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the average from 15 to 20 per cent annually stroy them than anything that has transpired since upon the franchise derived from the United their organization. I do not see how we can go before States,' should be required to contribute their the people of the United States and ask them to lend
us gold at par for our bonds, when we refuse to just proportion to the general welfare by re- require agencies of our own creation to take them; ceiving and using as a basis for their circulation when we even refuse to require new banks not yet public securities bearing at least as low a rate organized to take these new bonds, and when we reof interest as the Government proposed to
fuse to require old banks, which have made on the
average from 15 to 20 per cent annually upon the allow the savings-banks and the trustees and franchise derived from the United States, to aid us to guardians of dependent widows and orphans this extent in funding the national debt. throughout the country. But, sir, the national “ But, sir, the vote of the House shows the power banks resisted the reasonable demands of the of the national banks. It is so great, at least in the Government then as they are resisting them House, that in order to secure a funding bill we have
been compelled to abandon all provisions in regard now, and the result was that the eighth sec to the national banks; but I give notice that in the tion of Mr. Sherman's bill was defeated in this future I for one shall be prepared at all times to reHouse. A committee of conference was ap- quire the national þanks to take that class of bonds pointed, and in lieu of that ction it reported which we propose in this bill, and I have no doubt
this will be the result. But for the present, in deferthe following:
ence to the wishes of the House, we have withdrawn "And be it further enacted, That from and after
the section in regard to national banks. the passage of this act the Treasurer of the United States shall receive no other than registered bonds “Now, sir, for the second time since the issued under the provisions of this act as security for organization of these institutions the reprethe circulating notes of national-banking associations sentatives of the people find themselves comnational currency secured by a pledge of United pelled in the discharge of their public duties to States bonds, and to provide for the circulation and encounter the almost united opposition of more redemption thereof,” approved June 3, 1864, or any than two thousand corporations of their own act supplementary or amendatory thereof."
creation-opposition to a financial policy al“ This report was signed by Hon. Robert O. ready approved by both branches of the legSchenck and Hon. Samuel Hooper on the part islative department—and thus we are again of the House, and by Hon. John Sherman, confronted with the naked question whether IIon. Charles Sumner, and Hon. Garrett Davis Congress or the banks shall finally determine on the part of the Senate. The section in this what that policy shall be. What was the form-requiring the banks to deposit the new primary purpose of the Government in estabbonds from and after the passage of the act, lishing this system in the first instance? If and not giving them time, as the fifth section any gentleman entertains a doubt upon this of this bill does--received the votes of eighty- subject, let him read the reports in which Mr. eight members of this House, and among them Chase, then Secretary of the Treasury, sugwere the gentleman from Michigan (Mr. Con- gested and recommended the passage of the ger), the gentleman from Indiana [Mr. Orth), original national-bank act, and he will be conand two gentlemen from Pennsylvania [Mr. vinced that the principal purpose of that emiKelley and Mr. O'Neill], all of whom are still nent financier was to create a certain demand members of this body, and all of whom, except and reliable market for Government securities. one [Mr. Kelley), are now opposing this feature Considered with reference to that purpose, it of the bill. The conference report, however, was unquestionably a wise stroke of financial was not agreed to here, and the Senate was policy, and it justly won for its author the compelled at last to recede from its position highest encomiums from ministers of finance and allow the bill to become a law without the in all parts of the world. In fact, the coneighth section or any equivalent provision. stitutional power of Congress to create these When this result became inevitable, by reason corporations can not be maintained except upon of the active and determined opposition of the the ground that they were to constitute, when national banks, Mr. Sherman, who had been organized, agencies of the Government for cerfrom the beginning an earnest and consistent tain public purposes. advocate of the justice and policy of the com “Since the celebrated judgment of Chiefpulsory clause, announced the fact to the Sen- Justice Marshall in the case of the United ate in a speech which I commend to the serious States Bank, no one has ventured to affirm that consideration of gentlemen who are opposing Congress possesses power under the Constituthis clause of the fifth section. After stating tion to create corporations for the transaction that there was a very unreasonable and un of purely private business or for the sole benefit necessary clamor raised by the banks against of private individuals. In order to come within that provision,' he said:
the scope of congressional power they must be “I wish now to record my deliberate judgment that created as means or instrumentalities for the in this conclusion to which we have been compelled execution of some principal power delegated to arrive by the action of the House we are doing the by the Constitution. They must be public national banks a great injury, which will impair their agencies, and not mere private associations. influence and power among the people, and that the The language of the court in the case alluded which would have required them to aid in the funding to is so clear and comprehensive that it is imof the public debt will tend more to weaken and de- possible to mistake its meaning. It defines
with the utmost precision the foundation and been no express reservation of the right to extent of the power in question, and in so alter, amend, or repeal the national banking doing necessarily excludes from its operation law, such right would have necessarily resulted all cases not coming within the terms of the from the nature and objects of the legislation. definition itself. The court said:
Its existence would have been just as clear in "The power of creating a corporation, though ap- such a case as in the case of a public office crepertaining to sovereignty, is not like the power of ated by statute for the more convenient or inaking war, or levying taxes, or of regulating com- effective execution of a State or Federal power. merce, a great substantivo and independent power, There is no difference in this respect between which can not be implied as incidental to other powers or used as a means of executing them. It is a public agency and a public office. never the end for which other powers are exercised, "There are no elements of a contract in such but a means by which other objects are accomplished. legislation, and therefore the extent to which ...The power of creating a corporation is never used the Government will or ought to go in the for its own sake, but for the purpose of effecting something else. No sufficient reason is, therefore, per
exercise of its power of supervision and control ceived why it may not pass as incidental to those is always a question of policy and not a quespowers which are expressly given, if it be a direct tion of power. Now, however, we are told, mode of executing them.
in effect, that the Government ought no longer “And again the court said:
to use the national banks for one of the pur“We admit, as all must admit, that the powers of poses, the principal purpose, of their creation: the Government are limited, and that its limits are that to require then to deposit 3 per cent not to be transcended. But 'we think the sound con- bonds, after a certain date, to secure the cirstruction of the Constitution must allow to the National Legislature that discretion, with respect to the culating notes which the United States furmeans by which the powers it confers are to be car- nishes and guarantees would be an act of bad ried into execution, which will enable that body to faith ; and that it would so diminish the profits perform the high duties assigned to it, in the manner realized upon their circulation as to compel most beneficial to the people. Let the end be legiti- them to withdraw it, and thus inflict great in. mate, let it be within the scope of the Constitution, and all means which are appropriate, which are jury upon the country by a contraction of the plainly adapted to that end, which are not prohibited, currency. It has not been very long since the but consist with the letter and spirit of the Constitu- policy of contraction was a favorite one with tion, are constitutional.
some who now protest most strongly against “ In another place the court, speaking of it, but, having pursued it until it nearly crushed this same power, said:
the life out of every legitimate industry in the “ Had it been intended to grant this power as one land, they appear at last to confess, in an inwhich would be distinct and independent, to be ex direct way, that it was a mistake. I agree ercised in any case whatever, it would have found a
with them that a large contraction of the curplace among the enumerated powers of the Government. But being considered merely as a means to be rency, especially if it be sudden and uneremployed only for the purpose of carrying into execu- pected, amounts to a public calamity, and I tion the given powers, there could be no motive for shall endeavor before concluding to show that particularly mentioning it.
one of the main purposes of the fifth section of “Congress did not create these banking as this bill is to make such contraction impossible sociations, or have the power to create them, in the future. merely for the private emolument of their “I will not discuss the question of good faith stockholders, but it established them as agen- with the banks or their advocates; it is not cies of the Government to co-operate with it involved in this proposed legislation, and can and assist it in conducting its financial opera- not be introduced in the debate except upon the tions. Whatever private gain or profit may utterly inadmissible theory that the Governaccrue to those who see proper to engage in ment and people of the United States are bound the business of banking under the system is in- by some sort of compact to furnish these insticidental only to the main purpose of the law; tutions as long as they exist with bonds bearor, in other words, the prospect of such gain ing the same rate of interest as those now outwas the inducement which public policy indi- standing. They now hold and have on deposit cated should be offered in order to make the $206,486,050 in bonds bearing interest at the experiment a success and secure a market for rate of 5 and 6 per cent, and by the express the Governinent loans.
terms of the laws under which they were cre“Having the express power to borrow ated the Government has a right to redeem and money on the credit of the United States, it cancel every one of them at the end of the might well be argued that a national banking current fiscal year. It has an undoubted right system could be created under the authority of to redeem and destroy them without issuing congressional legislation as a necessary and any bonds whatever to take their places, and proper means to accomplish that object; but it would not be an act of bad faith to do so. this obviously implies that there must be ab- But it has not the means to do this, and theresolute and continued governmental control fore it proposes to issue and sell bonds bearover the means employed, for otherwise the ing interest at the rate of 3 per cent per annum, instrument would become the master, or at and with the proceeds of these sales it proleast independent of the authority for whose poses to pay the $206,486,050 held by the use it was created. If, therefore, there had banks as well as the $465,000,000 held by other
people. If this can be accomplished--and than they can upon either a 45 per cent or a many of the best business-men and ablest 4 per cent, even at the prices for which they financiers in the country believe it can be- are at present selling in the money market; there will be an annual saving to the people of and it is conceded by every one, whose opinion more than $14,000,000 in interest on the pub- is at all worthy of consideration, that if a 3 lic debt, to say nothing of the reduction which per cent shall be issued and sold at par the would almost certainly take place in the com- prices of the other two classes will advance to mercial rate of interest all over the country. such a figure as will make them yield to the inIf anybody has a right to complain of the fund- vestor about the same rate of interest on his ing of the public debt at 3 per cent—which I actual outlay. deny-it is certainly not the banks who want “During the last eleven years, from March to issue circulation upon the bonds, but the 1, 1870, to September 1, 1880, including the widows and orphans and other beneficiaries whole period of financial distress in this counof trust estates whose entire income consists try. the average annual earnings of all the of the interest received upon the securities in national banks in the United States, numberwhich the principal is required to be invested. ing 1,481 at the beginning of that period and
* When a private individual, not engaged in 2,072 at its close, amounted to 8.4 per cent the business of banking, purchases, either for upon their entire capital and surplus. At the himself or as guardian, executor, or trustee, 3 date last mentioned their capital was $454, 215,per cent United States bonds to the amount of 062, and their accumulated cash surplus was $100,000, the whole annual income derived $120, 145,649. This surplus represents net acfrom them is $3,000; but if a national bank cumulated gains over and above all taxes, expurchases the same amount and description of penses, and dividends. During the same period bonds, and deposits them with the Treasurer of eleven years they have declared dividends as a basis for its circulation, it receives the to the amount of $479,448,181; that is, their same amount, $3,000, annually as interest on dividends alone have exceeded the whole the bonds, and besides the Government imme- amount of their capital at the end of the period, diately returns to it $90,000 of guaranteed and in addition they have set apart since their notes, of which $85,500 can be loaned out to organization and now hold, as just stated, $120,the people for its own exclusive benefit at 145,649 as a surplus fund to be divided among such rates of interest as it will command in the their stockholders whenever they see proper to market. It is thus enabled to receive out of close up their business. the public Treasury $3,000 annually as interest “When we remember that these remarkable on its bonds, and if the commercial rate of in- results have been accomplished, notwithstandterest be 6 per cent it receives an additional ing the general paralysis of business which $5,130 as interest on the $85,500 loaned out. prevailed during five years of this period, we From this last amount, however, there should can appreciate in some measure at least the be deducted the sum of $900, being the 1 per immense value of the franchise which the Govcent tax on circulation, and $81, the estimated ernment has conferred upon these institutions, average annual amount of redemption expenses, and in return for which it now asks them not so that the bank in fact receives the net sum to make any substantial sacrifice, but simply of $7,149 annually, as against $3,000 received to assist it in the negotiation of a loan at 3 per by the private individual on precisely the same cent in order that the people who have painvestment.
tiently borne such heavy burdens in the past “But, Mr. Speaker, let us inquire briefly may be relieved hereafter from an annual inwhether any injustice will be done to the na terest charge of over $14,000,000. Sir, they tional banks, or any hardship will be imposed can not afford to reject this reasonable deupon them, by the provision in the fifth section mand, and he will be a most unwise and danthat after July next none but the 3 per cent gerous friend of the national banking system bonds shall be receivable as security for circu- who by his vote or otherwise places the benelating notes and public deposits. And es ficiaries of that system in an attitude of defiance pecially let us inquire whether on that account to the will of Congress and the people on this their profits on circulation will be so dimin- subject." ished as to compel thein, or even justify them, The Speaker: “The question recurs on orin withdrawing their notes and contracting the dering the main question on concurring in the currency. If the funding contemplated by this Senate amendment with the amendment of the bill shall be successfully accomplished, there gentleman from Michigan.” will be hereafter no Government securities out The main question was ordered. standing except the four and a half per cents, The question was taken; and it was decided the four per cents, and the three per cents in the negative-yeas 117, nays 132, not voting which we now propose to authorize; and the 41. banks, if they issue circulation at all, must do So the Senate amendment was not concurred so upon one or the other of these classes of in with the amendment of Mr. Conger. bonds. It is susceptible of mathematical dem The amendments of the Senate were then onstration that they can issue circulation concurred in, and the Speaker declared that more profitably upon a 3 per cent bond at par the bill had passed both Houses of Congress.
On March 3d the following veto message other bonds of the United States can be used for the was received.
purpose. The one thousand millions of other bonds The Speaker: "The Chair lays before the higher rate of interest than 3 per cent, and therefore a
recently issued by the United States, and bearing a House the following message from the Presi. better security for the bill-holder, can not, after the dent of the United States."
1st of July next, be received as security for bank cirThe Clerk read as follows:
culation. This is a radical change in the banking law.
It takes from the banks the right they have heretofore To the House of Representatives :
had under the law to purchase and deposit, as security Having considered the bill entitled “ An act to for their circulation, any of the bonds issued by the facilitate the refunding of the national debt," I am United States, and deprives the bill-holder of the best constrained to return it to the House of Representa- security which the banks are able to give, by requiring tives, in which it originated, with the following state
them to deposit bonds having the least value of any ment of my objections to its passage.
bonds issued by the Government. The imperative necessity for prompt action, and the pressure of public duties in this closing week of in banking is more than double the rate of taxation
The average rate of taxation of capital employed my term of office, compel me to refrain from any attempt to make a full and satisfactory presentation of Under these circumstances, to amend the banking law
upon capital employed in other legitimate business. the objections to the bill.
so as to deprive the banks of the privilege of securing The importance of the passage at the present ses
their notes by the most valuable bonds issued by the sion of Congress of a suitable measure for the refund- Government will, it is believed, in a large part of the ing of the national debt, which is about to mature, is country, be a practical prohibition of the organization generally recognized. It has been urged upon the attention of Congress by the Secretary of the Treasury enlarging their capital. The national banking sys
of new banks, and prevent the existing banks from and in my last annual message. If successfully accom tem, if continued at all, will be a monopoly in the plished, it will secure a large decrease in the annual hands of those already engaged in it, who may purinterest payment of the nation; and I earnestly rec chase Government bonds bearing a more favorable rate ommend, if the bill before me shall fail, that another of interest than the 3 per cent bonds prior to next July. measure for this purpose be adopted before the present
To prevent the further organization of banks is to Congress adjourns. While in my opinion it would be wise to authorize that feature which makes it as it now is, a banking
put in jeopardy the whole system by taking from it the Secretary of the Treasury, in his discretion, to offer to the public bonds bearing 34 per cent interest
system free upon the same terms to all who wish to
engage in it. Even the existing banks will be in danin aid of refunding, I should not deem it my duty to
ger of being driven from business by the additional interpose my constitutional objection to the passage of disadvantages to which they will be subjected by this the present bill if it did not contain, in its fifth sec
bill. In short, I can not but regard the fifth section of tion, provisions which, in my judgment, scriously the bill as a step in the direction of the destruction of impaif the value, and tend to the destruction of the the national-banking system. present national-banking system of the country. This system has now been in operation almost twenty years, pression, has just entered upon a career of unexampled
Our country, after a long period of business deNo safer or more beneficial banking system was ever
prosperity. established. Its advantages as a business are free to
The withdrawal of the currency from circulation all who have the necessary capital. It furnishes a
of the national banks and the enforced winding up of currency to the public, which for convenience and the the banks in consequence, would inevitably bring security of the bill-holder has probably never been serious embarrassment and disaster to the business of equaled by that of any other banking system. Its the country. Banks of issue are essential instruments notes are secured by the deposit with the Government of modern commerce. If the present efficient and adof the interest-bearing bonds of the United States.
mirable system of banking is broken down, it will inThe section of the bill before me which relates to evitably be followed by a recurrence to other and inthe national-banking system, and to which objection ferior methods of banking. Any measure looking to is made, is not an essential part of a refunding meas such a result will be a disturbing element in our finanure. It is as follows:
cial system. It will destroy confidence, and surely SECTION 5. From and after the 1st day of July, 1881, the 3 check the growing prosperity of the country. per cent bonds authorized by the first section of this act shall Believing that a measure for refunding the nabe the only bonds receivable as security for national-bank cir
tional debt is not necessarily connected with the naculation, or as security for the safe-keeping and prompt payment of the public money deposited with such banks; but
tional-banking law, and that any refunding act would when any such bonds deposited for the purposes aforesaid
defeat its own object if it imperiled the national-bankshall be designated for purchase or redemption by the Secre- ing system or seriously impaired its usefulness; and tary of the Treasury, the banking association depositing the convinced that section 5 of the bill before me would, same shall have the right to substitute other issues of the if it should become a law, work great harm, I herebonds of the United States in lieu thereof: Provided, That with return the bill to the House of Representatives no bond upon which interest has ceased shall be accepted or shall be continued on deposit as security for circulation or for
for that further consideration which is provided for in the safe-keeping of the public money; and in case bonds so
the Constitution. RUTHERFORD B. HAYES. deposited shall not be withdrawn, as provided by law, within EXECUTIVE MANSION, March 3, 1881. thirty days after interest has ceased thereon, the banking association depositing the same shall be subject to the liabili.
Mr. Tucker, of Virginia : “I move that the ties and proceedings on the part of the Comptroller provided message of the President be printed, and that States: And provided further, That section 4 of the act of it do lie upon the table, subject to be called June 20, 1874, entitled " An act fixing the amount of United up at a future time for consideration." States notes, providing for a redistribution of the national'bank currency, and for other purposes," be and the same is
The Speaker: “ The question is on the mohereby repealed; and sections 5159 and 5160 of the Revised tion to postpone the present consideration." Statutes of the United States be and the same are hereby The question was taken; and there were re-enacted.
Under this section it is obvious that no additional yeas 138, nays 116, not voting 36. No further banks will hereafter be organized, except possibly in action was taken on the bill. a few cities or localities where the prevailing rates of interest in ordinary business are extremely low. No
In the House, on January 5th, the bill to esnew banks can be organized, and no increase of the capital of existing banks can be obtained, except by tablish a board of commissioners of interstate the purchase and deposit of 3 per cent bonds. No commerce was taken up.
Mr. Reagan, of Texas: “At the threshold Constitution as interpreted by the Supreme has been raised a question of the extent of our Court, our pathway is clear on the question of authority. When we come to look at this sub- power. ject we are confronted by the fact that most of “I desire, now, to call the attention of the the railroad corporations are the creatures of House to the provisions of the substitute offered the State governments. So far as the power by myself for the original bill. And I desire of Congress over this subject goes it is derived the attention of the House for a few moments from the clause of the Constitution which con- while I endeavor to show that by labor and fers upon Congress the power to regulate com- study, the Committee on Commerce of the merce among the States. It has to that extent Forty-fifth Congress succeeded in developing a the power to regulate commerce. That power few simple, plain, clear, and easily understood carries with it no other powers over these cor- rules that will obviate the greater number of porations. The Congress have no power, and complaints against the action of the railroads, this committee and this bill assume no power, without in any way embarrassing the railroads to operate on the railroads as railroads, or or crippling their usefulness. upon their franchises or corporate rights. And “And I desire to say here, that in three when the committee have been ask to rem- Congresses, and on three comunittees, I have edy other evils, such as the watering of stock heard no member of the committee of the as a pretext of levying additional tribute upon House express any opinion which indicated an the people, we have had to meet the friends of hostility to railroads. We all realize their such propositions as that with the statement beneficent effect in building up our commerce, that we have no power, however much we in promoting the prosperity of the country, sympathize with them, to take hold of these and generally in contributing to the progress corporations and deal with them as such, but of the civilization and wealth of our country. our powers are limited alone to the regulation No purpose has existed to cripple them; no of commerce among the States. While under one has expressed any desire to inflict a serious an unbroken line of precedents the Supreme injury upon those great interests. Court have held that the power is exclusively “How do we meet this great question? We in Congress to regulate interstate commerce, propose, first, that one man should not be they hold that the power of Congress is not charged more than another man for like seronly exclusive, but that it is ample and as com- vices by a railroad. That is a simple rule, so plete in every respect as the power of the State elemental in its truth that no one can or will to regulate commerce within the State. controvert its justice or propriety.
"Perhaps I may as well say that Mr. Story, " What next? As a corollary to that we in his . Commentaries,' and the justices of the propose to say that no rebates or drawbacks Supreme Court, in their opinions, a number of shall in any case be allowed. Rebates and them, refer to the fact that the point has been drawbacks are simply a means of discriminamade that railroads were not in existence tion which we propose to cut off. when the Constitution was made, from which “Next, we propose that the people shall not it has been inferred that its provisions did not be deprived of the benefit of competition cover the regulation of commerce on railroads. among these corporations by their pooling The papers connected with the formation of freights between competing lines. We prothe Federal Constitution and the transition pose to secure to the people the benefits of full froin the Articles of Confederation to the con. competition. stitutional government, show that the question “We propose, next, to protect the people of which was most conspicuous in those discus- localities by a partial restriction upon the sions was one which looked to limiting the powers of corporations, not by taking away power of a State to legislate in a hostile manner their power of discrimination, but by limiting against the commerce of its sister States, and their power of discrimination between places. to conferring upon Congress a power which And the best rule which we were able to would prevent them from doing so.
adopt, which does not quite approach equity, “It is held by the Supreme Court in some of but leaves a larger discretion than strict equity its decisions that it was an evidence of the would justify, being the best rule we could wisdom, the foresight, and the prescience of adopt, is one by which we declare that more that convention that in its few simple, ele- shall not be charged for a shorter than for a mental rules of government it was wiser than longer distance on the same haul. For init could itself foresee, by making a regulation stance, we declare that no more shall be which applied to all the future modes of carry. charged for a car-load of freight for one huning on commerce among the States, as well as dred miles than for three hundred or five hunto those which existed at the time. That is as dred miles on the same line. much as I desire to say on that point.
“Remember, we do not use the term pro“We take the position that we have no rate, we do not use the idea prorate. We power to regulate commerce over railroads simply make the car-load the anit. We then outside of that power which follows the au- provide that more shall not be charged for a thority to regulate commerce among the States. car-load for a shorter than for a longer disWith that settled under the provisions of the tance.