Papers Relating to the Foreign Relations of the United States, Transmitted to Congress with the Annual Message of the President, December 4, 1871

[Report of the Secretary of the Treasury.]

Treasury Department, December 4, 1871.

Sir: The country has been prosperous during the year now closing, and the public finances have shared in the general prosperity.

During the fiscal year ending June 30, 1871, the reduction of the public debt was $94,327,764 84. The total decrease in the public debt from March 1, 1869, to December 1, 1871, was $277,211,892 16; and during the same period the annual interest charge has been reduced $16,741,436 04.

The revenues for the year 1871, and the receipts since the first of July last, show that the time has arrived when a considerable further reduction in taxes can be made, and yet leave the Government in a position to pay at least fifty millions of dollars annually of the principal of the public debt, including the amount pledged through the sinking fund. In my annual report to Congress for 1870, I expressed the opinion that the settled policy of the country should contemplate a revenue sufficient to meet the ordinary expenses of the Government, pay the interest on the public debt, and from twenty-five to fifty millions of dollars of the principal annually. To that opinion I adhere, with even a stronger conviction that the payment annually upon the principal of the public debt should not be less than fifty millions of dollars.

Large as the revenues of the country have been during the last three years, our system of taxation has not been oppressive to individuals, nor has it in any sensible degree embarrassed the business of the country; and while relief from taxation is desirable it is yet more desirable to maintain the public credit in its present elevated position, not only as an example to other nations, but for its historical value in enabling the Government to make loans for large amounts upon favorable terms if, unhappily, in the future an exigency should require such loans to be made.

The power to negotiate a large loan at five per cent interest, and to enter upon negotiations for the sale of bonds bearing five, four-and-a-half, and four per cent interest, is derived entirely from the exhibition of an honest purpose on the part of the people to maintain the public faith, and the consequent ability on the part of the Government to answer that expectation by large and frequent payments upon the public debt.

The revenue from customs for the fiscal year 1871 was greatly in excess of the estimates, amounting to $206,270,408 05, against $194,538,374 44, for the preceding year. The cost of collecting this revenue was $6,560,672 61, for 1871, being three and eleven hundredths per cent., while the cost for the year 1870 was $6,237,137 25, or three and twenty hundredths per cent.

The appropriation for the collection of the customs, with the additions derived from fines, penalties, and forfeitures, exceeded the expenditures by the sum of more than eight hundred thousand dollars, and there is no doubt that the permanent appropriation will be ample for the present year, and for the next fiscal year.

The reduction of the rates of duty on the 1st of January, 1871, under the act of July 14, 1870, diminished the importation of many articles during the last six months of the year 1870, but there was consequently a large addition to the revenues for the first six months of the year 1871.

A comparison of the first six months of the calendar year 1871 with the first six months of the calendar year 1870, shows an increase of fifty-five per cent, in the quantity of tea imported, twenty per cent in the quantity of coffee, fifty-three per cent in the quantity of brown sugar, one hundred and twenty per cent in the quantity of pig iron, one hundred and eighty-six per cent, in the quantity of melado, one hundred and thirty-nine per cent, in the quantity of spices, and a large increase in many other articles.

The probability is that the customs revenue for the current year will exceed that for the year 1870–’71.

The receipts from internal revenue were $143,098,153 63, being $4,048,984 29 less than the estimates presented to Congress in December last for the fiscal year ending June 30, 1871. The estimates for the current fiscal year were $126,418,000, and it is probable that the receipts will be equal to the estimates.

The net receipts for the fiscal year ending June 30, 1871, were as follows:

From customs	$206,270,408 05
From internal revenue	143,098,153 63
From sales of public lands	2,388,646 68
From miscellaneous sources	31,566,736 53
	383,323,944 89

The expenditures for the same period were:

For civil and miscellaneous purposes	$69,498,710 97
For War Department	*35,799,991 82
For Navy Department	19,431,027 21
For Indians	7,426,997 44
For Pensions	34,443,894 88
For interest on the public debt	125,576,565 93
	292,177,188 25

The miscellaneous revenues for the fiscal year ending June 30, 1871, were derived from the following sources:

Premium on sales of coin	$8,892,839 95
Fees from United States consuls	565,563 24
Storage, rent, labor, &c., at custom-houses	414,310 61
Fines, penalties, and forfeitures for violations of customs laws	952,579 86
Fees on letters patent	620,319 11
Tax on circulation, deposits, &c., of national banks	6,003,584 32
Repayment of interest by Pacific railway companies	813,284 75
Homestead and other land fees	645,923 17
Steamboat fees and marine-hospital tax	385,535 16
Proceeds of sale of coin-interest on sinking and special funds	7,701,662 73
Judiciary—fines, penalties, and forfeitures	75,836 30
Tax on seal-skins	101,080 00
Reimbursement to the United States for salaries of storekeepers in internal revenue bonded warehouses	557,235 41
Direct tax	580,355 37
Emolument fees	585,387 69
Parting charges—refining gold and silver bullion	211,721 14
Proceeds of Indian trust lands	1,140,120 28
Accrued interest on, and proceeds of sale of, Indian trust-fund stocks, and interest on deferred payments on Indian-trust lands	$387,921 01
Reimbursements to the United States for moneys advanced to meet matured interest on non-paying stocks held in trust for various Indian tribes	35,535 00
One, two, three, and five-cent coinage	150,000 00
Unenumerated	745,441 43
	31,566,736 53

The receipts for the first quarter of the present fiscal year were:

From customs	$62,289,329 37
From internal revenue	35,553,175 01
From sales of public lands	602,680 61
From miscellaneous sources	8,753,189 61
	107,198,374 60

The expenditures for the same period, excluding payments on account of the sinking fund, were:

For civil and miscellaneous purposes	$16,579,732 46
For War Department	12,590,653 05
For Raw Department	6,513,040 93
For Indians	3,404,133 42
For Pensions	8,090,698 69
For interest on the public debt	36,725,124 37
	83,903,382 92

The estimated receipts for the remaining three quarters of the present year, are as follows:

From customs	$148,000,000 00
From internal revenue	90,000,000 00
From sales of public lands	2,000,000 00
From miscellaneous sources	18,000,000 00
	258,000,000 00

The estimated expenditures for the same period, excluding payments on account of the sinking fund, are:

For civil and miscellaneous purposes	$50,000,000 00
For War Department	31,000,000 00
For Navy Department	$13,500,000 00
For Indians	6,000,000 00
For Pensions	24,000,000 00
For interest on the public debt	85,000,000 00
	209,500,000 00

These estimates show a balance applicable to the payment of the principal of the public debt for the fiscal year ending June 30, 1872, $71,794,991 68.

The receipts and expenditures for the fiscal year ending June 30, 1873, are estimated as follows:

receipts.

From customs	$212,000,000
From internal revenue	126,000,000
From sales of public lands	3,000,000
From miscellaneous sources	18,000,000
	359,000,000

expenditures.

Legislative establishment		$3,421,812 40
Executive establishment		17,443,531 38
Judicial establishment		3,383,350 00
Military establishment		31,422,509 88
Naval establishment		18,946,088 95
Indian affairs		5,445,617 97
Pensions		30,480,000 00
Public works under Treasury Dep’t	$3,104,500 00
Public works under Interior Dep’t	244,800 00
Public works under War Dep’t	14,609,662 97
Public works under Navy Dep’t	1,483,100 00
Public works under Agricultural Dep’t,	26,500 00
		19,468,562 97
Postal service		5,474,001 00
Miscellaneous		11,258,325 44
Permanent appropriations		126,281,974 00
Sinking fund		22,895,930 00
Interest upon the capital of the sinking fund		5,783,333 00
		301,705,036 99

These estimates show a balance of $57,294,963 01 applicable to the payment of the principal of the debt, in addition to the sum of $28,679,263 due on account of the sinking fund, or the sum of $85,974,226 01 in all.

In the estimates for the next fiscal year I have not included in the receipts the premium on gold which may be sold, nor in the expenditures the premium which may be paid on bonds to be purchased in currency.

In the suggestions I have the honor to make in reference to the reduction of taxes, I keep in view two important facts: first, that the ability of the nation to pay at least fifty millions annually of the principal of the public debt shall not be impaired; and, secondly, that in the change of the revenue system no violence shall be done to the business interests of the country. While I do not undertake to state precisely the causes which have contributed to the public prosperity, there is no substantial reason for questioning the truth of the statement that the last few years have been the most prosperous in the history of the country; years without example in our own affairs, and without parallel in the affairs of any other Government.

It is practicable to dispense with all revenue from internal sources except that derived from stamps, spirits, tobacco, and malt liquors. These sources should furnish for the year 1872–’73 a revenue of about one hundred and ten millions of dollars, making a reduction of taxes of sixteen millions of dollars. The revenue from customs under existing laws, and from lands and miscellaneous sources, would amount to about two hundred and thirty-three millions more, making a total revenue for that year of three hundred and forty-three millions of dollars.

The expenses of the Government, not including the amount payable on account of the sinking fund, are estimated at $273,025,773 99.

If to this sum be added fifty millions of dollars for payments on account of the public debt, including the amount due on the sinking fund, there remains a balance of about twenty millions, within which reductions may be made in the revenue from customs. This amount, added to the reductions proposed under the internal revenue laws, gives a total reduction of thirty-six millions.

In this view, I respectfully recommend to the consideration of Congress the reduction of the duties on salt to the extent of fifty per cent.; the duty on bituminous coal to fifty cents per ton; the reduction of the duty on raw hides and skins; and the removal of all duties from a large class of articles produced in other countries, which enter into the arts and manufactures of this country, and which are not produced in the United States, and the revenue from which is inconsiderable. Such a list, with the revenue derived from each article, is in course of preparation, and will be submitted to Congress.

The removal of duties from a large class of articles used in manufactures, and the reduction of the duties upon coal, furnish an opportunity for a moderate decrease in the rates of duties upon those products whose cost will be diminished by these changes.

While nothing, as the consequence of legislation, could be more disastrous to the public prosperity than a policy which should destroy or seriously disturb the manufacturing interest of the country, it is still possible, by wise and moderate changes adapted to the condition of business and labor, to reduce the rates of duties with benefit to every class of people.

The average premium on gold for the year 1868 was 39.54 per cent.; for the year 1869 it was 32.56 per cent. premium; for the year 1870 it was 14.83 per cent. premium; and for the first eleven months of the year 1871 it was 12.1 per cent. premium. The value of the paper currency of the country during the years 1869 and 1870 was apparently appreciated by the increased use of paper money in the South, but chiefly by the establishment of the credit of the United States upon a firm basis. On the first of January, 1871, the last-named fact was fully accomplished, and since that time the appreciation of the paper currency has been due wholly to the increased demand for it in the business affairs of the country. The difference between the value of paper money at the present moment and its value on the first of December, 1870, may be attributed to the latter cause, and furnishes the best means which the country has yet had for ascertaining the quantity of paper currency which can be used and its value kept at par with gold.

The result of this test concurs with what seems to me to be the best opinion upon the subject, that the amount of paper money in circulation is still so great that it cannot be maintained in value at par with coin. There are two modes of relief: One is to reduce the volume of currency, as was recommended by me in my annual report submitted to Congress in December, 1869; the other mode is to await the growth of the country, and the increasing demands of business, which in time will produce the desired result.

The chief means of securing the end sought, without a reduction in the volume of currency, would be the use of paper money upon the Pacific coast. With this object in view, steps have already been taken by this Department for the purpose of ascertaining whether it is practicable to substitute paper for coin, and I have reason to anticipate that a change may be made in the laws relating to National Banks tending to that result, which will not affect unfavorably the general character of the system.

It is my duty to call the attention of Congress to the importance of abolishing the system of shares in moieties, as far as the benefits inure to revenue officers, and other persons officially connected with the Government. This measure was recommended in my last annual report, and a statement was submitted to Congress showing the amount received by officers of customs, together with a bill increasing their salaries without any increase of appropriations from the Treasury; the sum now paid from moieties being quite sufficient to place the entire force upon a satisfactory footing in regard to pay.

During the last fiscal year the office of collector and surveyor of the port of New York each received from moieties the sum of $49,215 69, and the naval office the sum of $48,195 59.

In most of the cases the officers do not perform special services entitling them to the amounts granted, and importers and others whose acts are made the subject of investigation, complain, and, I think, with just reason, that the agents of the Government have a pecuniary interest in pursuing those charged with violations of the law. The Government ought to pay fair salaries, and rely upon the good faith of its officers for the performance of their duty. One of the difficulties which the Department has to meet, frequently is, that customs officers have an interest in proceedings for the discovery of fraud, the settlement of cases, or the prosecution of them, which is different from the real interest of the Government; and, as a necessary result, the conduct of such officers is open to suspicion, both on the part of those who are pursued by them, and the Government that they ostensibly represent.

It may be deemed expedient to leave the law as it now stands in regard to informers who are not officers, making it a penal offense for any officer to enter into an arrangement with an informer for any share of the proceeds of the information, and giving to the informer perpetual right of action for the recovery of any money or other valuable thing paid or given to an officer engaged in the discovery or prosecution of a fraud or legal wrong against the Government.

The report of the Comptroller of the Currency shows that one hundred and forty-five banks have been organized under the act approved July 12, 1871, providing for the issue of fifty-four millions of dollars of additional bank circulation, and that the sum of $22,333,900 has been issued.

By virtue of the same act, the Treasury has redeemed $22,230,000 of the three per cent. certificates then in circulation, leaving the sum of $23,490,000 now outstanding. I take the liberty of suggesting, that it appears to me to be wise to leave the distribution of the circulation authorized by said act as it now stands.

Should the States that have already received their proportion of circulation be authorized to take what may remain, only a brief period will elapse before a demand will be made from States with limited circulation for an increase. It seems prudent, therefore, to retain the balance of the fifty-four millions for distribution in those States now having a claim to it, on the basis of equality of apportionment.

The details of the subscription to the Loan show that the National Banks, have, upon the whole, acted liberally—more than a hundred millions of dollars having been subscribed for by them on their own account.

It is not unreasonable to tender to these institutions the opportunity to subscribe for bonds under the act of July 14, 1870, to an amount equal to the deposits required of them as security for circulation, and to couple that offer with a provision that, after ninety days, to the extent that the offer may be declined, other banking associations may be formed in the several States where the existing banks shall have failed to make the required subscription, and the circulation transferred from such banks to the new associations.

The banks now organized cannot justly complain, if, having an opportunity to pursue the business upon the new bonds, and declining it, other associations shall succeed to their franchises and rights.

The business of the Bureau of Engraving and Printing has been carried on with diligence during the year, and with satisfactory results.

Although some efforts have been made at counterfeiting the special papers used by the Department, they have not been successful, and the specimens captured are so crude as not to excite serious apprehensions as to ultimate success.

Since the first of July, 1869, seventy million sheets of paper have been manufactured, all of which have been accounted for on the books of the Department.

I respectfully recommend that an appropriation be made for a new issue of national bank notes. Those now in use are much worn and very successful counterfeits of several denominations have appeared.

The public building used as a custom-house, court-house, and post office, at Chicago, was destroyed by the great fire on the 8th of October last. The exterior walls remain, and the building could be repaired, but, anticipating the growth of Chicago and the magnitude of its public business, I advise the erection of a building suited to the wants of a first-class city.

It is important that a much larger piece of land should be obtained, either by addition to the present lot or by the purchase of another site. On the 18th of October last, I wrote a letter to Governor Palmer, asking him to recommend to the Legislature the passage of an act granting authority to the courts of the State of Illinois to condemn such land as might be required, in case the Government should be unable to obtain it by purchase at a reasonable price, payment to be made upon an appraisal. In every case, the site for a building erected by the Government for public uses should be large enough to separate it from all other structures, thus furnishing sufficient light for the prosecution of business, and adequate security also against fire and the depredations of lawless persons. It is hardly necessary to say, that in the existing condition of affairs at Chicago, it is important that an appropriation, available during the present fiscal year, should be made without unnecessary delay.

Since my last annual report, the Supervising Architect has completed the custom-house, court-house, and post office, at Portland, Maine; the court-house and post office at Des Moines, Iowa; the court-house and post office at Madison, Wisconsin; the appraisers’ stores at Philadelphia; and the assay office at Boise City, Idaho.

It is now expected that the custom-house and post office at St. Paul, Minnesota; the marine hospital at Chicago, Illinois; the court-house and post office at Astoria, Oregon; the custom-house at Machias, Maine; the branch mint at San Francisco, California; and the custom-house at Cairo, Illinois, will be finished and ready for use by the first day of July next. At that time there will remain, in an unfinished condition, the court-house and post office at Columbia, South Carolina; the custom-house at New Orleans, Louisiana; the custom-house at Charleston, South Carolina; the court-house and post office at Knoxville, Tennessee; the custom-house and post office at Portland, Oregon; the court-house and post office at New York; the post office and independent treasury at Boston, and the custom-house and post office at Omaha., Nebraska.

The prosecution of these works—four of which are of great importance—in connection with public buildings to be erected at Chicago, and the erection of marine hospitals at Pittsburg, San Francisco, and New York, will, in my opinion, sufficiently occupy the Supervising Architect of the Treasury and the force at his command. I cannot, therefore, advise appropriations for other public buildings until some of those in process of construction shall have been completed. The points at which the erection or repair of public buildings is most needed are Hartford, Indianapolis, Cincinnati, and St. Louis.

Under an act passed at the last session of Congress, appropriating two hundred thousand dollars for the purpose of more effectually securing life and property on the coasts of New Jersey and Long Island, a careful examination of the coast and of the life-saving stations has been made by experienced officers of the revenue service. In accordance with their report, proposals were invited and accepted for the erection of fourteen new houses on the coast of New Jersey and six upon the coast of Long Island. Repairs are also making upon the old houses on the Long Island coast.

The operations of the coast survey, which are under the administrative direction of this Department, have been prosecuted with the usual energy, as will be seen from the brief report of progress made by the Superintendent, in advance of the usual detailed report, with maps, annually submitted to Congress.

The survey of the Atlantic coast is now rapidly approaching completion, that of the Gulf coast is more than half finished, and the work on the Pacific coast is being pressed forward vigorously.

The estimates submitted substantially conform to the appropriations for the present year. An increase is asked for the item of extending the triangulation across the country to the Pacific ocean, great interest having been manifested by the authorities of the States traversed in the prosecution of the work.

The business entrusted to the Light-House Board is one of the most important branches of the public service in the control of this Department, and I am able to state that it is conducted with fidelity and with reference solely to the maritime interests of the country.

The estimates made by the Light-House Board exceed the appropriations for the present year but they appear to be necessary, and I respectfully recommend them to the consideration of Congress.

Under an act of Congress, approved July 30, 1870, Dr. John M. Woodworth has been appointed Supervising Surgeon of the Marine Hospital Service. His administration is satisfactory to the Department.

The average number of hospital patients for the fiscal year ending June 30, 1870, was one thousand and sixteen, and for the year ending June 30, 1871, one thousand one hundred and ninety-eight. The total cost of the service for the first-named year was $405,624, being an average, for each patient, of $1 09 per day; and for the latter year $453,082 42, or an average of $1 04 per day.

In the first-named year the hospital tax was $168,153 70, and in the latter year it amounted to $293,592 14.

The Supervising Surgeon is of opinion that pavilion hospitals are better adapted to the successful treatment of the sick than the ordinary buildings of brick and stone, while the expenses are only one-fourth as great.

In accordance with his suggestion, I recommend an appropriation of fifty thousand dollars for the purchase of land and the construction of a pavilion hospital at Pittsburg, Pennsylvania. The present hospital is situated in the vicinity of iron mills and railways, and as it can be sold for about seventy thousand dollars, the Government will be fully reimbursed for the cost of a new hospital, while the comfort of the patients will be promoted.

An estimate has been made that the sum of fifty thousand dollars will be sufficient for the construction of a pavilion hospital on Angel Island, in the Bay of San Francisco, sufficient to accommodate one hundred and fifty patients, and I also recommend an appropriation of that amount for that purpose.

I also respectfully renew the recommendation, made heretofore, for a pavilion hospital hear the city of New York sufficient for the accommodation of two hundred patients.

The Revenue Marine Service employs twenty-five steam-vessels and eight sailing vessels. In addition to these, there are two large steamers upon the Lakes, not in commission, and two schooners upon the coast condemned as not fit for duty.

Of the six large steamers upon the Lakes, four only are in commission, and as the others are not needed, I have the honor to recommend that authority be given for their sale.

During the last year four iron steamers have been built—three of two hundred and fifty, and one of three hundred and fifty tons burden. Under the existing appropriation of two hundred thousand dollars, the Department is about to issue proposals for four small iron propellers, two for the Pacific and two for the Atlantic coast.

A further appropriation of two hundred thousand dollars is needed to enable the Department to carry into effect the recommendation of the Commission, whose report was approved by the Department and submitted to Congress May 26, 1870.

The plan recommended by the Commission, when fully adopted, will effect a reduction in the expenses of this branch of the service of about five hundred thousand dollars, or about thirty-four per cent. of the whole cost. The changes proposed contemplate the use of vessels of less tonnage, and a consequent reduction in the number of men employed.

The expenses of the Revenue Marine Service for the year ending June 30, 1871, were $1,251,984 52, against $1,138,393 31 for the preceding year. The first quarter of the present fiscal year shows a reduction in expenses of $83,201 42, as compared with the corresponding period of the preceding year.

At the date of my last report, a board of officers was in session charged with the duty of examining the officers then in active service. The report showed that five captains, ten first lieutenants, nine second lieutenants, and ten third lieutenants, were not qualified for duty. The persons found to be incompetent have been discharged, and their places have been filled by promotion and by the appointment of additional officers, after a competitive examination.

There are several officers in the service who, on account of age, are unfit for active duty. For the supply of officers in their places, and for the increase of the number of engineers, rendered necessary by the substitution of steam for sailing vessels, additional appropriations are required for the next fiscal year. This branch of the public service is, upon the whole, in a satisfactory condition.

During the third session of the 41st Congress a bill was submitted for the organization of a Mint Bureau. The bill passed the Senate but failed in the House of Representatives; though not, as I am informed, from any objection to the principles on which it was framed. I urgently recommend the passage of a similar bill at the present session of Congress. All the Mints and Assay Offices are nominally in charge of the Treasury Department; but there is not, by authority of law, any person in the Department who, by virtue of his office, is supposed to be informed upon the subject; and no one on whom the Secretary of the Treasury can officially rely for information or advice in the management of this important branch of the public business.

It is estimated that the internal commerce of the country is fifteen times as great as our external commerce, but the statistics are not trustworthy or complete; and I respectfully recommend that provision be made for obtaining such returns as will show fully the trade of the country upon the rivers, canals, lakes, and railways.

The report of Mr. Charles Bryant, Special Agent, who has had charge of the fur seal-fishery at the Islands of St. Paul and St. George, shows that the business has been conducted by the Alaska Commercial Company in substantial conformity to the terms of the contract. Mr. Bryant suggests an appropriation for the construction of a house upon each island, for the accommodation of the agents of the Government, who at present are dependent upon the company for board and shelter; and, although I am not aware that any evil has resulted from the arrangement, it is manifest that it ought not to be continued. It is estimated that, an appropriation of five thousand dollars will be sufficient for a suitable building on each island.

The agents charged with the management of the seal fishery have been detailed from the customs service. As the full number of agents authorized by law is needed upon customs business, I respectfully recommend that authority be given for the appointment of two agents and two assistant agents, and that a suitable appropriation be made for their salaries and expenses. The necessity of two agents at each island is apparent. The agents will desire to return to the States as often as once in two years; and, moreover, it is wise for the Government to have not less than four persons in its employment connected with the care of the people and the business of the islands.

Mr. Bryant also makes suggestions as to further provision for the care of the natives, which appear to me to deserve consideration.

I again call the attention of Congress to the importance of increasing the salaries of the Bureau Officers and Heads of Division in the Treasury Department.

At present there is great inequality and injustice existing. The First Comptroller receives a salary of five thousand dollars a year, while the Second Comptroller and other Bureau Officers, whose duties are hardly less important, receive only three thousand dollars. The Solicitor of the Treasury is upon a salary of three thousand five hundred dollars, while the Solicitor of Internal Revenue, whose duties are less important, receives a salary of four thousand dollars.

The Heads of Division, in the Internal Revenue, receive salaries of twenty-five hundred dollars per annum, while in every other branch of the Treasury they are selected from fourth class clerks, whose salaries are fixed by law at eighteen hundred dollars a year; although, for several years an appropriation has been made from which the Secretary of the Treasury, in his discretion, has increased the salaries in his own office to twenty-eight hundred dollars per annum.

It is not an exaggeration to say that the head of a division in charge of the loans, of the warrants, or of the sub-treasury accounts, occupies a position in which the country and the world are more concerned than in that of the Collector of Customs at New York; yet the latter officer receives more than fifty thousand dollars a year, while it is with difficulty that the former is able to secure the inadequate sum of twenty-eight hundred dollars.

The same remark might with truth be made of several Bureau Officers, and of persons in the office of the Treasurer of the United States.

In this connection, I also recommend an increase of the salary of the Supervising Surgeon of the Marine Hospitals.

I think it my duty to speak of the provisions of the act creating the Department of Justice, by which the Solicitor of the Treasury and the Solicitor of the Internal Revenue Office are made officers of that Department. The proper and essential duty of the Solicitors is to give advice to the Secretary and Bureau officers upon questions which arise in the daily business of the Department. Under the existing system, the Attorney General is made nominally responsible, while, in fact, he ought to be exempt from all responsibility for the advice given by these officers, that, upon a reference to him of questions which may have been previously considered by them, he may be free to revise or reverse their action. These officers should receive their appointments through the Treasury Department, and be responsible to its head. It is a fundamental error in administration, to place in one of the Departments officers deriving their appointment from another Department.

Should the Attorney General transfer these officers to the Department of Justice, as appears to have been contemplated by the act, this Department would be deprived substantially of their services. I earnestly recommend the restoration of these officers to their former positions in the Treasury.

The examination of persons designated for clerical service, and for promotion in the Treasury Department, has been continued, with beneficial results; and the examination is even more exacting in its requirements than at the date of my last annual report. Means will be taken to extend the system, with such modifications as the difference of duties may suggest, but with equal efficiency, if possible, to the principal custom-houses, and to other branches of the public service under the control of this Department.

On the 28th of February last public notice was given that on the 6th of the following March books would be opened in this country and in Europe for subscriptions to the National Loan, under the act approved July 14, 1870, and the conditions on which the subscriptions would be received were also made known. All the national banks, and a large number of bankers both in this country and in Europe, were authorized to receive subscriptions. The first preference was given to subscribers to the five per cent. bonds, within the limit of two hundred millions of dollars. On the 1st of August the subscriptions amounted to sixty-five millions seven hundred and seventy-five thousand five hundred and fifty dollars, chiefly by the national banks.

Under date of July 14, 1871, a despatch was received from Hon. William A. Richardson, Assistant Secretary of the Treasury, then in London, stating that certain bankers in Europe proposed to take the remainder of the two hundred millions of five per cents. upon certain conditions. This proposition was considered and modified, and early in August an agreement was made with Messrs. Jay Cooke & Co., representing bankers in Europe and in the United States. By the terms of the agreement, the parties represented by Messrs. Jay Cooke & Co. had the right to subscribe for the remainder of the two hundred millions of said bonds, by giving notice thereof, at any time previous to the first of April next, and by subscribing for ten millions at once and for an average of at least five millions of dollars of bonds per month during the intervening time, subject to the right of the national banks to subscribe for fifty millions of dollars within sixty days from the 25th day of August.

It was also agreed that the subscriptions should all be made through national banks, and certificates of deposit therefor issued by said banks to the Secretary of the Treasury, bonds to be lodged with the Treasurer of the United States for the amount of the deposit. By a printed circular issued on the 10th of August, 1871, it was announced that national banks making or obtaining subscriptions, payable in coin, would be designated by the Secretary of the Treasury as depositaries of public money, on the usual condition of placing in the hands of the Treasurer of the United States bonds of the United States for the security of such deposits; and that, at the commencement of each month, notice would be given of the redemption of an amount of bonds equal to the amount of subscriptions in coin for the preceding month, interest to cease in ninety days from the date of such notice.

It was also stated in the circular that, as the bonds called should mature, the deposits would be drawn from the several banks proportionately.

It was further agreed that the subscribers to the loan should receive as commissions whatever might remain of the half of one per cent, allowed by law upon the two hundred millions, after paying the cost of paper for the bonds, for engraving, printing, advertising, delivery, and all other expenses of the same.

Under this agreement the books were opened in this country and in Europe, and by the last of August subscriptions were obtained for the entire amount offered.

On the first of September public notice was given that certain five-twenty bonds, to the amount of one hundred millions of dollars, of the issue of 1862, specified by number as nearly as was practicable, according to the provisions of the act of July 14, 1870, would be paid on the first of December, and that the interest would cease on that date. Of the bonds so called, more than eighty millions of dollars are now in the possession of the Department; of which amount, seventeen millions of dollars have been paid in coin, and the remainder have been received or deposited in exchange for the five per cent, bonds.

Previous to September five per cent, bonds to the amount of $62,139,550, had been issued and payment made therefor. The work of delivering the bonds subscribed for at that date is now going on, and under such circumstances as to leave no doubt that the whole business will be concluded in a brief period of time.

By the act establishing the national banking system, the Secretary of the Treasury was authorized to make them depositaries of any public money, except receipts from customs; and the act authorizing the refunding of the national debt directed the Secretary of the Treasury to give three months’ notice of the payment of any bonds which, in such notice, might be specified and called for payment. In the same act it was provided that the money received for the new bonds should be used only in payment of bonds outstanding known as five-twenty bonds. The statute proceeded upon the idea that the holders of five-twenty bonds should receive three-months’ interest upon their bonds after notice should be given by the Government.

As this notice could be given safely only upon subscriptions already made or secured, the general necessary result, even in case the money were paid into and held in the Treasury of the United States, would be a loss of interest for three months.

On the 1st of August last the demand for the new bonds had nearly ceased; but, by the agreement referred to, the necessary loss to the Government incident to the refunding of the public debt was made the means of securing subscriptions to the amount of about one hundred and thirty millions of dollars.

The banks, or those represented by the banks, derived an advantage in the use of the amount of their subscriptions for three months, but this without other loss to the Government than what was incident to the negotiation of the loan under the law.

I am informed by Judge Richardson, and such is my own opinion, that the most serious obstacle in the way of negotiating the four and four-and-a-half per cent. bonds in Europe is the inadequacy of the commissions allowed. When the circular of the 28th of February last was issued, one or two leading European bankers declined to act as agents, and I am persuaded that others who accepted the agency failed to give that attention to the business which would have been bestowed upon it had the commissions corresponded more nearly to those usually received by them for the negotiation of public loans. The credit of the country is fully established in every financial centre of Europe, and the bonds of the United States can be negotiated at their market value in a larger number of cities than the bonds of any other country in the world. Under these circumstances, I think it my duty to advise such an allowance for commissions upon the four and four-and-a-half per cent. bonds as will secure the negotiation of them with the least possible delay. It needs no analysis of the subject to show that the interests of the country will be greatly promoted by the proceeding, even though the commissions should seem to be unnecessarily large. I also recommend that authority be given for the payment of interest in London. This can be done without the least cost or risk to the Government.

Returns for the fiscal year 1870–’71 show that the ocean commerce of the United States is passing rapidly into the hands of foreign merchants and shipbuilders. In the year 1860, nearly seventy-one per cent. of the foreign commerce of this country was in American ships; in 1864, it had fallen to forty-six per cent.; in 1868, to forty-four per cent.; and in 1871, it is reported at less than thirty-eight per cent.

The loss of the shipping of the United States is due chiefly to two causes—first, the destruction of American vessels by rebel cruisers during the war; and, secondly, the substitution of iron steamships for the transportation of freight and passengers upon the ocean, in place of sailing vessels and steamships built of wood.

When the war opened English builders of iron steamships had acquired considerable proficiency, and since that period the art has been carried to higher perfection in Great Britain than in any other part of the world. It is stated that the superiority of British machinery and knowledge of the business by British mechanics give an advantage over American shipbuilders equal at least to ten per cent. upon the cost of construction. They possess additional advantages in the cost of labor, the cost of iron, coal, and other materials, and in the rate of interest upon the capital employed, equal in all to about twenty per cent. more, so that the difference in favor of British shipbuilders is at least thirty per cent.

In considering the means for the restoration of our ocean commerce, two facts must be accepted: First, that it is useless to attempt to revive it with wooden ships; and, secondly, that iron ships moved by sails cannot compete with iron ships propelled by steam. Hence, the only practical questions for consideration are these: Can the construction of iron steamships be established in this country, and, if so, by what means?

The trans-ocean commerce of the United States would employ about six million tons of shipping, if each vessel made but one round voyage in a year. The value of our exports and imports has already reached the sum of nearly eleven hundred millions of dollars, and during the present decade it will exceed fifteen hundred millions of dollars annually. The annual returns for freight and passengers are about one hundred millions of dollars.

The history of the loss of our commerce, as shown in the statistics already given, renders it certain that without some efficient action on the part of the Government, the entire foreign trade of the country will soon pass into the hands of our rivals.

The monopoly of the trade between the United States and Europe by foreign merchants and shipbuilders carries with it the monopoly of shipbuilding for the entire world, and, as a consequence, the Atlantic trade, the trade of the Pacific, and the seas adjacent thereto, will be carried on in English-built steamers.

An alteration of the law by which foreign-built vessels may be admitted to American registry will furnish no adequate relief. On the contrary, the change would stimulate shipbuilding in England, while the prospect of establishing it on this continent would diminish in proportion to the prosperity of the business in the ship-yards of our rivals.

In view of the facts of our extensive coast upon the Atlantic and Pacific oceans, and our position with reference to Europe and Asia, the country ought not to be satisfied with any policy which does not look to the establishment and continuance of shipbuilding in the United States, the encouragement of our own seamen and merchants, and the control of so much, at least, of the commerce of the world as is derived from the export of our products and the importation of articles required for domestic consumption.

The removal of duties upon foreign articles used in the construction of iron steamships, or the allowance of a drawback equal to the amount of duties paid, will not, in the existing condition of things, secure the reëstablishment of the business. But were it otherwise, the removal of duties or the allowance of drawback raises practical questions of great difficulty, while any concession by an indirect process is likely in the end to prove unnecessarily expensive to the country. Several of the existing lines of European steamers were established by the aid of Government subsidies. They are still encouraged by the same means; and it is unreasonable to expect that our merchants and shipbuilders can successfully compete with this formidable combination, unless they are supported by the power of their own Government.

After careful consideration of the whole subject, I am prepared to advise the passage of a law guaranteeing to persons who may employ in the foreign trade American-built first-class iron steamships of not less than two thousand tons burden each, an annual payment, for the period of five years, of the sum of thirteen dollars per ton. The subsidy should be proportionately less to vessels of lower classification.

In making this recommendation, I do not assume that there is no other practicable method of restoring our commerce, but I present it as the method which appears to me to be the most efficient and economical.

Connected with this plan, it will be wise to consider whether the ships may not be so constructed as to be available for naval purposes, and, in case of war, subject to the right of the United States to take them upon payment of their appraised value. A similar suggestion was made by the Secretary of the Navy in his report for the year 1869. They should also be required to carry the mails upon moderate terms, or in consideration of the subsidy.

The use of sailing vessels and steamers built of wood may be continued successfully in the coasting trade, the trade with the British possessions, and upon the rivers and lakes of the country; but any effort to regain our former position upon the ocean by their agency must end disastrously.

I entertain the opinion that the policy suggested will be effectual, and that in a comparatively short period our mechanics and artisans will acquire equal skill with those of England, and that we shall not only have the aid of the best machinery now in use elsewhere, but that important improvements will be made, calculated to place the country in a position of superiority.

We shall also be able to test practically the quality of American iron, which, for the purpose of shipbuilding, is represented as better than that used in Great Britain.

If it shall appear, as is claimed, that American iron is about ten per cent. better than the iron used in England, an advantage will be secured, not only in the diminished cost of the vessels, but also in the increased tonnage capacity of American ships of equal dimensions over those constructed with inferior materials.

Accepting as a truth, established by experience, that the ocean commerce of the world is to be carried on in iron steamships, we must consider and decide whether the United States shall disappear from the list of maritime nations, or whether, by a determined and practical effort, we can regain the position which we occupied previous to the late rebellion.

GEO. S. BOUTWELL, Secretary of the Treasury.

Hon. James G. Blaine, Speaker of the House of Representatives.

1. This is the net amount after deducting $8,280,093 13 repaid into the Treasury as proceeds of sales of ordnance,etc.The true expenditures-were $44,080,084 95.