the great body of people of the United States, but there was a great diversity of opinion as to what was meant by resumption. The commercial and banking classes generally treated resumption as if it involved the payment and cancellation of United States notes and all forms of government money except coin and bank notes. Another class was opposed to resumption, and favored a large issue of paper money without any promise or expectation of redemption in coin. The body of the people, I believe, agreed with me in opinion that resumption meant, not the cancellation and withdrawal of greenbacks, but the bringing them up to par and maintaining them as the equivalent of coin by the payment of them in coin on demand by the holder. This was my definition of resumption. I do not believe that any commercial nation can conduct modern operations of business upon the basis of coin alone. Prior to our Civil War the United States undertook to collect its taxes in specie and to pay specie for its obligations; this was the bullion theory. This narrow view of money compelled the states to supply paper currency, and this led to a great diversity of money, depending upon the credit, the habits and the wants of the people of the different states. The United States notes, commonly called greenbacks, were the creature of necessity, but proved a great blessing, and only needed one attribute to make them the best substitute for coin money that has ever been devised. That quality was supplied by their redemption in coin, when demanded by the holder.
The feeling in the treasury department on the day of resumption is thus described by J. K. Upton, assistant secretary, in an article written at the close of 1892:
“The year, however, closed with no unpleasant excitement, but with unpleasant forebodings. The 1st day of January was Sunday and no business was transacted. On Monday anxiety reigned in the office of the secretary. Hour after hour passed; no news came from New York. Inquiry by wire showed all was quiet. At the close of business came this message: ‘$135,000 of notes presented for coin —$400,000 of gold for notes.’ That was all. Resumption was accomplished with no disturbance. By five o’clock the news was all over the land, and the New York bankers were sipping their tea in absolute safety.
“Thirteen years have since passed, and the redemption fund still remains intact in the sub-treasury vaults. The prediction of the secretary has become history. When gold could with certainty be obtained for notes, nobody wanted it. The experiment of maintaining a limited amount of United States notes in circulation, based upon a reasonable reserve in the treasury pledged for that purpose, and supported also by the credit of the government, has proved generally satisfactory, and the exclusive use of these notes for circulation may become, in time, the fixed financial policy of the government.”
The immediate effect of resumption of specie payments was to advance the public credit, which made it possible to rapidly fund all the bonds of the United States then redeemable into bonds bearing four per cent. interest. Early in January, 1879, I issued a circular offering the four per cent. funded loan of the United States at par and accrued interest to date of subscription in coin. It was substantially similar to the one issued on the 16th of January, 1878, but graded the commission, allowing from one-eighth of one per cent. to one-fourth of one per cent., according to the amount subscribed.
Several letters written about this date will show my view better than anything I can say now:
“Washington, D. C., January 6, 1879. “Dear Sir:—Your note of the 2nd was received upon my return from the west.
“Much obliged for subscription, and hope that you will soon get above the ten millions and thus be entitled to the additional one-tenth. I cannot, however, allow it on the first ten millions without adopting it as a rule, which would be impossible, by reason of the limitation of the entire cost to one-half of one per cent. I may be compelled to allow the one-eighth commission down to $1,000, but perhaps not, as I have to carefully husband the limited fund out of which all expenses must be paid. With the energy and hopefulness now exhibited, we can easily refund the 5-20’s within this year and, perhaps, within six months. The more rapid the process the less disturbance it will create. I am hopeful and sanguine of improving business, not that greenbacks will be so abundant, but that employment will be ready for everyone willing to work.
“Thanks for your congratulations, which I heartily reciprocate, for the syndicate are entitled to a large portion of the merit now given to me. As I got more than my share of the abuse, it is probably thought that I should get more than my share of the credit.
“Very truly yours,
“John Sherman.
“Hon. L. P. Morton, New York.”
“Washington, D. C., January 8, 1879. “R. C. Stone, Esq., Secretary Bullion Club, New York.
“Dear Sir:—Your letter of the 5th inst., inclosing a card of invitation from the Bullion Club, to attend a dinner at their club house on Thursday evening, the 16th inst., is received.
“I regret that my official duties will not permit me, in person, to respond to the toast you send me, and I cannot do so, by letter, in words more expressive than the toast itself, ‘To Resumption— may it be forever.’
“Irredeemable money is always the result of war, pestilence, or some great misfortune. A nation would not, except in dire necessity, issue its promises to pay money when it is unable to redeem those promises. I know that when the legal tenders were first issued, in February, 1862, we were under a dire necessity. The doubt that prevented several influential Senators, like Fessenden and Collamer, from voting for the legal tender clause, was that they were not convinced that our necessities were so extreme as to demand the issue of irredeemable paper money. Most of those who voted for it justified their vote upon the ground that the very existence of the country depended upon its ability to coin into money its promises to pay. THat was the position taken by me. We were assured by Secretary Chase that nearly one hundred millions of unpaid requisitions were lying upon his table, for money due to soldiers in the presence of the enemy, and for food and clothing to maintain them at the front. We then provided for the issue of legal tender United States notes, as an extreme remedy in the nation’s peril. It has always seemed strange that so large and respectable a body of our fellow-citizens should regard the continuance of irredeemable money as the permanent policy of a nation so strong and rich as ours, able to pay every dollar of its debts on demand, after the causes of its issue had disappeared. To resume is to recover from illness, to escape danger, to stand sound and healthy in the financial world, with our currency based upon the intrinsic value of solid coin.
“Therefore I say, may resumption be perpetual. To wish otherwise is to hope for war, danger, and national peril, calamities to which our nation, like others, may be subject, but against which the earnest aspiration of every patriot will be uttered.
“Very respectfully yours,
“John Sherman.”
“January 10, 1879. “H. C. Fahnestock, Esq., “Vice President First National Bank, New York. “Sir:—Your unofficial letter of the 9th inst., suggesting the danger that may arise from the very large and rapid subscriptions to the four per cent. bonds, is received.
“The danger is apparent enough to all, and certainly to those who purchase without ability to pay at the time stipulated, but it is not one that the government can guard against, except only by taking care to have ample security for each subscription.
“In the face of the advertisement now outstanding, I could not withdraw the money from deposit with subscribing banks, until at or near the time of the maturity of the call, when they must be prepared to pay. It is not the interest of the government to force subscriptions beyond the ability of investors, but we cannot check subscriptions by any violation of the public advertisement or any public caution against the danger that is open to everyone.
“Very truly yours,
“John Sherman.”
“Washington, D. C., January 13, 1879.
“George Kerr, Esq., Janesville, Bremer Co., Iowa.
“Sir:—I have received your letter of the 6th instant inclosing a slip cut from the Bremer County ‘Independent,’ a weekly paper published in Waverly, containing a statement to the effect that the First National of New York is enjoying, from the department, special privileges in the matter of holding public money on account of subscriptions to the four per cent. consols of 1907, and receiving from the government unusual commissions on subscription.
“It is needless to say to you that the statement is entirely erroneous from beginning to end.
“In the department’s circular of the first instant, a copy of which is hereby inclosed for your information, all national banks are invited to become financial agents, and depositaries of public moneys received on account of the sale of these bonds, and the commissions allowed on subscriptions are plainly stated therein. Over one hundred (100) national banks have been thus designated as depositaries for the purpose mentioned, and all are treated precisely alike, both as to commissions allowed and balances held.
“The First National Bank of New York enjoys, as a United States depositary, no special privileges whatever from the department. It has, however, thus far, subscribed for a larger amount of four per cent. bonds than any other bank, and has, consequently, received a larger amount for commissions. But any other bank subscribing for the same amount of bonds would, of course, receive the same amount for commissions.
“Very respectfully,
“John Sherman, Secretary.”
“Treasury Department, }
“Washington, D. C., January 14, 1879.}
“H. C. Fahnestock, Esq., New York.
“Dear Sir:—Your note of the 13th instant is received.
“In buying the fours thrown upon the market, you are rendering as much service to the government as if you bought directly. Indeed, I am glad you are buying from the market rather than from the department. I do not wish to force this refunding operation too much, lest it may embarrass resumption. I only fear that some eager parties may subscribe for more than they can sell and pay for by called bonds or coin within the running of the call. This is the only contingency that disturbs me.
“Very respectfully,
“John Sherman.”
My published correspondence shows that with all the efforts and strength of the department it was impossible to keep up with the subscriptions for bonds pouring in from all parts of the United States and from Europe. Over sixty millions were subscribed for in the first two weeks of January. Offers made by me in December, though not accepted at the time, were made the grounds of demands in January, when conditions had greatly changed. As the money received for four per cent. bonds could not be applied to the payment of six per cent. called bonds until interest on such bonds ceased, ninety days after the call, I feared that the enormous deposits would create a serious stringency in the money market, and perhaps cause a panic after the first of April. The banks and bankers in New York, as well as in other large cities of the United States, were actively competing to swell these subscriptions, so as to get the larger commission offered for the greater amount of bonds sold. Such a contest occurred between the First National Bank of New York, and Seligman & Co., and their associates. In ended in a contract made on the 21st of January, between the Secretary of the Treasury and the former syndicate, by which the latter subscribed for $10,000,000 of four per cent. bonds, on the terms stated in my circular of January 1, and $5,000,000 a month thereafter, the secretary reserving the power to terminate the contract.
On the same day a call was made for $20,000,000 of six per cent. bonds. Another call for a like amount was made on the 28th. The aggregate call for six per cent. bonds in January was $120,000,000.
Charles F. Conant was again appointed as the funding agent of the treasury department, and directed to assume the general management and supervision of all business in London arising from the funding of bonds. He was instructed to advise me frequently as to the condition of the business intrusted to him.
The object of this sale of bonds in London was stated in the public prints, and also in the following letter:
“Treasury Department, January 22, 1879.
“Charles M. Fry, Esq.,
“President Bank of New York, National Banking Association, New
York.
“Sir:—Your telegram was received yesterday.
“The syndicate arrangement was confined to the sale of bonds in Europe, where it is deemed important to sell bonds partly to cover called bonds held abroad; and a contract has been made with bankers having houses in London, on precisely the same terms as were extended to all in this country. It was thought that this would be best for the domestic loan. No contract of arrangement will be made to interfere in any way with the free, open, popular subscriptions in the United States.
“I am glad to notice your success and will give you every facility that is extended to anyone else.
“Very respectfully,
“John Sherman, Secretary.”
The sale in London was fully justified when the called bonds matured, and those held abroad were paid for without the exportation of coin. It was my desire to secure the exchange of four per cent. bonds directly with the holders of the six per cents. For this purpose I invited, by a department order widely circulated, such an exchange, allowing to the holder of any six per cent. bond, whether called or uncalled, the same commission and allowance for interest granted to banks and bankers. By these expedients I hoped for, and succeeded in conducting, the change of bonds without disturbing the ordinary current of business.
The process of refunding the 5-20 six per cent. bonds, by the sale of four per cent. bonds, went on with some fluctuations until the 4th of April, 1879, when all the six per cent. bonds then redeemable were called for payment. This period in the magnitude of business done was far the most active and important while I was Secretary of the Treasury. The struggle between banks and bankers, not only in the United States but in London also, gave rise to many questions which had to be promptly acted upon, chiefly by cable or telegram. The amount involved were so large as to induce caution and care. The principal difficulty in refunding arose out of the provision in the act of Congress that ninety days’ notice should be given, to the holder of bonds, by the government, when it exercised its option to pay, after five years, any portion of the bonds known as the 5-20 bonds, payable in twenty years but redeemable after five years. Prudence required the actual sale of four per cent. bonds before a call could be made or notice given to the holders of the 5-20 bonds, designated by description and numbers, of the intention of the government to pay them. When sales were made the money received was deposited in the treasury of the United States, or with national banks acting as public depositaries, which were required to give security for such deposits.
The necessary effort of the deposit of large amount involved in refunding operations was to create a stringency in the money market. I early called the attention of Congress to this difficulty, but had doubts whether the government would be justified in repealing the law requiring ninety days’ notice. This provision was a part of the contract between the government and the bondholder, and could only be changed by the consent of both parties. Congress failed to act upon my suggestion. The interest accruing for ninety days at six per cent., or one and a half per cent. on the great sums involved, was a loss to the government but a gain to the banks or bankers that sold the bonds. The syndicate of bankers engaged in the sale of bonds chose the First National Bank of New York as their depositary. The department was indifferent where the deposits were made so that they were amply secured. Other banks and bankers engaged in the sale of bonds chose their own depositaries, and thus an active competition was created in which the department took no part or interest.
This struggle led to charges of favoritism on the part of the department, but they were without the slightest foundation. Every order, ruling and letter was fully discussed and considered by the Secretary and other chief officers of the treasury, and also by General Hillhouse, assistant treasurer at New York, and is in the printed report of the letters, contracts, circulars and accounts relating to resumption and refunding made to Congress on the 2nd of December, 1879.
The charge was especially made that favor was shown the First National Bank of New York, of which George F. Baker was president and H. C. Fahnestock was vice president. It was said that I was a stockholder in that bank, and that I was interested in the syndicate. It is scarcely necessary for me to say, as I do, that these charges and imputations were absolutely false. This bank and the associated bankers sold larger amounts of four per cent. bonds than any others and received a corresponding commission, but, instead of being favored, they were constantly complaining of the severity of the treasury restrictions. Rothschild, the head of the great banking house in London and the chief of the syndicate, especially complained of what he called the “stinginess” of the treasury department. I can say for all the officers of the treasury that not one of them was interested in transactions growing out of resumption or refunding, or did or could derive any benefit therefrom.
The rapid payment of the 5-20 bonds had a more serious effect upon the English market than upon our own. Here the four per cent. bonds were received in place of the six per cent. bonds, no doubt with regret by the holders of the latter for the loss of one-third of their interest, but accompanied by a sense of national pride that our credit was so good. In London the process of refunding was regarded with disfavor and in some cases by denunciation. On the 4th of March Secretary Evarts wrote me the following letter:
“Department of State, }
“Washington, March 4, 1870.}
“Hon. John Sherman, Secretary of the Treasury.
“Sir:—I have the honor to transmit herewith, for your information, a copy of a dispatch No. 928, dated February 12, from the consul general at London, in which the department is advised that there exists dissatisfaction, among certain holders of the 5-20 bonds of the issue of 1867, with the rapidity with which the government is refunding its debt at a lower rate of interest, and that it is the purpose of such holders to demand payment of their called bonds in coin. I have to honor to be, sir, your obedient servant.
“Wm. M. Evarts.”
This demand was easily met by the sale of four per cent. bonds in London, and the balance of trade in our favor was increasing. The anticipated movement of gold did not occur.
Congress, by the act approved January 25, 1879, extended the process of refunding to the 10-40 bonds bearing interest at the rate of five per cent., amounting to $195,000,000 as follows: