The Sun.
London, England, 1869-12-24 00:00:00

FUNDING THE FIVE-TWENTY BONDS,

Before any measure for funding the Five-Twenty
Bonds can be consummated the Government will be able
to purchase at least $75,000,000 more. There will then re-
main on the Ist of July next about $1,450,000,000 of
the Five-Twenty Bonds in the hands of the public
creditors. Of the entire indebtedness of the United
States only the unimportant sum of $27,000,000 will
be due and payable previous to 1874. Under these
circumstances it does not sewn to me to be wisa to
authorise the funding of the whole amount of the
Five-Twenty Bonds, which, as is now anticipated, will be
outstanding on the Ist of July next; but that $250,000,000
at least should be suffered to remain either for purchase
or redemption previous to 18;4. Should ths sum of
$250,0u0,000 th.i left for that purpose the entire public debt
would be in a condition to be easily redeemed. Between
1874 and 1881 the Ten-Forty Bonds could be paid and
provision also made for the redemption of the bonds which
will become due in the year 1881. It may be wise to re-
duce the proposed lean to $1,000,000,000, which would
then leave for payment previous to 1881 the sum of about
$670,000,000, or hardly more than $60,000,000 a year.
Assuming that the proposed loan will be for en
amount not exceeding $1,200,000,000, I recommend
that it. be ffered in three classes of $100,000,000
each, the first class of $400,000,000 to be payable in 15
years, and to be paid in 20 years ; the second class of
$100,000,000 to be payable in 20 years, and to be paid in
25 years; and the third class of $100,000,000 to be pay-
able in 25 years, and to be paid in 30 years. The es-
sential conditions of the new loan appear to ma to be
these :
First. That the principal and interest shall be made Fly-
able is coin.
Second. That the bonds known as Five-Twenty bonds
shall be received in exchange for the new bonds.
Third. That the principal be payable in this country,
and the interest payable either iu the United States or in
Europe, as the subscribers to the loan may desire.
Fourth. That the rate of interest shall nut exceed 4i per
gent. per annum.
Filth. That the subscribers in Europe shall receive

their interest at Loudon, Paris, Berlin, or Frankfort, as
they may elect.
Sixth. That the bonds, both princip.►l and interest, shall
be freo from all taxes, deductions, or abatements of any
scrt, unless it shall be thought wise to subject citizens of
the United States to such tax upon income from the bonds
as is imposed by the laws of the United States upon iu-
ccmcs deriv.-d from other money. investments.

TAXING U. S. BONDS.
There are two reasons, and each seems to me to be a
controlling. reason, why the bonds of the United States
should be exempt from State and local taxes. If nut so
exempt, the amount of the taxes imposed by the local
authorities will be added to the interest the Go vernment
will be required to pay, and thus the Nationa Govern-
ment will be compelled to provide for taxes i mposed by
the local authorities. Secondly. Inasmuch a's the ability
to borrow
,may, under some circumstances be essential
to the preservation of the Government, the power should
not., even in times of peace and prosperity, be qualified
by any concession to the States of the right to tax the
means by which the National Government is maintained.
The right to use its lawful powers, free of any condition,
restriction, or claim of another, ii an essential coed tiou
of sovereignty, and the National Government should never
surrender or qualify its power in this particu!ar.
In offering the new loan, citizens and subjects of other
Governments should receive the strongest assurance that
the interest and principal are to he paid in coin, accord-
ing to the terms of the bonds issued, without any deduc-
tion or abatement whatsoever. In order to avoid the
necessity of employing agents for the negotiations of the
loan, I respectfully recommend that a liberal commission
be allowed to subscribers, and that those who first sub-
scribe be permitted to select the class of bonds in whieli
their suoscriptiens respectively shall be made. I further
recommend, in connection with the proposed loan, that
the banks established under the act to provide a national
currency be required to substitute the bonds that may be
issued under the proposed loan act for those now depo-
sited as security for the redemption of their bills, should
any bank be unwilling to accept the new condition, pro-
vision should be made for the surrender cf its charter, and
authority given for the/organization of new banks to supply
the deficiency thus created.
TILE NATIONAL REVENUE.

An essentiAl condition to the success of the proposed
new loan is the continuance of the present revenue sys-
tem. A chief means by which the present holders of th,
Five-twenty bonds can- be induced td surrender them and
receive a bond upon longer time and at a lower rate of
interest is the certainty furnished by the magnitude of
the national revenue that these bonds are soon to be
redeimed. We must be prepared to offer them the al-
ternative either of accepting the new bond at a lower rate
of interest, or payment of the principal of the existing
bonds.
When the Fire-twenty bonds shall have been funded to
the amount of $1,000,000,000 or $1,200,000,000, the rvenue
can be reduced materially, and yet sufficient sums be
raised to meet the ordinary expenses of the Government,
to pay the interest on the public debt ; and also to pay
$25,000,000 to $50,000,000 of the principal annually
Should our success in negotiating a loan be equal to
my expectations, based upon the fact that the ability
and disposition of the people of the United States to pay
the public debt, are sufficient to justify me in assuming
that the bonds of the United States will command the
highest rates in the markets of the world. We shall
then bo in a condition to enter upon the work of reducing
taxation at the commencement of the next session of
Congress. '
_ _

Oil the 30th of June, 1868, the amount of outstanding
three per cent. certificates, and compound interest notes
convertible into three per cent, certificates, was $71,604,890;
on the 31th of June, 1869, the amount outstanding was
$54,991,410, showing a. reduction of $16,613,480 in that
form of indebtedness. On the Ist of December, 1869,
the amouut outstanding was still further reduce.l to
$49,716,150, showing a total reduction in 17 months of
321,888,740. The three per cent certificates are a substi-
tute to a considerable extent for the United States notes,
being largely held by the banks as a portion of their re-
serves, and thus indirectly, though not to their full nominal
value, they swell the volume of the currency. I recom-
mend that a provision bo made for the redemption of the
three per cent. certificates within a reasonable time, and
as a compensating measure for the reduction in the amount
of currency which would thus be caused, that authority
be given to grant charters for banks in the States where
the banking capital is less than the share to which they
would be entitled, to an amount not exceeding $35,000,000
in the aggregate. The redemption of the three per cent.
certificates, and the additions to the banking capital might
be so arranged as not to produce a serious disturbance
in
the finances or business of the country; while additional
banking capital would be supplied to the sections now in
need of it, and this without any increase of the volume of
circulation.

THE BANXING SYSTEM.
There are two evils in the present banking system which
require remedy by prompt and efficient legislation. The
first is the practice on the part of the banks of allowing
interests upon deposits. The effect of the practice is that
moneys in the hands of individuals, which otherwise might
be loaned for regular mercantile and other business pur-
poses, are diverted into the custody of bank s upon thee idea
that if tho security is not better, payment can be oied
at a moment's notice. Country banks, and others remote
from tho large centres of trade, having received money
on deposit for which they pay interest, are anxious to
transfer such funds to other banks, from which they
will receive an equal or larger amount of interest in return.
They are stimulated also by the desire to place their
funds where they can be at all times commanded. Thus
influenced, largo sums are placed on deposit with banks
in the cities, especially in the city of New York, which
is the great centre of trade and finance for the i tlante
coat. In the ordinary course of trade the currency of
the country tends rapidly to the cities, and it is un-
wise to stimulate this tendency artificial means.
But, the evil does not end with by
the impoverishment of
the country. As the baukr3 in the cities may be called

upon at any moment to respond to the drafts of their
depositors, they decline to make loans.representing such
funds, upon commercial paper payable upon time, hut
insist upon making " call loans, as they are termed,
with Government bonds or other obligations, pledged as
c)llateral security.
Merchants generally will not borrow money in large
sums, payable upon demand. The consequence is that the
moneys thus accumulated in the city banks are loaned to
perscns engaged in speculative pursuits. The extent of
this evil is seen in the fact that of the bank loans in the
city of New York in October, 1868, $98,000,000 were upon
commercial paper, and $68,0 0,000 upon demand with a
pledge of collaterals, and in October, 1869, $99,000,000
were upon commercial paper, and $59,000,000 upon de-
mand. In the former year 41 per cent., and in the latter
year 37 per cent., of the loans made by the New York banks
were upon demand.
A further result is seen in the fact that parties borrow-
.

big money upon commercial paper for legitimate com-
mercial purposes, pay from three to six per cent. addi-
tional interest per annum as compared with persons who
borrow money for speculative purposes. I therefore
respectfully recommend that a law be passed prohibit-
ing absolutely the payment of the interest by banks
upon depo,its, and limiting also their loans upon colla-
terals to an amount not exceeding tau per cent. of their
capital.
I tun satisfied a1.,0 that the practice of certifying check=,
even when funds are iu the bank to the credit of the

drawer of the check, b; fraught with evil, and that it
ought to be entirely prohibited.

RECEIPTS AND EXPENDITURES.

The following statement exhibits the receipts and ex-
pehibtures for the fiscal year ending Juno 30, 1869 :—Re-
ceipts Custom., $180,048,426 60 ; Internal Revenue,
$158,356,460 86; Lands, $1,020,314 ; Direct Tax,
$765,68561; Miscellaneous sources, $27,752,829 79 ; total,
exclusive of loans, $370,943,747 21. Expenditures -Civil
Service, $56,474,061 53 ; Pensions and Indieus,
535,519,544 84 ' • War Department, $78,501,990 61; Navy
Department., $20,000,757 97 ; interest on the Public Debt,
$130,694,242 80; Premium on 7 3-10 U.S. Treasury
Notes, $300,000 00 ; Total, exclusive of loans,
$321,4.10,597 75; Receipts in excess of expenditures,
$49,453,149 46.
The following statement exhibits the receipts and ex-
penditures for the quarter ending Sept. 30, 1869 :-110-
ceipts - Customs, $52,596,921 86 ; Internal Revenue,
$17.926,352 51 ; Lands, $893,864 00; Miscellaneous,
$7,422,483 57; total, exclusive of loans, $108,831,622 20.
Expenditures—After deducting the amount of repay-
ments by disbursing officers and others—Civil Service,
$15,102,202 05; Indians and Pensions, $13,M7,942 79 ;
War Department, $13,595,468 05 ; Navy Department,
$5,782,630 96 ; interest en the Public Debt, $37,452,270
74; total, exclusive of loans, $85,480,514 59 ; Receipts in
excess of expenditure, $23,351,107 43.
The estimated receipts and expenditures for the three
remaining quarters of the fiscal year ending June 30, 1870,
are as follows:—Receipts—Customs, $135,000,000 • Inter-
nal Revenue, $127,000,000 ; Lands, 84,000,000 ; Iliscella-
neous sources, $20,000,000 ; total, $286,000,000. Expen-
ditures - Civil Service, $40,000,000 ; Pensions and Indians,
$21,000,000; War Department, $40,500,000; Navy De-
partment, $14.000,000; Interest on the Public Debt,
$93,75,1,000 total, $209,250,000. Estimated receipts in
excess of expenditure, $76,750,000.
Estimated receipts and expenditures based upon exist-
ing laws for the fiscal year ending June 30, 1871 :
Receipts.—Customs, $185,000,000; Internal Revenir,
$175.000.000; Lauds, $5,000,000 • Miscellaneous services,
$18,000,000,000 ; total, $393,000,000. Expenditures.—
Civil, Foreign, and Miscellaneous, $60,000,000 • Interior,
Indians, and Pensions, $36,000,000 ; War Department,
$50,000,000; Navy Department, $18,000,000; Interest
on the Public Debt, $127,000,000; total, 8,191,000,000;
Estimated receipts in excess of expenditures, $102,000,000.
The foregoing estimates of receipts are made upon the
assumption that the laws now in force relating to customs
and internal revenue will not be so changed :es to materi-
ally affect the revenues, and the estimates of the expendi-
tures are based upon the expectation that no extraordi-
nary appropriations will be made.
GEO. S. BOUTIVELL, Secretary of the Treasury.

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