the average from 15 to 20 per cent annually upon the franchise derived from the United States,' should be required to contribute their just proportion to the general welfare by receiving and using as a basis for their circulation public securities bearing at least as low a rate of interest as the Government proposed to allow the savings-banks and the trustees and guardians of dependent widows and orphans throughout the country. But, sir, the national banks resisted the reasonable demands of the Government then as they are resisting them now, and the result was that the eighth section of Mr. Sherman's bill was defeated in this House. A committee of conference was appointed, and in lieu of that section it reported the following:

"And be it further enacted, That from and after the passage of this act the Treasurer of the United States shall receive no other than registered bonds issued under the provisions of this act as security for the circulating notes of national-banking associations issued under the act entitled "An act to provide a national currency secured by a pledge of United States bonds, and to provide for the circulation and redemption thereof," approved June 3, 1864, or any act supplementary or amendatory thereof.'

"This report was signed by Hon. Robert C. Schenck and Hon. Samuel Hooper on the part of the House, and by Hon. John Sherman, Hon. Charles Sumner, and Hon. Garrett Davis on the part of the Senate. The section in this form-requiring the banks to deposit the new bonds from and after the passage of the act, and not giving them time, as the fifth section of this bill does-received the votes of eightyeight members of this House, and among them were the gentleman from Michigan [Mr. Conger], the gentleman from Indiana [Mr. Orth], and two gentlemen from Pennsylvania [Mr. Kelley and Mr. O'Neill], all of whom are still members of this body, and all of whom, except one [Mr. Kelley], are now opposing this feature of the bill. The conference report, however, was not agreed to here, and the Senate was compelled at last to recede from its position and allow the bill to become a law without the eighth section or any equivalent provision. When this result became inevitable, by reason of the active and determined opposition of the national banks, Mr. Sherman, who had been from the beginning an earnest and consistent advocate of the justice and policy of the compulsory clause, announced the fact to the Senate in a speech which I commend to the serious consideration of gentlemen who are opposing this clause of the fifth section. After stating that there was a very unreasonable and unnecessary clamor raised by the banks against that provision,' he said:

"I wish now to record my deliberate judgment that in this conclusion to which we have been compelled to arrive by the action of the House we are doing the national banks a great injury, which will impair their influence and power among the people, and that the opposition of the national banks to this provision which would have required them to aid in the funding of the public debt will tend more to weaken and de

stroy them than anything that has transpired since their organization. I do not see how we can go before the people of the United States and ask them to lend us gold at par for our bonds, when we refuse to require agencies of our own creation to take them; when we even refuse to require new banks not yet organized to take these new bonds, and when we refuse to require old banks, which have made on the average from 15 to 20 per cent annually upon the franchise derived from the United States, to aid us to this extent in funding the national debt.

"But, sir, the vote of the House shows the power of the national banks. It is so great, at least in the House, that in order to secure a funding bill we have been compelled to abandon all provisions in regard to the national banks; but I give notice that in the future I for one shall be prepared at all times to require the national banks to take that class of bonds this will be the result. But for the present, in deferwhich we propose in this bill, and I have no doubt

ence to the wishes of the House, we have withdrawn the section in regard to national banks.

"Now, sir, for the second time since the organization of these institutions the representatives of the people find themselves compelled in the discharge of their public duties to encounter the almost united opposition of more than two thousand corporations of their own creation-opposition to a financial policy already approved by both branches of the legislative department-and thus we are again confronted with the naked question whether Congress or the banks shall finally determine what that policy shall be. What was the primary purpose of the Government in establishing this system in the first instance? If any gentleman entertains a doubt upon this subject, let him read the reports in which Mr. Chase, then Secretary of the Treasury, suggested and recommended the passage of the original national-bank act, and he will be convinced that the principal purpose of that eminent financier was to create a certain demand and reliable market for Government securities. Considered with reference to that purpose, it was unquestionably a wise stroke of financial policy, and it justly won for its author the highest encomiums from ministers of finance in all parts of the world. In fact, the constitutional power of Congress to create these corporations can not be maintained except upon the ground that they were to constitute, when organized, agencies of the Government for certain public purposes.

"Since the celebrated judgment of ChiefJustice Marshall in the case of the United States Bank, no one has ventured to affirm that Congress possesses power under the Constitution to create corporations for the transaction of purely private business or for the sole benefit of private individuals. In order to come within the scope of congressional power they must be created as means or instrumentalities for the execution of some principal power delegated by the Constitution. They must be public agencies, and not mere private associations. The language of the court in the case alluded to is so clear and comprehensive that it is impossible to mistake its meaning. It defines

with the utmost precision the foundation and extent of the power in question, and in so doing necessarily excludes from its operation all cases not coming within the terms of the definition itself. The court said:

"The power of creating a corporation, though appertaining to sovereignty, is not like the power of inaking war, or levying taxes, or of regulating commerce, a great substantive and independent power, which can not be implied as incidental to other powers or used as a means of executing them. It is never the end for which other powers are exercised, but a means by which other objects are accomplished, ...The power of creating a corporation is never used for its own sake, but for the purpose of effecting something else. No sufficient reason is, therefore, perceived why it may not pass as incidental to those powers which are expressly given, if it be a direct mode of executing them.

"And again the court said:

"We admit, as all must admit, that the powers of the Government are limited, and that its limits are not to be transcended. But we think the sound contional Legislature that discretion, with respect to the means by which the powers it confers are to be carried into execution, which will enable that body to perform the high duties assigned to it, in the manner most beneficial to the people. Let the end be legitimate, let it be within the scope of the Constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the Constitution, are constitutional.

struction of the Constitution must allow to the Na

"In another place the court, speaking of this same power, said:

"Had it been intended to grant this power as one which would be distinct and independent, to be exercised in any case whatever, it would have found a place among the enumerated powers of the Government. But being considered merely as a means to be employed only for the purpose of carrying into execution the given powers, there could be no motive for particularly mentioning it.

"Congress did not create these banking associations, or have the power to create them, merely for the private emolument of their stockholders, but it established them as agencies of the Government to co-operate with it and assist it in conducting its financial operations. Whatever private gain or profit may accrue to those who see proper to engage in the business of banking under the system is incidental only to the main purpose of the law; or, in other words, the prospect of such gain was the inducement which public policy indicated should be offered in order to make the experiment a success and secure a market for the Government loans.

"Having the express power to borrow money on the credit of the United States, it might well be argued that a national banking system could be created under the authority of congressional legislation as a necessary and proper means to accomplish that object; but this obviously implies that there must be absolute and continued governmental control over the means employed, for otherwise the instrument would become the master, or at least independent of the authority for whose use it was created. If, therefore, there had

been no express reservation of the right to alter, amend, or repeal the national banking law, such right would have necessarily resulted from the nature and objects of the legislation. Its existence would have been just as clear in such a case as in the case of a public office created by statute for the more convenient or effective execution of a State or Federal power. There is no difference in this respect between a public agency and a public office.

"There are no elements of a contract in such legislation, and therefore the extent to which the Government will or ought to go in the exercise of its power of supervision and control is always a question of policy and not a question of power. Now, however, we are told, in effect, that the Government ought no longer to use the national banks for one of the purposes, the principal purpose, of their creation: that to require them to deposit 3 per cent bonds, after a certain date, to secure the circulating notes which the United States furnishes and guarantees would be an act of bad faith; and that it would so diminish the profits realized upon their circulation as to compel them to withdraw it, and thus inflict great injury upon the country by a contraction of the currency. It has not been very long since the policy of contraction was a favorite one with some who now protest most strongly against it, but, having pursued it until it nearly crushed the life out of every legitimate industry in the land, they appear at last to confess, in an indirect way, that it was a mistake. I agree with them that a large contraction of the currency, especially if it be sudden and unexpected, amounts to a public calamity, and I shall endeavor before concluding to show that one of the main purposes of the fifth section of this bill is to make such contraction impossible in the future.

"I will not discuss the question of good faith with the banks or their advocates; it is not involved in this proposed legislation, and can not be introduced in the debate except upon the utterly inadmissible theory that the Government and people of the United States are bound by some sort of compact to furnish these institutions as long as they exist with bonds bearing the same rate of interest as those now outstanding. They now hold and have on deposit $206,486,050 in bonds bearing interest at the rate of 5 and 6 per cent, and by the express terms of the laws under which they were created the Government has a right to redeem and cancel every one of them at the end of the current fiscal year. It has an undoubted right to redeem and destroy them without issuing any bonds whatever to take their places, and it would not be an act of bad faith to do so. But it has not the means to do this, and therefore it proposes to issue and sell bonds bearing interest at the rate of 3 per cent per annum, and with the proceeds of these sales it proposes to pay the $206,486,050 held by the banks as well as the $465,000,000 held by other

people. If this can be accomplished-and many of the best business-men and ablest financiers in the country believe it can bethere will be an annual saving to the people of more than $14,000,000 in interest on the public debt, to say nothing of the reduction which would almost certainly take place in the commercial rate of interest all over the country. If anybody has a right to complain of the funding of the public debt at 3 per cent-which I deny-it is certainly not the banks who want to issue circulation upon the bonds, but the widows and orphans and other beneficiaries of trust estates whose entire income consists of the interest received upon the securities in which the principal is required to be invested. "When a private individual, not engaged in the business of banking, purchases, either for himself or as guardian, executor, or trustee, 3 per cent United States bonds to the amount of $100,000, the whole annual income derived from them is $3,000; but if a national bank purchases the same amount and description of bonds, and deposits them with the Treasurer as a basis for its circulation, it receives the same amount, $3,000, annually as interest on the bonds, and besides the Government immediately returns to it $90,000 of guaranteed notes, of which $85,500 can be loaned out to the people for its own exclusive benefit at such rates of interest as it will command in the market. It is thus enabled to receive out of the public Treasury $3,000 annually as interest on its bonds, and if the commercial rate of interest be 6 per cent it receives an additional $5,130 as interest on the $85,500 loaned out. From this last amount, however, there should be deducted the sum of $900, being the 1 per cent tax on circulation, and $81, the estimated average annual amount of redemption expenses, so that the bank in fact receives the net sum of $7,149 annually, as against $3,000 received by the private individual on precisely the same investment.

"But, Mr. Speaker, let us inquire briefly whether any injustice will be done to the national banks, or any hardship will be imposed upon them, by the provision in the fifth section that after July next none but the 3 per cent bonds shall be receivable as security for circulating notes and public deposits. And especially let us inquire whether on that account their profits on circulation will be so diminished as to compel them, or even justify them, in withdrawing their notes and contracting the currency. If the funding contemplated by this bill shall be successfully accomplished, there will be hereafter no Government securities outstanding except the four and a half per cents, the four per cents, and the three per cents which we now propose to authorize; and the banks, if they issue circulation at all, must do so upon one or the other of these classes of bonds. It is susceptible of mathematical demonstration that they can issue circulation more profitably upon a 3 per cent bond at par

than they can upon either a 43 per cent or a 4 per cent, even at the prices for which they are at present selling in the money market; and it is conceded by every one, whose opinion is at all worthy of consideration, that if a 3 per cent shall be issued and sold at par the prices of the other two classes will advance to such a figure as will make them yield to the investor about the same rate of interest on his actual outlay.

"During the last eleven years, from March 1, 1870, to September 1, 1880, including the whole period of financial distress in this country. the average annual earnings of all the national banks in the United States, numbering 1,481 at the beginning of that period and 2,072 at its close, amounted to 8.4 per cent upon their entire capital and surplus. At the date last mentioned their capital was $454,215,062, and their accumulated cash surplus was $120,145,649. This surplus represents net accumulated gains over and above all taxes, expenses, and dividends. During the same period of eleven years they have declared dividends to the amount of $479,448,181; that is, their dividends alone have exceeded the whole amount of their capital at the end of the period, and in addition they have set apart since their organization and now hold, as just stated, $120,145,649 as a surplus fund to be divided among their stockholders whenever they see proper to close up their business.

"When we remember that these remarkable results have been accomplished, notwithstanding the general paralysis of business which prevailed during five years of this period, we can appreciate in some measure at least the immense value of the franchise which the Government has conferred upon these institutions, and in return for which it now asks them not to make any substantial sacrifice, but simply to assist it in the negotiation of a loan at 3 per cent in order that the people who have patiently borne such heavy burdens in the past may be relieved hereafter from an annual interest charge of over $14,000,000. Sir, they can not afford to reject this reasonable demand, and he will be a most unwise and dangerous friend of the national banking system who by his vote or otherwise places the beneficiaries of that system in an attitude of defiance to the will of Congress and the people on this subject."

The Speaker: "The question recurs on ordering the main question on concurring in the Senate amendment with the amendment of the gentleman from Michigan."

The main question was ordered.

The question was taken; and it was decided in the negative-yeas 117, nays 132, not voting 41.

So the Senate amendment was not concurred in with the amendment of Mr. Conger.

The amendments of the Senate were then concurred in, and the Speaker declared that the bill had passed both Houses of Congress.

On March 3d the following veto message was received.

The Speaker: "The Chair lays before the House the following message from the President of the United States."

The Clerk read as follows: To the House of Representatives:

Having considered the bill entitled "An act to facilitate the refunding of the national debt," I am constrained to return it to the House of Representatives, in which it originated, with the following statement of my objections to its passage.

The imperative necessity for prompt action, and the pressure of public duties in this closing week of my term of office, compel me to refrain from any attempt to make a full and satisfactory presentation of the objections to the bill.

The importance of the passage at the present session of Congress of a suitable measure for the refunding of the national debt, which is about to mature, is generally recognized. It has been urged upon the at-tention of Congress by the Secretary of the Treasury and in my last annual message. If successfully accomplished, it will secure a large decrease in the annual interest payment of the nation; and I earnestly recommend, if the bill before me shall fail, that another measure for this purpose be adopted before the present Congress adjourns.

While in my opinion it would be wise to authorize the Secretary of the Treasury, in his discretion, to offer to the public bonds bearing 34 per cent interest in aid of refunding, I should not deem it my duty to interpose my constitutional objection to the passage of the present bill if it did not contain, in its fifth section, provisions which, in my judgment, seriously impair the value, and tend to the destruction of the present national-banking system of the country. This system has now been in operation almost twenty years. No safer or more beneficial banking system was ever established. Its advantages as a business are free to all who have the necessary capital. It furnishes a currency to the public, which for convenience and the security of the bill-holder has probably never been equaled by that of any other banking system. Its notes are secured by the deposit with the Government of the interest-bearing bonds of the United States.

The section of the bill before me which relates to the national-banking system, and to which objection is made, is not an essential part of a refunding measIt is as follows:

ure.

SECTION 5. From and after the 1st day of July, 1881, the 3 per cent bonds authorized by the first section of this act shall be the only bonds receivable as security for national-bank circulation, or as security for the safe-keeping and prompt payment of the public money deposited with such banks; but when any such bonds deposited for the purposes aforesaid shall be designated for purchase or redemption by the Secretary of the Treasury, the banking association depositing the same shall have the right to substitute other issues of the bonds of the United States in lieu thereof: Provided, That no bond upon which interest has ceased shall be accepted or shall be continued on deposit as security for circulation or for the safe-keeping of the public money; and in case bonds so deposited shall not be withdrawn, as provided by law, within thirty days after interest has ceased thereon, the banking association depositing the same shall be subject to the liabilitles and proceedings on the part of the Comptroller provided States: And provided further, That section 4 of the act of

for in section 5234 of the Revised Statutes of the United

June 20, 1874, entitled "An act fixing the amount of United States notes. providing for a redistribution of the nationalbank currency, and for other purposes," be and the same is hereby repealed; and sections 5159 and 5160 of the Revised Statutes of the United States be and the same are hereby re-enacted.

Under this section it is obvious that no additional banks will hereafter be organized, except possibly in a few cities or localities where the prevailing rates of interest in ordinary business are extremely low. No new banks can be organized, and no increase of the

capital of existing banks can be obtained, except by the purchase and deposit of 3 per cent bonds. No

other bonds of the United States can be used for the purpose. The one thousand millions of other bonds

recently issued by the United States, and bearing a higher rate of interest than 3 per cent, and therefore a better security for the bill-holder, can not, after the 1st of July next, be received as security for bank circulation. This is a radical change in the banking law. It takes from the banks the right they have heretofore had under the law to purchase and deposit, as security for their circulation, any of the bonds issued by the United States, and deprives the bill-holder of the best security which the banks are able to give, by requiring them to deposit bonds having the least value of any bonds issued by the Government.

The average rate of taxation of capital employed in banking is more than double the rate of taxation Under these circumstances, to amend the banking law upon capital employed in other legitimate business. so as to deprive the banks of the privilege of securing their notes by the most valuable bonds issued by the Government will, it is believed, in a large part of the country, be a practical prohibition of the organization enlarging their capital. The national banking sysof new banks, and prevent the existing banks from tem, if continued at all, will be a monopoly in the hands of those already engaged in it, who may purchase Government bonds bearing a more favorable rate of interest than the 3 per cent bonds prior to next July.

To prevent the further organization of banks is to that feature which makes it as it now is, a banking put in jeopardy the whole system by taking from it system free upon the same terms to all who wish to engage in it. Even the existing banks will be in danger of being driven from business by the additional disadvantages to which they will be subjected by this bill. In short, I can not but regard the fifth section of the bill as a step in the direction of the destruction of the national-banking system.

Our country, after a long period of business depression, has just entered upon a carcer of unexampled prosperity.

The withdrawal of the currency from circulation of the national banks and the enforced winding up of the banks in consequence, would inevitably bring serious embarrassment and disaster to the business of the country. Banks of issue are essential instruments

of modern commerce. If the present efficient and admirable system of banking is broken down, it will inevitably be followed by a recurrence to other and inferior methods of banking. Any measure looking to such a result will be a disturbing element in our financial system. It will destroy confidence, and surely check the growing prosperity of the country.

Believing that a measure for refunding the national debt is not necessarily connected with the national-banking law, and that any refunding act would defeat its own object if it imperiled the national-banking system or seriously impaired its usefulness; and convinced that section 5 of the bill before me would, if it should become a law, work great harm, I herewith return the bill to the House of Representatives for that further consideration which is provided for in the Constitution. RUTHERFORD B. HAYES. EXECUTIVE MANSION, March 3, 1881.

Mr. Tucker, of Virginia: "I move that the message of the President be printed, and that it do lie upon the table, subject to be called up at a future time for consideration."

The Speaker: "The question is on the motion to postpone the present consideration."

The question was taken; and there wereyeas 138, nays 116, not voting 36. No further action was taken on the bill.

In the House, on January 5th, the bill to establish a board of commissioners of interstate commerce was taken up.

Mr. Reagan, of Texas: "At the threshold has been raised a question of the extent of our authority. When we come to look at this subject we are confronted by the fact that most of the railroad corporations are the creatures of the State governments. So far as the power of Congress over this subject goes it is derived from the clause of the Constitution which confers upon Congress the power to regulate commerce among the States. It has to that extent the power to regulate commerce. That power carries with it no other powers over these corporations. The Congress have no power, and this committee and this bill assume no power, to operate on the railroads as railroads, or upon their franchises or corporate rights. And when the committee have been asked to remedy other evils, such as the watering of stock as a pretext of levying additional tribute upon the people, we have had to meet the friends of such propositions as that with the statement that we have no power, however much we sympathize with them, to take hold of these corporations and deal with them as such, but our powers are limited alone to the regulation of commerce among the States. While under an unbroken line of precedents the Supreme Court have held that the power is exclusively in Congress to regulate interstate commerce, they hold that the power of Congress is not only exclusive, but that it is ample and as complete in every respect as the power of the State to regulate commerce within the State.

Perhaps I may as well say that Mr. Story, in his 'Commentaries,' and the justices of the Supreme Court, in their opinions, a number of them, refer to the fact that the point has been made that railroads were not in existence when the Constitution was made, from which it has been inferred that its provisions did not cover the regulation of commerce on railroads. The papers connected with the formation of the Federal Constitution and the transition from the Articles of Confederation to the constitutional government, show that the question which was most conspicuous in those discussions was one which looked to limiting the power of a State to legislate in a hostile manner against the commerce of its sister States, and to conferring upon Congress a power which would prevent them from doing so.

"It is held by the Supreme Court in some of its decisions that it was an evidence of the wisdom, the foresight, and the prescience of that convention that in its few simple, elemental rules of government it was wiser than it could itself foresee, by making a regulation which applied to all the future modes of carrying on commerce among the States, as well as to those which existed at the time. That is as much as I desire to say on that point.

"We take the position that we have no power to regulate commerce over railroads outside of that power which follows the authority to regulate commerce among the States. With that settled under the provisions of the

Constitution as interpreted by the Supreme Court, our pathway is clear on the question of power.

"I desire, now, to call the attention of the House to the provisions of the substitute offered by myself for the original bill. And I desire the attention of the House for a few moments while I endeavor to show that by labor and study the Committee on Commerce of the Forty-fifth Congress succeeded in developing a few simple, plain, clear, and easily understood rules that will obviate the greater number of complaints against the action of the railroads, without in any way embarrassing the railroads or crippling their usefulness.

"And I desire to say here, that in three Congresses, and on three committees, I have heard no member of the committee of the House express any opinion which indicated an hostility to railroads. We all realize their beneficent effect in building up our commerce, in promoting the prosperity of the country, and generally in contributing to the progress of the civilization and wealth of our country. No purpose has existed to cripple them; no one has expressed any desire to inflict a serious injury upon those great interests.

66

How do we meet this great question? We propose, first, that one man should not be charged more than another man for like services by a railroad. That is a simple rule, so elemental in its truth that no one can or will controvert its justice or propriety.

"What next? As a corollary to that we propose to say that no rebates or drawbacks shall in any case be allowed. Rebates and drawbacks are simply a means of discrimination which we propose to cut off.

"Next, we propose that the people shall not be deprived of the benefit of competition among these corporations by their pooling freights between competing lines. We propose to secure to the people the benefits of full competition.

"We propose, next, to protect the people of localities by a partial restriction upon the powers of corporations, not by taking away their power of discrimination, but by limiting their power of discrimination between places. And the best rule which we were able to adopt, which does not quite approach equity, but leaves a larger discretion than strict equity would justify, being the best rule we could adopt, is one by which we declare that more shall not be charged for a shorter than for a longer distance on the same haul. For instance, we declare that no more shall be charged for a car-load of freight for one hundred miles than for three hundred or five hundred miles on the same line.

"Remember, we do not use the term prorate, we do not use the idea prorate. We simply make the car-load the unit. We then provide that more shall not be charged for a car-load for a shorter than for a longer distance.