there will be a deficiency at the close of the year of $11,438,796 38. The following estimates are in excess of the expenditures, for the same purposes, for the last fiscal year:

Assuming that Congress will not increase the aggregate national taxation at a time when all industries are oppressed by the weight of local taxation, the Secretary recommends that the aggregate appropriations for the fiscal year ending June 30, 1879, exclusive of interest and sinking-fund, should not exceed $140,000,000. This will require the appropriations to be reduced at least $11,000,000 below the estimates. submitted above-a reduction that, in the opinion of the Secretary, can be made without crippling any branch of the public service.

Reduction in public expenditures cannot be secured merely by a reduction of appropriations. It must be accompanied by a careful revision of the laws which fix the salary and number of employés; by a reduction of the amount expended on public works now in progress; by postponement of all new works not indispensable for the public service; and by judicious scrutiny of disbursements.

The rapid appreciation of our current money to the coin standard should be accompanied by diminished expenses in the public service. The revenue from duties on imports having largely diminished, the expenses of its collection should be reduced. Old claims should be closely scrutinized; and any increase in any branch of public expenditure should be arrested.

The Secretary will not undertake, in this report, to revise the estimates of the different Departments-many items of which are submitted without recommendation-but urges that the appropriations based upon them, including the amount estimated for the sinking-fund, should not, in any event, exceed in the aggregate the estimated revenues of the Government.

SINKING-FUND.

In the last annual report, (page x,) my predecessor stated that, had the resources of the Treasury during each fiscal year, commencing with

1862, been sufficient to make a literal compliance with the conditions of the sinking-fund law practicable, a total of $433,848,215 37 would have been applied to that fund July 1, 1876, whereas the actual reduction of the debt, including accrued interest, less cash in the Treasury at that date, amounted to $658,992,226 44. On the same basis the amount in the sinking-fund would have reached $475,318,888 78 on the 1st of July, 1877, on which date the reduction of the debt, includ ing accrued interest, less cash in the Treasury, since its highest point in 1865, amounted to $696,273,348 17, or $220,954,459 39 in excess of the amount required by law to be provided for that fund.

FUNDING, ETC.

The contract of August 24, 1876, made by the Secretary of the Treasury with certain parties, for the negotiation of $300,000,000 four and one-half per cent. bonds, had so far been executed on the 1st of March, 1877, that $90,000,000 had been sold to the associated contractors, and calls had been made for the redemption of a like amount of five-twenty bonds.

While the contract expired in terms on the 30th day of June, 1877. it contained a stipulation that it might be terminated by the Secretary of the Treasury, upon ten days' notice, after the 4th of March, 1877.

In May last it became apparent to the Secretary that, by a favorable change in the money market, four per cent. bonds could be sold at par, in coin, with great advantage to the Government; and, availing him self of the privilege secured by the contract, he gave notice that he would limit the sale of four and one-half per cent. bonds to $200,000,000.

On the 11th day of May it was agreed that a portion of the latter should be sold under the authority of the resumption act for resump. tion purposes, and subscriptions were rapidly made until the aggregate reached $200,000,000, of which $185,000,000 were applied to the redemption of an equal amount of six per cent. bonds.

On the 9th day of June, 1877, the Secretary entered into a contract with a portion of the previously-associated parties for the sale at par, in coin, of the four per cent. bonds of the United States, authorized to be issued by the refunding act. This contract was, in substance, similar to previous contracts, but was to terminate on the 30th day of June, 1878, with the right reserved to the United States to terminate it at any time after the 31st of December, 1877, by giving ten days notice thereof to the contracting parties. This contract also contained a stipulation, as follows:

"It is also agreed that the parties of the second part shall offer to

the people of the United States at par and accrued interest in coin, the four per cent. registered consols and four per cent. coupon consols of the denominations of $50 and $100 embraced in this contract, for a period of thirty days from the public notice of such subscriptions, and in such cities and upon such notice as the Secretary of the Treasury may prescribe prior to the opening of the lists; and further, to offer to the subscribers the option of paying in instalments extending through three months.”

Under this contract, invitations having been published, subscriptions to this loan were opened on the 16th of June, 1877. Within the period of thirty days thereafter the subscriptions had reached the sum of $75,496,550, which were payable within ninety days from the date of subscription, or on or before the 16th of October. Every subscription to these bonds has been paid, and of the proceeds $50,000,000 have been applied to the redemption of an equal amount of six per cent. bonds. The residue has been applied to resumption purposes, as hereafter stated. The annual reduction of interest on the public debt thus made is as follows:

By the sale of $185,000,000 four and one-half per cent. bonds...

By the sale of $50,000,000 four per cent. bonds.

Aggregating..

$2,775, 000 1, 000, 000

3, 775,000

In October last, after the payment of the popular subscriptions, arrangements were perfected to open further subscriptions to the four per cent. loan, and a call was about to issue for ten millions of six per cent. bonds, but it was temporarily postponed by reason of the agitation of the repeal of the resumption act and the remonetization of silver, which the associates believed would prevent further sales of these bonds. For this reason they declined to offer them, and no further call of six per cent. bonds was therefore made.

On the 19th of June, pending the subscriptions, the Secretary informed the associates, in an official letter, that, as the Government exacts in payment for these bonds their face value in gold coin, it was not anticipated that any future legislation of Congress, or any action of any Department of the Government, would sanction or tolerate the redemption of the principal of these bonds, or the payment of the interest thereon, in coin of less value than the coin authorized by law at the time of their issue-being gold coin. The general confidence of the public that so just a principle of good faith would be observed by the Government, no doubt, largely contributed to the success of the loan. Whatever policy the Government may adopt, at any time, in its

system of coinage, it should not reduce the value of the coin in which it pays its obligations below that it demanded and received. The Secretary earnestly urges Congress to give its sanction to this assurance. The high credit of the United States, the faithful observance of its public obligations, the abundance of its wealth and resources, the rapid reduction of its debt, the great accumulation of savings among the people, the favorable state of foreign trade-all contribute to enable the United States to borrow both from its own people and in foreign markets on the most favorable terms.

The Secretary does not doubt that, if no questions had arisen disturbing the public credit, the six per cent. bonds would be rapidly paid off by the proceeds of the four per cent. bonds, sold at par in coin or its equivalent.

The highest public credit can be secured only by a constant observance of every public engagement, construed according to its letter and spirit. Thus far this course has been faithfully pursued by the United States. Without it, our ample resources and ability to pay are of no avail. At a time when we are enjoying such credit, and rapidly securing the benefit of it by the reduction of the rate of interest from six to four per cent., it would seem to be a grievous error to raise a question about the coin in which the interest is payable. Self-interest alone, without respect to pride in public credit, would lead us to secure so great a benefit as would be the saving of one-third of the interest of the public debt.

Of the six per cent. loans about $660,000,000 are now redeemable at the pleasure of the United States, and of the whole debt $1,452,000,000 are redeemable before, or on the 1st of May, 1881. By the reduction of the interest, from six to four per cent., on the public debt now redeemable, there would be a saving of $13,200,000 annually, and by the reduction to four per cent. of the interest on the total debt, redeemable by the 1st of May, 1881, there would be a saving of $22,006,205 50 per

annum.

Any measure that creates distrust or doubt will arrest this process, and, by disabling the United States from borrowing, will compel the continued payment of the high rate of six per cent.

If, therefore, the public interests demand the issue of silver dollars— a subject hereafter discussed-it is respectfully submitted to Congress that an express exception be made requiring that gold coin alone shall be paid for principal or interest on bonds issued to public creditors, since February 12, 1873, the amount of which is $592,990,700. These bonds have entered into the markets of the world. If the market

value of the silver in the new coin is less than the gold dollar, a forced payment in the new coin is a repudiation of a part of this debt. The saving that would thus be made is utterly insignificant compared with the injury done to the public credit.

And even as to bonds issued prior to February 12, 1873, public policy and enlightened self-interest require us to pay them in the coin then in circulation and contemplated by both parties as the medium of payment. Silver dollars have not been in circulation in the United States since 1837, and since 1853 fractional silver coins have been in circulation and a legal tender only for limited sums, and have not been contemplated as the medium of payment since any considerable portion of the outstanding bonds were issued. The silver dollar was, in fact, more valuable than the gold dollar. It does not become a nation like ours to avail itself of the market depreciation of silver to gain a small saving by the payment of silver dollars instead of the coin contemplated when the bonds were issued. A far greater saving and higher public honor can be secured by the sale of four per cent. bonds under the refunding act and the payment of outstanding bonds in gold coin. An assurance given by Congress of such payment would at once secure the complete success of the refunding process and greatly advance the present high credit of the United States.

Another practical impediment in the sale of bonds was, that, under the law, the Secretary could receive coin alone in payment for them, and the only existing coin that could be received, under the law, was gold coin. As this was not in general circulation, it was impracticable for the people to pay it into the Treasury for these bonds. Therefore, it became necessary to conduct all sales through third par ties, who could receive bank-bills, United States notes, drafts, certificates, and other forms of commercial paper, and convert them into coin. The Secretary, therefore, recommends that he be authorized to sell such bonds either for coin or for its equivalent in United States notes.

RESUMPTION OF SPECIE PAYMENTS.

By the resumption act approved January 14, 1875, the Secretary of the Treasury is required to redeem legal-tender notes to the amount of eighty per centum of the sum of national-bank notes issued, and to continue such redemption, as circulating-notes are issued, until there shall be outstanding the sum of $300,000,000 of such legal-tender United States notes, and no more.

In obedience to this act, there have been issued, since March 1, 1877, to national banks, $16,123,995 of circulating-notes, and there have