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and village in the land in swarms like the flies of Egypt into the palaces of Pharaoh, for his assignment, consideration, and decision, and finally to those great and unprecedented questions of politics, political economy, and finance, wherein he is often expected to agree with the less informed, to ignore obstacles which he knows to be insurmountable, to dash after results without the means of attaining them, and to drop the unattractive but essential substance for the more alluring shadow.
No Secretary of the Treasury has enjoyed larger opportunities than Mr. McCulloch for a thorough and practical education in finance before entering upon his office. He is of Scottish family, as his name indicates, and his personal habits and financial views are of the Scottish-American pattern. He aims to succeed through patient labor, economy, cautious, prudent calculation, and strict honesty, rather than by brilliant strokes of genius.
His grandfather, Adam McCulloch, emigrated from Dornoch, Scotland, and settled in Arundel, Maine (now Kennebunk Port), about the year 1765. He was a fine scholar, and, like so many of the Scotch, was thrifty, hospitable, clannish, and of most excellent humor. As a merchant he acquired a handsome fortune. His father was likewise a merchant, and, at the commencement of the war of 1812, was one of the largest and most enterprising ship-owners in New England. The war, with the restrictions it involved, swept away his fortune in its general havoc of commercial interests. About the time his father's embarrassments commenced, Mr. McCulloch was born, and he received only the advantages of an academical education, and of a little more than a single year at Bowdoin College. Leaving college in his sophomore year, then seventeen years old, he engaged in teaching, and continued to teach until 1829, when by close economy he had saved enough to enable him to read law. He commenced the study of law in Kennebunk, his native town, whence he removed, in 1832, to Boston, and
there completed his legal studies. Having long previously resolved to make his home in the West, he left Boston in April, 1833, and in June following ar rived in Fort Wayne, Indiana, then a frontier trading-post, described by him as a 66 mere dot of civilization in the heart of a magnificent wilderness." About that time, however, it began to grow rapidly, and is now the second city in the State.
In the Fall of 1835 he was invited, though a young man with little experience in business, to organize and take the management of a Branch of the State Bank of Indiana, at Fort Wayne. He accepted the offer without intending to abandon his profession, but in a few months became so interested in banking, that he determined to make it his permanent business. In 1836 he was elected a Director of the State Bank, and he continued to be the Cashier and manager of the Branch, and a Director of the Bank, until the expiration of the charter, in 1857. The great success of that admirably conducted banking institution was very largely the result of his financial conservatism and ability.
In 1856 a new bank, known as the Bank of the State of Indiana, was chartered, with twenty branches, and an authorized capital of six millions of dollars. Mr. McCulloch was, by the unanimous vote of the Directors, elected President. Under his skilful management, aided by the best financiers in the State, this Bank took high rank among the large banking institutions of the country. It maintained specie payments during the trying periods of 1857 and 1861, and until its branches were merged in the National Banking System, it was one of the strongest (if not the very strongest) and most wisely conducted Banks in the United States.
The bill providing for a National Currency through the agency of National Banks, became a law in February, 1863. In April of that year Mr. McCulloch was requested by Mr. Chase, the Secretary of the Treasury, to become the Comptroller of the Currency, and to undertake the very difficult task of
organizing a National Currency Bureau, and bringing the banking institutions of the States under the national banking law. The request was promptly complied with, although the acceptance of the office involved a large sacrifice of income and of comfort on the part of Mr. McCulloch. The ability with which this task was accomplished was recognized and appreciated by the bankers and business men throughout the country, and, in connection with his previous experience as a banker, had great weight with the press and people in influencing them to urge upon President Lincoln his appointment as Secretary of the Treasury.
This office came to him almost by necessity, as the consequence of his banking experience and his familiarity with finance. Mr. Fessenden, talented as he is, had accepted with reluctance, and held with hesitation and diffidence, the reins of the Treasury. Mr. Chase, in whose great abilities enthusiastic confidence was felt by a very large party, had been transferred to a higher but less difficult and arduous position. Mr. Cisco, who had been in charge of the Sub-Treasury at New York, and whose practical acquaintance with banking and finance was second only to that of Mr. McCulloch, was the leading name mentioned in Eastern circles for the position. Mr. McCulloch, as Comptroller of the Currency, already presided over a leading bureau of the Treasury, and was most familiar with the workings of the entire department during the two last years of the war. antecedents, experience, and character, combined to present him as the most able and available successor of Mr. Fessenden. The Western press and people, led by the Chicago Tribune and the Legislatures of Indiana, Illinois, and other Western States, by resolution spontaneously concurred in praying for his appointment. President Lincoln, as was his wont, bowed to the popular demand, with which his own judgment fully agreed.
On Mr. McCulloch's accession to the office of Secretary, in March, 1865, he
announced his policy to be, 1st. To raise by loans the money necessary to pay the soldiers of the great Union army, and all other demands upon the Treasury; 2d. To fund all obligations as they should mature into gold-bearing bonds; 3d. To contract the currency steadily, on the theory that its depreciation was due in great part to the excessive quantity in circulation, until its value should advance to par with gold, thereby restoring the government and the country to specie payments, and turning the people from speculation and gambling, with all their unhealthful immoral tendencies, back to legitimate industry and business, with the blessings which attend them; 4th. To keep the public revenues sufficiently in excess of the expenses to enable him to devote $200,000,000 per annum toward paying the principal and interest of the national debt, thereby securing the payment of the debt in less than a third of a century. Whatever adverse criticism the carrying out of these views subsequently provoked, they received, when uttered, the general assent of the people, as well as the special concurrence of Congress. Though the masses of the people are not versed in finance, yet it is one of the characteristics of a republican government that, even in finance, no policy can be maintained which the masses of the people cannot comprehend and approve. Mr. McCul-. loch has been held to account because some $800,000,000 of 7.30s and $600,000,000 of other securities due in '66, '67, and '68, and bearing interest at 7,3% per cent. in currency, have been funded into Five-Twenty bonds bearing interest at 6 per cent. in coin. It is argued that as coin has maintained from the year '65 to the present time an average premium of 40 per cent. over currency, the six per cent. coin interest has been equivalent to at least 8 interest in currency, and this increase of 1% per cent. interest in currency has thus far increased our annual interest by at least $10,000,000. By lessening the utility of currency in paying the national interest and increasing the necessity for
gold, it has depreciated the former and enhanced the latter, thus increasing that premium on gold which is a practical obstacle to specie payments. It is true that when we return to specie payments our interest will have been diminished by the funding of the 7.30s, but thus far it has been increased. To all such criticisms it may fairly be replied, that the 7.30s ran for so short a time, that had they not been funded their holders would long ere this have been demanding their payment. And as the Government was clearly unable then to pay, either in gold or currency, nearly one half of the national debt, it was necessary to fund them into bonds, and none more favorable were authorized or possible than the 5.20s. Moreover, the Act of Congress made them convertible, at the pleasure of the holders, into 5.20s; and though the Secretary executed the law, he cannot be held responsible for a policy laid down for him by the higher authority of Congress. The Secretary's policy of contraction of the currency was at first endorsed by Congress, and was regarded for a time as the very test of soundness in finance. It was subjected to only a partial trial, and the current of opinion soon set so strongly against it, as a means of restoring specie payments, that it was overruled by Congress, and the Secretary, though adhering to his original views, obeyed the voice of the people's representatives. The opponents of contraction have been more successful in thwarting the policy than in agreeing upon the grounds for its defeat. Its more ultra opponents urge that the theory of contraction is defective at the outset, in that it assumes that the value of the currency depends on its volume merely, whereas its value, they argue, depends on that of the entire bulk of the national debt.
Paper currency has been defined by some economists as transferable debt, since all transferable debt may be used as a means of payment-and therefore as a currency. Hence, in the view of such, the only true contraction is the payment of the debt, and any other only substitutes interest-bearing bonds for non
interest-bearing notes, i. e., a less convenient form of currency for one far more convenient. They point, in support of the dependence of currency for its value on the bonds, to the fact that the bonds and currency, whether at par with gold as in 1860, at 40 per cent. as in 1864, or at 78 per cent. as now, have always fallen and risen pari passu-the bonds being worth only as much more than currency as was caused by their interest-bearing quality. While these views have great plausibility, if not force, their advocates will hardly claim that a bond for a large sum, due with interest at a distant day, has all the features of currency which belong to notes for small sums, payable on demand without interest. As the ready exchangeability of the security increases, its liability to be used and classed as a currency increases. Evidently, the conversion of the whole national debt into currency would vastly increase its depreciation, and probably would reduce its value to a merely nominal figure, like that attained in 1863 and 1864 by Confederate notes. It is undeniable that the existence of a given amount of the national debt in the form of non-interestbearing notes, tends far more to depreciate public credit, enhance the premium on gold, and delay a return to specie payment, than would any amount of debt invested in long interest-bearing bonds. So far, therefore, the violent assaults on the theory of contraction have bred distrust, but have failed to vindicate the absolute denial of its efficacy.
Other opponents of contraction allege that, after business has adapted itself to a certain volume of currency, no matter what that volume may be, it is as great an evil to contract as it was to expand it; that business requires chiefly permanence, and that specie payments should be resumed by authorizing all contracts to be made in gold or depreciated paper, as parties prefer, and all courts of law to recognize the difference of value. This, it is thought, would lead to the gradual substitution of the gold standard for the paper, reducing the sums
named in outstanding debts payable in currency, to the sums in gold which said debts are actually worth. This would produce resumption, without swelling the burden of debts contracted in currency, worth only 40 or 78 cents per dollar in gold, by compelling the debtor to pay them in currency worth 100. Undoubtedly, the popular objection to resumption now lies in the hostility of the debtor-class to having 40 per cent. added to the burden of their debts, by contracting to that extent the currency in which they are to be paid. The difficulty lies, not in resumption by the Government, but by the people. It would be of no use to make their paper currency worth 40 per cent. more than their private debts, for they could not afford to use it as a means of payment any more than they can now afford to use gold. In the event of a contraction that would carry greenbacks to par with gold, their private debts would therefore go unpaid, and would soon constitute an inferior currency, over which the greenbacks would bear a premium. In short, contraction would "demonetrize" greenbacks, as it has gold, and leave the people without a currency corresponding in value to their money of account and exchange, except in so far as they should make one for themselves, by substituting private notes for those of Government. Without agreeing with all these premises, Mr. McCulloch strongly favors the policy of authorizing gold contracts and of taking such legislative measures as will cause contracts, now payable in currency, to be changed upon terms equally just between debtor and creditor, to contracts payable in gold at the reduced figures. He thinks this would promote returns to specie payments by a mode which, if the law were properly guarded, could not be made oppressive to the debtor-class, while it would be entirely acceptable to creditors. Still other opponents of contraction-at the head of whom stands that eminent American economist, Henry C. Carey-asserts that our entire note-currency amounts to only $20 per capita, while the entire currency
of England is $25 per capita, and that of France $30 per capita, though about half of the former and seven eighths of the latter are specie. He attributes our eras of expansion and speculation to the excessive discounts and deposits of the banks, contending that these are the most fruitful sources of expansion, and that they, rather than bank-notes or Government-notes, constitute a currency which needs check, regulation, and limitation. On the other hand, Mr. McCulloch, in his Report for 1865, elaborately argues that the expansions in bank deposits and discounts, which led to the crises of 1837 and 1857, were preceded by corresponding expansions in the bank-note circulation, and that the inflation of notes occasioned the inflation of deposits and discounts, the underlying cause of both being our overtrading with Europe, and the enormous credits, and delay in settling the balances to which this overtrading gave rise.
The policy suggested by Mr. McCulloch, in 1865, for paying the debt in thirty-two years, was exceeded during the years '66 and '67, in which one tenth of the entire debt was paid off. Indeed, if we include the unliquidated portion of the debt incurred at the close of the war for back pay, bounties, pensions, transportation, etc., with the amount for which bonds were issued, our entire debt outstanding on June 1st, 1865, was more than $3,300,000,000, and our entire payment on account of it exceeds $830,000,000, or more than a fourth of the principal. The strain on the taxpayers, however, was deemed excessive, and during the present year the revenue is intended to barely equal expenditures. Under this relaxation the country will probably so far recover its financial health and tone as to resume the payment of its debt within a year or two at most, and the average rate of payment will vary but little from the Secretary's estimate. In his Report for 1865, the startling fact is advanced that the usual products of our industry exceed 25 per cent. upon the total values of the real and personal estate of the country, and that his pro
posed rate of paying the principal would absorb less than 5 per cent. of our annual
productions the first year, and barely one tenth of one per cent. in the thirtysecond or final year. While these facts show that the payment of the principal should be deemed not only practicable but easy, they also raise the question whether it is true economy to take from the taxpayers capital which, in their hands, is earning 25 per cent., in order to cancel a debt which we can carry for six per cent. Mr. McCulloch, however,
with the financial conservatism natural to his character, stands as much opposed to all schemes for perpetuating as to those for repudiating the debt. He no more regards a national debt as a national blessing, than a private debt as an individual boon. It must ultimately be paid. But until it can be paid, let it be made as useful as possible. Our banking system must be founded on debts or bonds of some kind as security for its bank-note circulation. The security of the national bonds has been found so perfect, that the notes of the few national banks which failed, have borne a premium instead of being at a discount, and the note of a national bank in Oregon passes without discount in Maine. Mr. McCulloch's agency in founding the national banking system has been second only to that of Mr. Chase. All his Reports contain sound and elaborate defences of the system, as the only source from whence we can derive a currency that shall expand and contract with the wants of the community, and shall be of uniform value throughout the country.
In his Report of December, 1865, he thus states his views of the legal-tender notes:
The right of Congress, at all times, to borrow money and to issue obligations for loans in such form as may be convenient, is unquestionable; but their authority to issue obligations for a circulating medium as money, and to make these obligations a legal tender, can only be found in the unwritten law which sanctions whatever the representatives of the people, whose duty it is to maintain the Government against its enemies, may consider in a great emergency necessary to be done. The present
The reasons which are sometimes urged in favor of United States notes as a permanent currency are, the saving of interest and their perfect safety and uniform value.
The objection to such a policy is, that the paper circulation of the country should be flexible, increasing and decreasing according to the requirements of legitimate business, while, if furnished by the Government, it would be quite likely to be governed by the necessities of the Treasury or the interests of parties, rather than the demands of commerce and trade. Besides, a permanent Government currency would be greatly in the way of public economy, and would give to the party in possession of the Government a power which it might be under strong temptations to use for other purposes than the public good-keeping the question of the currency constantly before the people as a
political question, than which few things would be more injurious to business.
But the great and insuperable objection, as already stated, to the direct issue of notes by the Government, as a policy, is the fact, that the Government of the United States is one of limited and defined powers, and that the authority to issue notes as money is neither expressly given to Congress by the Constitution, nor fairly to be inferred, except as a measure of necessity in a great national exigency. No consideration of a mere pecuniary character should induce an exercise by Congress of powers not clearly contemplated by the instrument upon which our political fabric was established.
As soon as we shall have returned to specie payments, Mr. McCulloch believes the national system should be made one of free banking; but he would regard no additional deposit of securities as effectual to prevent inflation if banks were authorized to issue unlimited quantities of depreciated paper. He has been persistent in advocating a rigid maintenance of the public faith against the proposed schemes of paying the FiveTwenty bonds in greenbacks, and has opposed the efforts to subject the bonds to local taxation, as calculated to prevent a general distribution of them among the States and counties in which taxes have so little equality, and to