MERCHANTS AND MANUFACTURERS EXCHANGE

 

September 18, 1879

Detroit, MI

 

FELLOW-CITIZENS OF MICHIGAN:

 

Reaching Detroit only a few hours ago, I cannot, from personal observation, speak of the condition of your agriculture, or your mining; manufacturing, and other large business interests. The information which I get, however, from the newspapers and conversations with intelligent citizens leads me to suppose that the outlook for the laborer, the capitalist, and the people generally, is, in this State, at least as favorable as that of the country at large. This is what one would expect from its well-known advantages. Your State is almost surrounded by the navigable waters of inland seas, which communicate with many markets in different States, and in countries beyond the ocean. It is midway, between the best of railway-routes of travel and trade, between the old and new States. It has mines of copper and iron. It has manufactures, salt, and lumber, and raises in abundance the most valuable crops and animals which are in the north temperate zone. It possesses a climate which is healthful and friendly to labor, and which gives vigor and character to men and women. Satisfactory as the material resources of Michigan unquestionably are, they do not constitute the excellence which perhaps chiefly attracts the admiration, and possibly excites the envy, of your less fortunate neighbors. All the world knows, that when the list is made up of the most favored States in this country, and of the most favored countries of the Old World, with respect to education – either general education or the higher education-an honored and very conspicuous place on that list must be given to the State of Michigan.

 

A year ago, making of visit of two or three weeks to the West and Northwest, I thought it might be useful to speak of the financial condition of the country, and to present a hopeful view of the situation and prospects. The business depression which followed the panic of 1873 lasted five years; but there were indications of improvement, and it seemed to me that what was most needed was confidence, and that a presentation of encouraging facts was needed to inspire confidence. It was my opinion, also, that there could be no permanent revival of business prosperity until the currency was placed upon a sound basis, and was exchangeable at the par value in the universally-recognized money of the world. The friends of the constitutional currency generally believed that this end could only be reached with the faithful execution of the Resumption Act; and that there was no need of further legislation and that the true policy was to stop interfering with the currency. Accordingly, the pith of what I wished to say to audiences like this was, that we ought to “let well enough alone.” Now the resumption of specie payments has come, and with it have come also better times.

 

The evidences of prosperous times are numerous, palpable, and cheering. One bright day in June last, more steamers-more shipping of all sorts-gathered in New York harbor than had ever been seen in that great mart of commerce, and their tonnage was in greater excess comparatively than the number of vessels. The lines of the Pennsylvania Railroad east of Pittsburgh and Erie, for the first seven months of this year, as compared with the same period in 1878, show an increase of gross earnings of $1,208,294, an increase in expenses of $759,985, and an increase in net earnings of $448,309; the lines of Pennsylvania and Reading Railroad (the great anthracite coal-road) a net increase of $1,340,000 for the same period. The latest published statement of the Erie railroad Company shows a net increase of $561,000. The Baltimore and Ohio Railroad Company shows a net increase of $532,000 for the first ten months of its current fiscal year, beginning in October last. It is estimated that more than a thousand miles of railroad-track have already been laid this year in the United States-a greater mileage than in the same period in any year since 1873. Workers in iron and steel find their business recovering so rapidly from its great depression that they are unable to fill their orders, and their annual production is likely soon to surpass the greatest figures ever reached. The building of iron steamships in successful competition with Europe is fully established on the Delaware. Our cotton factories are all again at work, and running on full time. Our mines of precious metals are increasing their product, and it mainly stays at home. Our manufactures go abroad more than ever before; our currency is exchangeable at par in the markets of the world with the money of the world; and finally, and most important, the demand for labor has increased and is increasing It extends to cotton mills, iron and glass-works, machine-shops, brick-making, building, the clothing trade, and nearly all branches of industry. The “Philadelphia Record,” on the authority of a well-known statistician, states that there are twenty thousand more laborers employed in that city than there were a year ago. Our exports for the year 1878 amounted to $710,439,441, and the excess of exports over imports was $264,661,661 both sums being greater than in any previous year.

 

The following tables show the rapid advance our farmers and manufacturers are making in supplying both the foreign and the home markets. These were prepared by Mr. Joseph Nimmo, Jr., the able chief of the Bureau of Statistics of the Treasury Department:

 

[Tables not included in this text]

 

With these authentic and significant facts and figures before us, we may reasonably assume that this country has entered again upon a period of business prosperity. The interesting questions now are, have the good times come to stay? What can we do in private and public affairs to prolong the period of prosperity and to mitigate the severity of hard times when they return? The prospects are now bright, but all experience teaches that the wheel of human affairs, always turning, brings around those tremendous events called financial panics, if not with regularity, at any rate, with certainty. The writer in an intelligent article in one of the monthlies says: “Panics, it has been observed, occur about every twenty years in this country, and almost every ten years in England.” The explanation of this is not difficult to decipher. In good times the tendency is to extravagance, to speculation, and to running in debt. Many spend more than they earn, and the balance of trade soon beings to run against communities and individuals. When this is continued until the business of the country is loaded down with debts, a financial crisis is inevitable, and only waits for “the last straw.” If this view is correct, the way to meet the dangerous tendencies of flush times is plain. Let two of Doctor Franklin’s proverbs be strictly observed by individuals and by communities, One is: “Never live beyond your means;” and the other is like unto it, namely-“Pay as you go.”

 

It is easy to see that, if these old maxims of the philosophy of common sense could have general practical acceptance, the period of good times would be prolonged, and the calamities of hard times would be vastly diminished, There can be no great financial crisis without large indebtedness, and the distress which it brings in proportion to the extent of the extravagance, speculation, and constant indebtedness which have caused it. Those who are out of debt suffer least. Where the debts are heaviest the calamity is heaviest. But it is of public indebtedness, and especially of the debt of towns and cities, that I wish to say a few words.

 

The practice of creating public debts, as it prevails in this country, especially in a municipal government, has long attracted serious attention. It is a great and growing evil. States, whose good name and credit have been hitherto untarnished, are threatened with repudiation. Many towns and cities have reached a point where they must soon face the same peril. I do not now wish to discuss the mischiefs of repudiation. My purpose is to make a few suggestions as to the best way to avoid repudiation. But, in passing, let me observe: Experience in this country has shown that no State or community can, under any circumstances, gain by repudiation. The repudiators themselves cannot afford it. The community that deliberately refuses to provide for its honest debts loses its good name and shuts the door to all hope for future prosperity. It demoralizes and degrades all classes of its citizens. Capital and labor and good people will not go to such communities, but will surely leave them. If I thought my words could influence any of my countrymen who are so unfortunate as to be compelled to consider this question, I would say, let no good citizen be induced by any prospect of advantage to himself or to his party as to take a single step towards repudiation. Let him set his face like flint against that first dawning of an attempt to enter upon that downward pathway. It has been well said that the most expensive way for a community to get rid of its honest debts is repudiation.

 

Returning to the subject of municipal debts, it is not alone those that live in towns and cities who are interested in their wise and economical government. All who trade with their citizens, all who buy of them, all who sell to them – in a word, all the whole of the laboring and producing classes – must bear a share of their burdens, The taxes collected in the city must find their way into the price-lists of what is bought of and sold to the farmers and laborers in the country. On the questions of debt and taxation the dwellers in the city and those who habitually deal with them form together one community and have a common interest.

 

The usual argument in favor of creating a city debt is, that the proposed building or improvement is not for this generation alone, but is for the betterment of prosperity, and, therefore, posterity ought to help pay for it. This reasoning will not bear examination. Each generation has its own demands upon its purse. It should not be called upon to pay for the cast-off garments of its ancestors.

 

The appliances and structures which our ancestors provided for water, light, streets, parks, cemeteries, for putting-out fires, for police, for locomotion, for education, and for the thousand other necessities of city life, would not be well-suited to the tastes, habits, and wants of our day. This generation must have steam fire-engines and water works, and its tax-payers do not want to be called upon to pay for the cisterns, the fire-buckets, and the pumps of thirty years ago.

 

Municipal borrowing is the parent of waste, profligacy, and corruption. Money that comes easily goes easily. In this career of public extravagance, cities build and buy what they do not need, and pay for what they get, far more than it is worth. I adopt the words of the valuable report of the Pennsylvania Commonwealth appointed to devise a plan for the government of cities. To sum it up, it too often happens that “the men who authorize the contracts are substantially the ones who profess to perform them. The men who fix the prices are substantially the men who receive the pay for performing the labor, and the men who issue the bonds are the men who receive the money.”

 

The magnitude and the growth of this evil are shown by statistics with which the public is familiar. I do not choose to detain you by repeating them in detail.

 

A few weeks ago the “New York Tribute” called attention to an excellent article on this subject in the “Princeton Review,” by Mr. Robert P. Porter, in which it is shown that local debts have, since the war, increased out of all proportion to the increase of property and population. Mr. Porter shows that in one hundred and thirty cities the debt increased from $221,312, 009 in 1866 to $644,738,663 in 1876. The percentage of increase is about 200 percent in ten years, while the property of these cities increased by 75 percent, and their population only 33 percent. The total local indebtedness of all the States, omitting the Territories, it is estimated in the article referred to, at the close of 1878, was $1,051,196,112. In many instances it is shown that the annual amount of interest paid by cities on their debts is almost equal to the total annual expenses for carrying on their local governments. The volume of the local indebtedness of the country already exceeds one-half the great war debt of the Nation, and the interest upon them, from the high rates usually paid, will soon equal the total interest upon the National debt.

 

The urgent question that is now pressing for consideration is, how to deal with these large and increasing local debts. The best answer it seems to me is simple, ready at hand, and sufficient. Do not have any local debts. Let it be embodied in the constitutions and laws of every State, that local authorities shall create no debts; they shall make no appropriations of money until it is collected and on hand; that all appropriations shall be made for specific objects, and that as to existing debts subtle provision shall be made for their extinguishment.

 

To pay of the old debts-to create no new debts-shall be difficult and embarrassing. Valuable reforms are always difficult, and thorough work often is embarrassing. If we would be rid of the peril of approaching bankruptcy and repudiation which now threaten so many towns and cities, there must be a halt to this dangerous downward march. If the remedies I have suggested are too radical, let others be proposed and acted on, and that promptly.

 

The policy of preventing the creation of local debts by positive Constitutional prohibition is fully sustained by the experience of the States with respect to State debts. Constitutions in many of the old, and in all of the new, States have been adopted within the last thirty or forty years, and almost all of them contain provisions denying to State legislatures the authority to create debts except in case of war, insurrection, or other extraordinary emergency. Under the operation of these provisions, the debts existing at the time of their adoption have been greatly reduced. And the only States now embarrassed by debt are those whose Constitutions do not contain this wise provision.

 

The general policy of the National Government on the subject of debt has always been sound. It may be summed up in a few words. No debts to be created in time of peace, and war debts to be paid off as rapidly as possible when the war ends.

 

The Revolutionary War debt, at the inauguration of this present form of Government, March 4, 1789, amounted to $76,000,000, and after excessive refunding, in long-time bonds, was paid off by their redemption, finally, in 1835.

 

The debt created by the War of 1812, after refunding in 4 ½ percent bonds, was also paid in 1835, and at the close of that year the Nation was practically free from debt.

 

The debt incurred on account of the Mexican War amounted to $83,552,698, the bonded debt bearing six percent interest, running from five to twenty years, and Treasury notes at varying rates of interest, from one mill to five and two fifths percent. All this debt was redeemed prior to 1870, excepting a very small amount not yet presented for redemption.

 

As a marked evidence of the fidelity with which our National obligations of this description have heretofore been met, it is worthy of not that, during the War of 1812, the interest paid on the portion of the debt held by British subjects was regularly paid, the agents of the holders in this country, owing to the disruption of direct commercial intercourse, being sometimes obliged to resort to circuitous and extremely difficult routs for the transmission of payment. I find the fact remarked upon by Mr. Alexander Trotter, the British author of a standard work published in 1839, upon our National financial position and credit at that time. The author also notes the fact that the act of Congress that assembled after the adoption of the Constitution to make provision for the payment of all the outstanding engagements of the Government; “with a degree of integrity which is rare in the history of the financial embarrassments of States,” postponed the claims of creditors at home until those of the foreign creditor were provided for.

 

Our war debt resulting from the War for the Union amounted to about $3,000,000,000 and has been reduced to about $2,000,000,000. During the last year there has been no reduction of the aggregate amount but there has been a reduction of the amount of the interest bearing debt of $13,769,900, and the rates of interest have been so reduced by refunding that there is an annual saving of $13,769, 900 in interest. The annual interest on the National debt reached its highest point about fourteen years ago, when it was $150, 977, 697.87. It is now reduced to $83,744,710.50, a yearly savings of $67,232,987.37, or about forty-five percent, of what was payable in 1865. The policy of paying off the National debt urged upon the country with so much force by the Secretary of the Treasury, Mr. Hugh McCulloch, has borne good fruit. Young men of this audience can remember when the Government of the United States had great difficulty in borrowing so small as sum as $25,000,000 and for a considerable part of it was compelled to pay as high as twelve percent. Last year, by reason of improved and strengthened credit, the Government had no trouble borrowing, in the single month of April, $225,000,000 at four percent. The amount offered in that month exceeded five hundred millions of dollars, and there was one day when the amount offered was $159,000,000.

 

Let the policy of extinguishing the National debt be adhered to. Let it be the fixed purpose of the people and all who administer the Government to pay off the debt within thirty-three years. It can be done by economy and prudence without a material increase upon the burdens of the people. The payment of thirty-three millions a year upon the principle of the debt, or in a sinking-fund for that purpose will within thirty-three years, leave us free from debt as a Nation.

 

That which is sound policy in National and State affairs, in regard to public debts, is, I believe, also wise policy in local affairs and in private affairs. Let it be everywhere adopted, in public and private, and we may welcome the advancing tide of better times, confident that we have found the secret that will prolong their stay, and which will go far to make us independent in that, I trust, distant day when a financial panic may again strike down the general prosperity.

 

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