appear on his next amendment to provide for a mode of retiring the greenbacks, we should embark upon a wide sea of debate, and we should have a proposition before us that had never been considered by a committee. On the other hand, if the Senate will take this bill and make such amendments to it as they may deem proper, they have the assurance that in a short time a bill comprehensive in its character, so far as the funding of the public debt and of the greenbacks is concerned, will be reported, and they will have ample ground for debate. I ask Senators, if possible, to keep that question of funding the public debt, both the greenbacks and the bonds, separate, so that they may consider that subject and let the Senate arrive at a conclusion on it alone. Then, in due time, it will be followed by other provisions in regard to all of the existing banks, old and new, and measures of revenue, tariff, and taxes. I appeal to Senators whether it is not wiser to keep these questions separate, to decide them one by one in the order of their coming rather than to mingle them into a hotch-potch and then finally lose them all.

There is another proposition offered by the Senator from Indiana [Mr. Morton], and I wish to say what I have to say in regard to it now, so that I may not trespass on the time of the Senate further, as I am anxious to have a vote. He proposes to increase the amount from $45,000,000 to $52,000,000. That is inflation of the currency pure and simple to the extent of $7,000,000. I will not vote for any proposition that will inflate the currency. We must get back to specie payments, and yet the proposition of my friend from Indiana, upon a false theory I think, proposes to retire $45,000,000 of one kind of paper currency and to issue $52,000,000 of another kind.

This is inflation to the amount of $7,000,000. It is true it is not one of those terrible calamities that will be so very injurious; but it does inflate the currency. My honorable friend makes his proposition upon what I consider a delusive idea; that is, he says the retirement of $45,000,000 of three per cent. certificates would contract the currency as much as the issue of $52,000,000 of bank circulation would expand it; that on account of the reserves which these banks would be compelled to hold in their vaults the retirement of $45,000,000 of three per cent. certificates is fully equivalent to the issue of $52,000,000 of bank circulation.

The delusion of that idea is proved by this: when a bank is organized there is a circulation springing out of the very organization of the bank which more than counteracts all the amount of the reserve. My friend from Pennsylvania [Mr. Cameron], who is a banker, knows that the organization of a bank in any community draws from the pockets of the people, in the form of deposits, idle capital which may be idle but for a few days, which is usually, on the average, equal to the amount of capital of the bank. These deposits in the bank are made the basis of circulation, not, it is true, of paper money, but of drafts, loans, certificates of deposit, and various forms of circulation; so that the establishment of banks to the amount of $40,000,000, in my judg ment, will create more circulation than the retirement of $45,000,000 of three per cent. certificates. The argument would be rather the other way.

I have no doubt that if banks are established in the South and West with circulation to the amount of $45,000,000, the actual increase of circulation, that which transacts business and pays debts, will be much larger than $45,000,000. By absorbing the little deposits of merchants and business men, and even of the freedmen of the South, they will largely increase the currency and give facilities for transacting business. But it is a delusion, as every practical banker must know, to say that $45,000,000 of three per cent. certificates is only equivalent to $52,000,000 of new banking circulation.

The whole theory of the honorable Senator from Indiana is based on the idea that the deposits of a bank will not exceed its reserve. It would be a very poor bank, indeed, the deposits in which were not three or four times the amount of the reserve. The idea of banks being organized in a community where the deposits, which are circulation, do not largely exceed the reserve, is a delusion.

Therefore I say we ought to confine the operation of this bill to the identical sum that we propose to retire and cancel; and when we pay off $45,000,000 of indebtedness, which we are now prepared to pay, and which ought to be got out of the road in order to prepare for specie payments, let us also provide for the other difficulty in the South and West by giving them the same amount, and not a dollar more, of currency in the form of bank notes, and in that way confine our measure to its true purpose, the equalization of the circulation of the country, and the provision of temporary facilities for the Pacific coast in the form of coin notes.

Mr. President, I am sorry that I have occupied so much time; but I again express the hope that this bill, which certainly in its present form is a simple one, confined to the questions I have stated, may be brought to a vote to-night, and thus give way for other important bills which are now pressing upon the attention of Congress.

FUNDING BILL.

IN THE SENATE, FEBRUARY 28, 1870.

THE Senate having under consideration the bill to authorize the refunding and consolidation of the national debt, to extend banking facilities, and to establish specie payments, Mr. Sherman said:

MR. PRESIDENT: I do not deem it necessary, in opening this debate, to invoke the attention of the Senate to the importance of the subject embraced in this bill. It is unnecessary to discuss the public policy of reducing the interest of the national debt and returning to specie payments. These subjects I have had occasion frequently to discuss in the Senate, and I could add nothing to what has been already said. The question is whether the public debt is in such a condition as to justify us in undertaking the task of reducing the interest upon it, and whether our financial condition is such as to enable us to take

another step toward specie payments. These questions, and the practical one whether this bill will tend to accomplish the object proposed, are the only questions which I mean to discuss at this stage of the debate.

The first six sections of the bill that has been read prescribe the form of bonds into which it is proposed to fund the entire debt of the United States, and the necessary agencies by which they may be disposed of. The seventh section provides for the reduction and the ultimate payment of the public debt, not only of the old debt, but of the new one created under this act. The remaining sections of the bill, three in number, contain important changes in our banking laws, by which the national banks are required to aid in funding the public debt, and by which the banking system will become free and specie payments will be resumed.

In order to understand the effect of this bill, it is necessary to recall the history of the public debt and the precise condition of the existing laws; and I shall perhaps weary the patience of the Senate by a recital of necessary facts in order to present the question fairly for this debate.

Under the loan laws of July 17 and August 5, 1861, gold was borrowed in the same mode and on the same principles that had been usual in the loans of the United States from the time of the formation of the Constitution to that time. Bonds running twenty years, principal and interest payable in gold, were sold in the money markets of the world for what they would bring. In addition to such bonds there were issued Treasury notes bearing seven and three tenths per cent. interest, and also demand notes not bearing interest, payable in coin and receivable for all classes of public dues. The whole were on a specie basis, and the discount on the bonds sold represented the depreciation of the public credit. After the sudden suspension of specie payments, however, in the fall of 1861, at a time when the Government was raising from two to three hundred thousand men, when its daily wants were from one to two million dollars, when the people for the first time began to see that they were involved in a great war that would task the utmost resources of the country, when specie had disappeared from circulation, the Congress of the United States was compelled to adopt a new financial policy.

After a long and memorable debate of over two months in both Houses of Congress, the act of February 25, 1862, was adopted. That was a revolutionary act. It was a departure from every principle of the financial policy of this Government from its foundation. It overthrew not only the mode of borrowing money, but the character of our public securities, and was the beginning of a new financial system unlike anything that had been ventured upon by any people in the world before. This new policy was adopted under the pressure of the severest necessities, and was intended to meet a state of affairs never foreseen by the framers of the Constitution.

Now, sir, it is important to understand the principles of this act; for it was the foundation of all the financial measures adopted during the war. It was upon the basis of this act, enlarged and modified from time to time, that we were enabled to borrow $3,000,000,000 in three years, and to put down the most formidable rebellion in modern his

tory. This act was based upon three distinct provisions or fundamental conditions.

First, extraordinary power was conferred upon the Secretary of the Treasury to borrow money in almost any form, at home or abroad, practically without limitation as to amount, or with limits repeatedly enlarged. Every form of security which the ingenuity of man could devise was provided for by this act or the acts amending it. Under these acts bonds were issued payable in twenty years, Treasury notes were issued, certificates of indebtedness, compound-interest notes, and other forms of indebtedness, with varying rates of interest.

There were, however, distinct limitations upon the nature and character of these loans. It was stipulated, first, that more than six per cent. interest in gold should not be paid on the bonds issued, nor more than seven and three tenths interest in currency on the notes issued; and second, that all the loans should be short loans, redeemable within a short period of time at the pleasure of the United States. Thus the gold bonds were redeemable after five years, the Treasury notes after three years, and all the securities were within the power of the United States to redeem at the end of five years at furthest. And third, no securities were to be sold at less than par. Their unavoidable depreciation was measured, not by the rate of their discount, but by the depreciation of the currency. We held our bonds at par in paper money, though at times they were worth only forty per cent. of gold.

The second leading feature of the act of February 25, 1862, was the pledge of our customs revenue, collected in gold, for the payment of the interest, and not less than one per cent. annually of the principal of the public debt. The third and most important provision of that act was the clause making a legal-tender currency of United States notes, convertible at the pleasure of the holder into bonds bearing gold interest. Upon these three fundamental conditions the act of February 25, 1862, and all the subsequent acts were founded. They provided for short loans, payment of interest in coin, and legal tenders.

Now, Mr. President, it may be proper to state the reasons for this policy. We recognized the existence of a great pressing necessity that. would tend to depreciate the public credit; and we took care, therefore, not to make loans for a long period, so as not to bind the future to the payment of such usurious rates as we were then compelled to pay.

We provided for gold interest and gold revenue, to avoid the extreme inflations of an irredeemable currency. We wished to rest our paper fabric on a coin basis, and to keep constantly in view ultimate specie payments. I believe that but for that provision in the loan act of February 25, 1862, in 1864 our financial system would have been utterly overthrown. There was nothing to anchor it to the earth except the collection of duties in coin and the payment of the interest on our bonds in coin.

If the interest on our bonds had not been payable in coin during the war, it is probable that in the terrible depreciation of 1864 our paper money would have disappeared, and the people would have resorted again to barter in gold, in disregard of our legal-tender curren

cy. As it was, the depreciation at one time was such that $286 of our paper money was required to purchase $100 in coin. This simple provision for the collection of duties on imports in gold and the payment of interest in coin was the only conservative security of our paper system. Without that, the paper balloon might have exploded, as it did in the revolutionary war in the time of our fathers, as it did in the French revolution by the issue of assignats and mandats, and as it did in the Southern Confederacy, where it ended in the entire destruction of the public credit of the Confederacy, at one time higher in the money market of Great Britain than our own.

But, sir, the most important and the most revolutionary principle of the act of February 25, 1862, was the legal-tender clause. This was a measure of imperious and pressing necessity. I can recall very well the debates in the Senate and in the House of Representatives upon the legal-tender clause. We were then standing in the face of a deficit of some $70,000,000 of unpaid requisitions to our soldiers. Creditors in all parts of the country, among them the most powerful corporations of this country, had refused our demand notes, then very slightly depreciated. We were under the necessity of raising two or three million dollars per day. We were then organizing armies unheard of before. We stood also in the presence of defeat, constant and imminent, which fell upon our armies in all parts of the country. It was before daylight was shed upon any part of our military operations. We adopted the legal-tender clause then as an absolute expedient. Remembering the debate, I know with what slow steps the majority of the Senate came to the necessity of adopting legal tenders. A majority of the Committee on Finance, as then organized, was opposed to the legal-tender clause, the Committee standing four against to three for. However, the bill was reported without striking it out, and then a proposition was made to strike out the legal-tender clause. After a long debate this motion was voted down by a very small vote indeed, and thus the legal-tender clause was retained in the bill and finally passed. If the legal-tender clause had been stricken out, what would have been the result God only knows.

At that time Mr. Chase was Secretary of the Treasury. I remember the constant, urgent, and repeated requests made by this distinguished citizen, who was certainly one of the ablest financial ministers that any country ever enjoyed in time of trouble, upon this very question of the legal-tender clause, "in season and out of season." I find, upon referring to a book recently published by Mr. Spalding, then a member of the House of Representatives, that when the bill was pending on the 5th of February, 1862, Mr. Chase wrote this letter to him in reference to the legal-tender clause:

"Such men as Nathaniel Thayer of Boston, Alexander Duncan of Duncan, Sherman & Co., Shepard Knapp, and John D. Wolf, and numerous able and leading financial men, have told me within two days that you were perfectly right, and they are deeply anxious that the legal-tender clause should stand in the bill. They say that the country is lost without it."

TREASURY DEPARTMENT, February 5, 1862.

MY DEAR SIR: I make the above extract from a letter received from the Collector