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United States. Congress. House. Committee on Banki.

Resumption of specie payments. Notes of a conference between the Committee on banking and currency of the House of representatives and the Hon. John Sherman, secretary of the Treasury, April 1st and 4th, 1878 .. online

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Online LibraryUnited States. Congress. House. Committee on BankiResumption of specie payments. Notes of a conference between the Committee on banking and currency of the House of representatives and the Hon. John Sherman, secretary of the Treasury, April 1st and 4th, 1878 .. → online text (page 3 of 10)
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while we can only surely count upon the actual coin on hand over and
above our coin liabilities, we can yet, as business men, fairly understand
that all of these demands, of which I have given the items, will not be
presented at the same time, and that there will always be a balance of
at least eighteen millions of them.

Mr. EWING. Do you count any of the coin-certificates in that category ?

Secretary SHERMAN. Yes; I count 20 per cent, on coin-certificates.

Mr. EWING. You propose to issue 20 per cent, of new certificates
beyond the amount of gold on hand ?

Secretary SHERMAN. Yes, we could.



RESUMPTION OF SPECIE PAYMENTS. 17

Mr. EWINO. Which you may use for the redemption of legal- tender
notes ?

Secretary SHERMAN. I do not think I ever would, except in case of
necessity, but the law authorizes it.

Mr. PHILLIPS. Have not our revenues, both from internal revenue and
imports, been decreasing of late ?

Secretary SHERMAN. Yes, but we have more gold revenue than we
have gold expenditures.

Mr. PHILLIPS. But have not the revenues been decreasing this year
as compared with the past year?

Secretary SHERMAN. Very largely this winter especially in the
whisky tax.

Mr. PHILLIPS. And will not the recent law in regard to whisky still
further decrease the revenue?

Secretary SHERMAN. That gets me into legislative grounds, and I
think you had better settle that question among yourselves. There is
no doubt but that we will have a surplus revenue to the extent of a
portion of the sinking-fund. I do not think that a deficiency can equal
the sinking-fund.

Mr. PHILLIPS. The sale of bonds has been stopped ?

Secretary SHERMAN. Yes, but we can renew their sale if we pay a
higher rate of interest if we issue 4J per cent, bonds. The time was
(ever since I have been in public life) that it would have been looked
upon as very remarkable to sell bonds at less than 4J per cent., and we
are getting very strong when we refuse to sell bonds at 4J per cent.
Never before in the history of the government have bonds been issued
and sold at par at so low a rate of interest as four per cent.

Mr. PHILLIPS. You state that we have coin interest to pay to the
amount of ninety millions a year. Do you think it would be safe to un-
dertake resumption with that burden resting upon us ?

Secretary SHERMAN. Clearly. If we have the power to reissue legal-
tender notes at par, and the power to sell bonds, if necessary, we can
undoubtedly keep the notes at par. Redemption would not go far be-
fore legal-tender notes would become scarce. I have stated that there
were $70,000,000 of those legal-tender notes in our vaults, and there are
also $70,000,000 of them in the custody of the national banks, whose
interest it would be to keep them in their vaults.

Mr. PHILLIPS. Would it not be more to their interest to have the
coin?

Secretary SHERMAN. These legal-tender notes are scattered all over
the country.

Mr. PHILLIPS. The interest of the banks to get the gold might prompt
them to send in these greenbacks for redemption.

Secretary SHERMAN. If you ask me whether 347 millions of legal-
tender notes can be all paid with a hundred millions of coin if they are
all presented on the same day, I will say no ; but, with 600 millions of
currency, you cannot purchase all the wheat and corn in the country in
the same day.

Mr. PHILLIPS. Will not the mere act of resumption create a demand
for gold which does not now exist ?

Secretary SHERMAN. On the contrary, I think it will diminish the
demand for gold. What would they want gold for ?

Mr. PHILLIPS. These banks may wish to resume.

Secretary SHERMAN. They would rather resume in greenbacks.
They deposit their gold with us for safe-keeping.
H. Mis. 48 2



18 RESUMPTION OF SPECIE PAYMENTS.

Mr. FORT. Would there not be a temptation for the banks to exchange
their greenbacks lor gold f

Secretary SHERMAN. I do not see what object they would have in
doing it.

Mr. FORT. They would do it merely for the premium.

Secretary SHERMAN. But there would not be any premium.

Mr. EWING-. How much of this item of " interest due and unpaid,"
$4,909,705, do you say may be counted as applicable to resumption ?

Secretary SHERMAN. I would say about one-third of it.

Mr. EWING. That will be one million three hundred thousand.

Secretary SHERMAN. I never went into the division of this thing,

Mr. EWING. Then the item of" amount to credit of disbursing officers
and outstanding checks," $6,189,026. How much of that can be used
for resumption ?

Secretary SHERMAN, lou may count on the whole of it if you choose ;
because it is really only money in the course of disbursement. We
always have in the hands of disbursing officers large sums of money,
and every disbursing officer has a balance on hand, and we can reduce
those balances to a large extent, or cut them off entirely.

Mr. EWING. You include "outstanding checks"; do you think you
could count the whole sum they represent as part of the funds that
could be used ?

Secretary SHERMAN. No, sir.

Mr. EWING. How much of it ?

Secretary SHERMAN. I cannot tell ; because I cannot tell how much
of this item is for "outstanding checks" and how much to the credit of
disbursing officers.

Mr. EWING. Exclusive of those items you would only have on your
theory $12,300,000 which you could add to the $62,000,000.

Secretary SHERMAN. It is totally immaterial whether you count that
in or count it out. As I said before, my reliance would be on the actual
coin reserve to be increased as I have stated. I do not propose to re-
sume on seventy-one millions of coin.

Mr. EWING. It strikes me that the addition of seventeen or eighteen
millions, drawn from these four items, is not safe in calculating the re-
sources for resumption.

Secretary SHERMAN. I think that if you ask any banker in New York
how much of that fund is available for resumption purposes, he will put
it higher than I do.

Mr. EWING. As a banker?

Secretary SHERMAN. As long as we are issuing United States notes,
redeemable on demand, we are in the banking business.

Mr. EWING. And take the bankers' chances?

Secretary SHERMAN. We do it as a matter of course. We save the
interest and have to do as bankers do.

Mr. EWING. You have got here under the item of " called bonds and
interest" only $6,818,677. Has there not been a call of $10.000,000
since ?

Secretary SHERMAN. No; there has been no call since. The last
statement which you get to-day will include these " called bonds." The
last call was made on the 6th of December, 1877, and matured on the
6th of March, 1878. It has been covered about half of the amount-
by the sale of bonds since the call issued.

Mr. EWING. Does this statement include all of the called bonds un-
paid on the first of February, 1878?



RESUMPTION OF SPECIE PAYMENTS. 19

Secretary SHERMAN. Yes, sir; all the called bonds that matured at
that date.

Mr. FORT. What is the cost of selling bonds, including the expenses
of the syndicate J ?

Secretary SHERMAN. One half of one per cent, is the limit under the
law and our contract with the syndicate. The syndicate pays all the
cost, including engraving, &c., out of the half of one per cent. Under
the popular loan we pay one-fourth of one per cent, commission and pay
the expenses out of the other fourth.

Mr. EWING. Going back to your statement before the Finance Com-
mittee, you add to the sixty-two millions of gold five millions nine hun-
dred and seventy-two thousand dollars of fractional silver coin ; do you
regard that as available for resumption ?

Secretary SHERMAN. Undoubtedly. We can issue that silver coin in
exchange for United States notes to the full extent of the outstanding
fractional currency; but, in my judgment, Congress ought to pass a
law enlarging the limit of subsidiary silver to fifty million dollars.

Mr. EWING. Such an exchange would be a voluntary exchange on
the part of the holder of legal-tender notes. I am not speaking of what
you can buy with the subsidiary silver coin, but as to whether it is avail-
able for the redemption of legal-tender notes when presented.

Secretary SHERMAN. Yes; in my judgment that five millions of dollars
will be all absorbed before the first of January.

Mr. EWING. But we are speaking of this as a redemption fund for the
legal-tender notes after the first of January.

Secretary SHERMAN. If the five millions of subsidiary silver coin be
.paid out in exchange for United States notes or in current expenses,
there will be left in the Treasury just so much the more current revenue
which will be in gold.

Mr. EWING. But after resumption day you do not regard fractional
silver as available for the purposes of redemption ?

Secretary SHERMAN. Only to a small amount. We will still exchange
silver coin for United States notes. But I think the whole amount now
on hand will be paid out and gold will take its place.

Mr. EWING. The resumption law provides that the redemption of
legal-tender notes shall be in sums of $50 and upward, and fractional
silver currency is not a legal tender above $3. How, then, can it be
counted upon as part of the redemption fund I

Secretary SHERMAN. Simply because it can be, and will be, probably,
exchanged, as needed, for United States notes.

Mr. EWING. But after the first of January can it be used as part of
the redemption fund?

Secretary SHERMAN. Yes, I think so; if it is used for the redemption
of United States notes.

Mr. EWING. It is not a legal tender ?

Secretary SHERMAN. That makes no difference. People come to us
every day with United States notes for silver currency.

Mr. EWING. But I am speaking of using this fractional silver currency
for the redemption contemplated by the law.

Secretary SHERMAN. I regard redemption as simply meaning paying,
according to law, the United States notes in the coin which the holder
has a right to demand. Any holder of a United States note may now
come to the Treasury and ask to be paid in subsidiary silver coin.
After the first of January we will pay him in silver dollars or in gold
coin, just as he prefers. If we should redeem United States notes
between now and the first of January to the extent of five millions of



20 RESUMPTION OF SPECIE PAYMENTS.

dollars, we have in place of it the revenue which comes into Treasury
probably in gold.

Mr. EwiNGf. My point is this : that fractional silver coin cannot be
counted as a fund with which to redeem, after the first of January,
United States notes, because it is not a legal tender for as much as $50,
and because, under the law, the presentation of legal-tender notes must
be in sums of $50 and upward.

Secretary SHERMAN. I do not think it material for us to discuss that
question, because that five millions of subsidiary silver coin will be used
in exchange for United States notes precisely as the silver dollars will be.

The CHAIRMAN. You regard it as an asset in the Treasury for all the
purposes of the resumption bill?

Secretary SHERMAN. Certainly. If you really want to drive me into
the position, I can simply say that we can convert subsidiary silver coin
into silver dollars and then we can pay it out. It is money there in the
Treasury available for the payment of United States notes.

Mr. EwiNGf. Might you not as well put in United States notes as
money available for redemption ?

Secretary SHERMAN. No; I think not. This subsidiary currency
would, in the ordinary course of business, be paid out in lieu of other
revenue, and would be replaced by gold or silver.

Mr. EwiNGf. In the statement made on the 26th of February to this
committee by the Treasurer, he says : u I am informed by the Director
of the Mint that the amount of unpaid deposits belonging to private
individuals and held by the mints and assay-offices on January 1, 1878,
amounted to $2,114,000." Is that a proper deduction from the coin on
hand?

Secretary SHERMAN. No, sir; that is a mint account.

Mr. EwiNGf. But the amount in the mints is credited in your table.

Secretary SHERMAN. Only the amount belonging to the United States.
There are private deposits of bullion under the law. That is a private
deposit for trade-dollars. It is not a liability.

Mr. EwiNGr. That is, the gold and silver are not counted in the state-
ment of the amount in the mints ?

Secretary SHERMAN. No, sir; that debit is for gold and silver de-
posited by private individuals for their own use.

Mr. EwiNGf. In this statement you have got the available sum on
hand at $71,000,000, without any deduction for accruing interest !

Secretary SHERMAN. Yes, sir.

Mr. EwiNGf. Now, the interest which is accruing on bonds is to be paid
by gold which has been accruing from custom s a pari passu f

Secretary SHERMAN. Yes, sir.

Mr. EWINGK You count all the gold thus coming in from customs as
applicable to resumption, and yet here is a charge upon it of $17,277,000,
up to the last of February, for accruing interest?

Secretary SHERMAN. The answer to that is that the interest is not
due. If the interest is accruing, we have also revenue accruing. We
have goods deposited with us and bonds issued for customs duties, but
we do not count this as revenue, although the revenue is accruing with
absolute certainty of payment, and will be paid within a year.

Mr. EwiNGf. It is not fixed in amount ?

Secretary SHERMAN. O, yes. The entries are liquidated and ascer-
tained, and we hold the goods in bond ; but we do not call that revenue,
because it is not paid ; and so it is with accruing interest. Interest, as
it accrues, we count as such, but interest accruing will be met before
it becomes due by revenue accruing.



RESUMP'JIONOF SPECIE PAYMENTS. 21

Mr. EwiNGr. Bat you have already credited your whole accruing reve-
nue to your resumption fund ?

Secretary SHERMAN. No; we have credited our accrued revenue. We
do not in either case credit the accruing or prospective revenue or the
accruing or prospective interest.

Mr. EwiNGf. That is retrospective interest. It has accumulated to the
extent of over seventeen millions to the date of your statement.

Secretary SHERMAN. It is no more fixed than the revenue which is
accruing. This question of whether, in our liabilities, interest not yet
due shall be counted has been variously discussed, and many take a dif-
ferent view of it ; but I take it that the point is this : Can that interest
be demanded on the 1st of March or on the 1st of April ? Certainly not.
There is accruing interest from the 1st of January to the 1st of July;
but it is not clue until the 1st of July, and cannot be counted, therefore,
as a demand liability until the 1st of July ; and in the mean time our
ample coin revenues come in, and a great deal more than cover the
accruing interest.

Mr. EwiNGf. But as a matter of fact, if you take out that seventeen
millions of accruing interest and say that you put that apart as a resump-
tion fund, you will be short of revenue to pay your interest and to create
the sinking fund, as the law requires.

Secretary SHERMAN. If we are bound not only to get gold enough to
pay what is due, but bound to get gold enough also to pay what may be
due in six months, as a matter of course we can never resume.

Mr. EWING. I think it fair enough to say that whatever you have on
hand now which has no ascertainable charge against it may be counted
as a redemption fund for the greenbacks, trusting to future revenue to
meet the future accruing interest and liabilities. But the difficulty
about this statement is, that you have taken all the gold in hand now,
and have not counted the accruing interest, which amounts to the
very large sum of $17,227,000 up to the date of your statement, while
the law expressly sets apart the gold that has been accruing from the
customs to meet the interest which has been accruing during the same
time.

Secretary SHERMAN. No 5 but to meet the interest which has accrued.

Mr. EWINGL The statement, I think, makes an incorrect impression on
the public mind as to the amount of gold actually on hand for resump-
tion purposes.

Secretary SHERMAN. But, according to your idea, you would have us
accumulate seventeen millions of gold more to-day to meet an obligation
that is not to fall due until July.

Mr. EwiNO. No ; but my idea is that in your statement you should
have deducted the $17,227,000 of interest accruing up to date from the
amount of gold on hand, because that gold is pledged and set apart
by the law as a special fund to pay this interest, and is not applicable to
resumption.

Secretary SHERMAN. But we have other gold as sure to come in as the
1st of July will come, to meet that interest.

Mr. EwiNGf. Yes; and you have other obligations to meet to the
amount of all the gold hereafter coming in.

Secretary SHERMAN. We cannot be expected to pay a debt before it
is due.

Mr. EwiNGf. The receipts from customs for the fiscal year 1877 were
8130,956,000. The receipts this year will be less, as the imports have
fallen off. The interest on the public debt last year was $97,124,000.
That interest this year will be a little less. The sinking-fund this year,



22 RESUMPTION OF SPECIE PAYMENTS.

according to the statement of the Treasurer, is $35,424,000, and the law
sets apart customs as expressly to the sinking-fund as it does to the
interest on the public debt. Section 3694 of the Kevised Statutes pro-
vides that "the coin paid for duties on imported goods shall be set apart
as a special fund, and shall be applied as follows: 1st. To the payment
in coin of the interest on the bonds and notes of the United States.
2d. To the purchase or payment of one per centum of the entire debt of
the United States, to be made within each fiscal year, which is to be set
apart as a sinking-fund, and the interest of which shall be in like
manner applied to the purchase or payment of the public debt. 3d.
The residue to be paid into the Treasury."

Now, here is a special appropriation by law of the receipts from cus-
toms to the extent of the sinking-fund and of the interest on the debt,
and these two items will this year, evidently, amount to the whole re-
ceipts from customs.

Secretary SHERMAN. I have already explained the operation of the
sinking-fund. If we should undertake to do what you say we ought to
do set aside that $35,000,000 and apply it for sinking-fund purposes
as a matter of course, there would be at once a deficiency in the pay-
ment of your own salaries, and of all the other expenses of the govern-
ment. Now, this sinking-fund is a well-known technical fund, and has
been known from the foundation of the government. It is really noth-
ing but a pledge by Congress that it will provide revenues enough, not
only to pay the expenses of the government, but to pay, in addition, the
sinking-fund of one per cent, upon the debt. Therefore the sinking-
fund has been always used simply as a representative of the balance of
revenues over expenditures. The current expenditures are always taken
from the amount of revenues, and the balance is applied to the sinking-
fund. If there is a deficiency in the revenue, so that there is no balance
to be applied to the sinking-fund, of course that is the fault of Congress
in failing to provide revenues sufficient to cover the appropriations, and
the amount to be applied to the sinking-fund. That has been the
established custom of this and other countries.

Mr. EWING. I am not speaking about the custom, but the law. The
law says that the coin paid for duties shall be set apart as a special
fund, first, for the payment of coin-interest on the public debt ; and,
second, for the purchase of one per cent, of the debt each year, and for
payment of interest upon the accumulated sinking-fund. Now, I do not
see how any custom or usage of the department, or usage of other coun-
tries, can change the obligation of the statute.

Secretary SHERMAN. Let me look at the resumption act, if you have
it there, and I will show you that not only does it do that in express
terms, but it has been held to do it by every administration. (Keferring
to the law.) This clause has always been held to apply to the sinking-
fund in the form of surplus revenue : "And to enable the Secretary of
the Treasury to prepare and provide for the redemption by this act
authorized and required, he is authorized to use any surplus revenue
from time to time in the Treasury not otherwise appropriated, and to
sell, issue, and dispose of, at not less than par in coin, either of the
description of bonds, &c. v This passed January 14, 1875. It has been
held, under this appropriation made in 1875, of the surplus revenue, that
the excess of revenue over expenditures could be applied under it with-
out regard to the sinking-fund ; and that has been the construction put
upon these words.

Mr. EWING. That is, by yourself, and Mr. Morrill, and Mr. Bristow,
the only three Secretaries of the Treasury who administered that law.



RESUMPTION OF SPECIE PAYMENTS. 23

Secretary SHERMAN. Yes, sir. That appropriation of surplus revenue
has been held^ro tanto to be an amendment of the act of 1870.

Mr. EWING. The words are " any surplus revenue from time to time
in the Treasury not otherwise appropriated." Now in addition to section
3694 of the Kevised Statutes which I have cited, there are, in sections
3688 and 3689, under the head of permanent annual appropriations,
appropriations of the sums required for the sinking-fund. These pro-
visions of law setting apart the customs as a special fund and perma-
nently appropriating them to the sinking-fund, certainly are not affected
by this provision of the resumption law, appropriating " any money in
the Treasury not otherwise appropriated."

Secretary SHERMAN. I think it is; the words "surplus revenue" are
not in it. That has been always construed to mean that sum of money
which has been left after paying current expenses.

Mr. EWING. You mean always since the passage of the resumption
law'?

Secretary SHERMAN. I never saw that questioned. At all events it
was so held, and acted upon when Mr. Bristow failed to make good the
$16,305,421 of the sinking fund.

Mr. EWING. It was so held by the Secretary f

Secretary SHERMAN. Yes, sir; and was never questioned by Con-
gress.

Mr. EWING. The subject may not have been looked into.

Secretary SHERMAN. That may be. As a matter of course, if Con-
gress was to say that we should invest the sinking fund prior to and
as against all appropriations made by Congress, it would leave a defi-
ciency at once.

Mr. EWING. Congress has said it.

Secretary SHERMAN. I do not think that the fair construction. Still,
that is a question for Congress and not for the Secretary.

Mr. EWING. The section from the Eevised Statutes, which I have
read, sets apart the duties on imported goods as a special fund for those
two objects. A certain and permanent appropriation of the customs as
a special fund, cannot reasonably be held to have been repealed or
modified by this clause, which is usual to all laws "out of any money
in the Treasury not otherwise appropriated" that is a common phrase
in all statutes making appropriations.

Secretary SHERMAN. Look at the practical question. Would you
have had Secretary Bristow, who met this difficulty in the first instance,
refuse to pay the ordinary drafts for the expenses of the government
to the extent of $16,000,000 ?

Mr. EWING. I would have had him execute the law, and most cer-
tainly and most especially I would not consent to the proposition that
the resumption act overrides all the laws that preceded it, nor that the
importance of resumption is so exigent and overwhelming, as that the
permanent appropriations may be disregarded by the Executive in order
to carry it into effect.

Secretary SHERMAN. All this you speak of occurred before the re-
sumption law was passed. This very question about the application of
the sinking-fund occurred June 30, 1874, and the resumption act was
passed in 1875.

Mr. EWING. You are speaking of Mr. Bristow's interpretation?

Secretary SHERMAN. And Mr. Morrill's.

Mr. EWING. Not Mr. MorrilPs. The resumption law passed before
Mr. Morrill became Secretary.

Secretary SHERMAN. Yes'; but, at all events, that question was de-



24 RESUMPTION OF SPECIE PAYMENTS.

termined by the department and was acquiesced in certainly by Con-
gress, and rightly acquiesced in. I certainly take my share of the fault,
if there is anything wrong in it, for I was then in Congress, of acqui-
escing in the construction that the ordinary expenses of the govern-
ment must be paid before the sinking fund is attended to, and that if
there is any deficiency it must fail on the sinking-fund.


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Online LibraryUnited States. Congress. House. Committee on BankiResumption of specie payments. Notes of a conference between the Committee on banking and currency of the House of representatives and the Hon. John Sherman, secretary of the Treasury, April 1st and 4th, 1878 .. → online text (page 3 of 10)