Speech Transcript:

Fellow-Citizens of the Senate and House of Representatives:

Upon the reassembling of Congress it again becomes my duty to call
your attention to the state of the Union and to its continued
disorganized condition under the various laws which have been passed
upon the subject of reconstruction.

It may be safely assumed as an axiom in the government of states that
the greatest wrongs inflicted upon a people are caused by unjust and
arbitrary legislation, or by the unrelenting decrees of despotic
rulers, and that the timely revocation of injurious and oppressive
measures is the greatest good that can be conferred upon a nation.
The legislator or ruler who has the wisdom and magnanimity to retrace
his steps when convinced of error will sooner or later be rewarded
with the respect and gratitude of an intelligent and patriotic
people.

Our own history, although embracing a period less than a century,
affords abundant proof that most, if not all, of our domestic
troubles are directly traceable to violations of the organic law and
excessive legislation. The most striking illustrations of this fact
are furnished by the enactments of the past three years upon the
question of reconstruction. After a fair trial they have
substantially failed and proved pernicious in their results, and
there seems to be no good reason why they should longer remain upon
the statute book. States to which the Constitution guarantees a
republican form of government have been reduced to military
dependencies in each of which the people have been made subject to
the arbitrary will of the commanding general. Although the
Constitution requires that each State shall be represented in
Congress, Virginia, Mississippi, and Texas are yet excluded from the
two Houses, and, contrary to the express provisions of that
instrument were denied participation in the recent election for a
President and Vice-President of the United States. The attempt to
place the white population under the domination of persons of color
in the South has impaired, if not destroyed, the kindly relations
that had previously existed between them: and mutual distrust has
engendered a feeling of animosity which leading in some instances to
collision and bloodshed, has prevented that cooperation between the
two races so essential to the success of industrial enterprise in the
Southern States. Nor have the inhabitants of those States alone
suffered from the disturbed condition of affairs growing out of these
Congressional enactments. The entire Union has been agitated by grave
apprehensions of troubles which might again involve the peace of the
nation; its interests have been injuriously affected by the
derangement of business and labor, and the consequent want of
prosperity throughout that portion of the country.

The Federal Constitution--the magna charta of American rights, under
whose wise and salutary provisions we have successfully conducted all
our domestic and foreign affairs, sustained ourselves in peace and in
war, and become a great nation among the powers of the earth--must
assuredly be now adequate to the settlement of questions growing out
of the civil war, waged alone for its vindication. This great fact is
made most manifest by the condition of the country when Congress
assembled in the month of December, 1865. Civil strife had ceased,
the spirit of rebellion had spent its entire force, in the Southern
States the people had warmed into national life, and throughout the
whole country a healthy reaction in public sentiment had taken place.
By the application of the simple yet effective provisions of the
Constitution the executive department, with the voluntary aid of the
States, had brought the work of restoration as near completion as was
within the scope of its authority, and the nation was encouraged by
the prospect of an early and satisfactory adjustment of all its
difficulties. Congress, however, intervened, and, refusing to perfect
the work so nearly consummated, declined to admit members from the
unrepresented States, adopted a series of measures which arrested the
progress of restoration, frustrated all that had been so successfully
accomplished, and, after three years of agitation and strife, has
left the country further from the attainment of union and fraternal
feeling than at the inception of the Congressional plan of
reconstruction. It needs no argument to show that legislation which
has produced such baneful consequences should be abrogated, or else
made to conform to the genuine principles of republican government.

Under the influence of party passion and sectional prejudice, other
acts have been passed not warranted by the Constitution. Congress has
already been made familiar with my views respecting the
"tenure-of-office bill." Experience has proved that its repeal is
demanded by the best interests of the country, and that while it
remains in force the President can not enjoin that rigid
accountability of public officers so essential to an honest and
efficient execution of the laws. Its revocation would enable the
executive department to exercise the power of appointment and removal
in accordance with the original design of the Federal Constitution.

The act of March 2, 1867, making appropriations for the support of
the Army for the year ending June 30, 1868, and for other purposes,
contains provisions which interfere with the President's
constitutional functions as Commander in Chief of the Army and deny
to States of the Union the right to protect themselves by means of
their own militia. These provisions should be at once annulled; for
while the first might, in times of great emergency, seriously
embarrass the Executive in efforts to employ and direct the common
strength of the nation for its protection and preservation, the other
is contrary to the express declaration of the Constitution that "a
well-regulated militia being necessary to the security of a free
state, the right of the people to keep and bear arms shall not be
infringed."

It is believed that the repeal of all such laws would be accepted by
the American people as at least a partial return to the fundamental
principles of the Government, and an indication that hereafter the
Constitution is to be made the nation's safe and unerring guide. They
can be productive of no permanent benefit to the country, and should
not be permitted to stand as so many monuments of the deficient
wisdom which has characterized our recent legislation.

The condition of our finances demands the early and earnest
consideration of Congress. Compared with the growth of our
population, the public expenditures have reached an amount
unprecedented in our history.

The population of the United States in 1790 was nearly 4,000,000
people. Increasing each decade about 33 per cent, it reached in 1860
31,000,000, an increase of 700 per cent on the population in 1790. In
1869 it is estimated that it will reach 38,000,000, or an increase of
868 per cent in seventy-nine years.

The annual expenditures of the Federal Government in 1791 were
$4,200,000; in 1820, $18.200,000; in 1850, forty-one millions; in
1860, sixty-three millions; in 1865, nearly thirteen hundred
millions; and in 1869 it is estimated by the Secretary of the
Treasury, in his last annual report, that they will be three hundred
and seventy-two millions.

By comparing the public disbursements of 1869, as estimated, with
those of 1791, it will be seen that the increase of expenditure since
the beginning of the Government has been 8,618 per cent, while the
increase of the population for the same period was only 868 per cent.
Again, the expenses of the Government in 1860, the year of peace
immediately preceding the war, were only sixty--three millions, while
in 1869, the year of peace three years after the war it is estimated
they will be three hundred and seventy-two millions, an increase of
489 per cent, while the increase of population was only 21 per cent
for the same period.

These statistics further show that in 1791 the annual national
expenses, compared with the population, were little more than $1 per
capita, and in 1860 but $2 per capita; while in 1869 they will reach
the extravagant sum of $9.78 per capita.

It will be observed that all these statements refer to and exhibit
the disbursements of peace periods. It may, therefore, be of interest
to compare the expenditures of the three war periods--the war with
Great Britain, the Mexican War, and the War of the Rebellion.

In 1814 the annual expenses incident to the War of 1812 reached their
highest amount--about thirty-one millions--while our population
slightly exceeded 8,000,000, showing an expenditure of only $3.80 per
capita. In 1847 the expenditures growing out of the war with Mexico
reached fifty-five millions, and the population about 21,000,000,
giving only $2.60 per capita for the war expenses of that year. In
1865 the expenditures called for by the rebellion reached the vast
amount of twelve hundred and ninety millions, which, compared with a
population of 34,000,000, gives $38.20 per capita.

From the 4th day of March, 1789, to the 30th of June, 1861, the
entire expenditures of the Government were $1,700,000,000. During
that period we were engaged in wars with Great Britain and Mexico,
and were involved in hostilities with powerful Indian tribes;
Louisiana was purchased from France at a cost of $15,000,000; Florida
was ceded to us by Spain for five millions; California was acquired
from Mexico for fifteen millions, and the territory of New Mexico was
obtained from Texas for the sum of ten millions. Early in 1861 the War
of the Rebellion commenced; and from the 1st of July of that year to
the 30th of June, 1865, the public expenditures reached the enormous
aggregate of thirty-three hundred millions. Three years of peace have
intervened, and during that time the disbursements of the Government
have successively been five hundred and twenty millions, three
hundred and forty-six millions, and three hundred and ninety-three
millions. Adding to these amounts three hundred and seventy-two
millions, estimated as necessary for the fiscal year ending the 30th
of June, 1869, we obtain a total expenditure of $1,600,000,000 during
the four years immediately succeeding the war, or nearly as much as
was expended during the seventy-two years that preceded the rebellion
and embraced the extraordinary expenditures already named.

These startling facts clearly illustrate the necessity of
retrenchment in all branches of the public service. Abuses which were
tolerated during the war for the preservation of the nation will not
be endured by the people, now that profound peace prevails. The
receipts from internal revenues and customs have during the past
three years gradually diminished, and the continuance of useless and
extravagant expenditures will involve us in national bankruptcy, or
else make inevitable an increase of taxes already too onerous and in
many respects obnoxious on account of their inquisitorial character.
One hundred millions annually are expended for the military force, a
large portion of which is employed in the execution of laws both
unnecessary and unconstitutional; one hundred and fifty millions are
required each year to pay the interest on the public debt: an army of
taxgatherers impoverishes the nation, and public agents, placed by
Congress beyond the control of the Executive, divert from their
legitimate purposes large sums of money which they collect from the
people in the name of the Government. Judicious legislation and
prudent economy can alone remedy defects and avert evils which, if
suffered to exist, can not fail to diminish confidence in the public
councils and weaken the attachment and respect of the people toward
their political institutions. Without proper care the small balance
which it is estimated will remain in the Treasury at the close of the
present fiscal year will not be realized, and additional millions be
added to a debt which is now enumerated by billions.

It is shown by the able and comprehensive report of the Secretary of
the Treasury that the receipts for the fiscal year ending June 30,
1868, were $405,638,083, and that the expenditures for the same
period were $377,340,284, leaving in the Treasury a surplus of
$28,297,798. It is estimated that the receipts during the present
fiscal year, ending June 30, 1869, will be $341,392,868 and the
expenditures $336,152,470, showing a small balance of $5,240,398 in
favor of the Government. For the fiscal year ending June 30, 1870, it
is estimated that the receipts will amount to $327,000,000 and the
expenditures to $303,000,000, leaving an estimated surplus of
$24,000,000.

It becomes proper in this connection to make a brief reference to our
public indebtedness, which has accumulated with such alarming rapidity
and assumed such colossal proportions.

In 1789, when the Government commenced operations under the Federal
Constitution, it was burdened with an indebtedness of $75,000,000,
created during the War of the Revolution. This amount had been
reduced to $45,000,000 when, in 1812, war was declared against Great
Britain. The three years' struggle that followed largely increased
the national obligations, and in 1816 they had attained the sum of
$127,000,000. Wise and economical legislation, however, enabled the
Government to pay the entire amount within a period of twenty years,
and the extinguishment of the national debt filled the land with
rejoicing and was one of the great events of President Jackson's
Administration. After its redemption a large fund remained in the
Treasury, which was deposited for safe-keeping with the several
States. on condition that it should be returned when required by the
public wants. In 1849--the year after the termination of an expensive
war with Mexico--we found ourselves involved in a debt of $64,000,000;
and this was the amount owed by the Government in 1860, just prior to
the outbreak of the rebellion. In the spring of 1861 our civil war
commenced. Each year of its continuance made an enormous addition to
the debt: and when in the spring of 1865, the nation successfully
emerged from the conflict, the obligations of the Government had
reached the immense sum of $2.873,992,909. The Secretary of the
Treasury shows that on the 1st day of November, 1867, this amount had
been reduced to $2,491,504,450; but at the same time his report
exhibits an increase during the past year of $35,625,102, for the
debt on the 1st day of November last is stated to have been
$2,527,129,552. It is estimated by the Secretary that the returns for
the past month will add to our liabilities the further sum of
$11,000,000, making a total increase during thirteen months of
$46,500,000.

In my message to Congress December 4, 1865, it was suggested that a
policy should be devised which, without being oppressive to the
people, would at once begin to effect a reduction of the debt, and,
if persisted in, discharge it fully within a definite number of
years. The Secretary of the Treasury forcibly recommends legislation
of this character, and justly urges that the longer it is deferred
the more difficult must become its accomplishment. We should follow
the wise precedents established in 1789 and 1816, and without further
delay make provision for the payment of our obligations at as early a
period as may be practicable. The fruits of their labors should be
enjoyed by our citizens rather than used to build up and sustain
moneyed monopolies in our own and other lands. Our foreign debt is
already computed by the Secretary of the Treasury at $850,000,000;
citizens of foreign countries receive interest upon a large portion
of our securities, and American taxpayers are made to contribute
large sums for their support. The idea that such a debt is to become
permanent should be at all times discarded as involving taxation too
heavy to be borne, and payment once in every sixteen years, at the
present rate of interest, of an amount equal to the original sum.
This vast debt, if permitted to become permanent and increasing, must
eventually be gathered into the hands of a few, and enable them to
exert a dangerous and controlling power in the affairs of the
Government. The borrowers would become servants to the lenders, the
lenders the masters of the people. We now pride ourselves upon having
given freedom to 4,000,000 of the colored race; it will then be our
shame that 40,000,000 of people, by their own toleration of
usurpation and profligacy, have suffered themselves to become
enslaved, and merely exchanged slave owners for new taskmasters in
the shape of bondholders and taxgatherers. Besides, permanent debts
pertain to monarchical governments, and, tending to monopolies,
perpetuities, and class legislation, are totally irreconcilable with
free institutions introduced into our republican system, they would
gradually but surely sap its foundations, eventually subvert our
governmental fabric, and erect upon its ruins a moneyed aristocracy.
It is our sacred duty to transmit unimpaired to our posterity the
blessings of liberty which were bequeathed to us by the founders of
the Republic. and by our example teach those who are to follow us
carefully to avoid the dangers which threaten a free and independent
people.

Various plans have been proposed for the payment of the public debt.
However they may have varied as to the time and mode in which it
should be redeemed, there seems to be a general concurrence as to the
propriety and justness of a reduction in the present rate of interest.
The Secretary of the Treasury in his report recommends 5 per cent;
Congress, in a bill passed prior to adjournment on the 27th of July
last, agreed upon 4 and 4 1/2 per cent; while by many 3 per cent has
been held to be an amply sufficient return for the investment. The
general impression as to the exorbitancy of the existing rate of
interest has led to an inquiry in the public mind respecting the
consideration which the Government has actually received for its
bonds, and the conclusion is becoming prevalent that the amount which
it obtained was in real money three or four hundred per cent less than
the obligations which it issued in return. It can not be denied that
we are paying an extravagant percentage for the use of the money
borrowed, which was paper currency, greatly depreciated below the
value of coin. This fact is made apparent when we consider that
bondholders receive from the Treasury upon each dollar they own in
Government securities 6 per cent in gold, which is nearly or quite
equal to 9 per cent in currency; that the bonds are then converted
into capital for the national banks, upon which those institutions
issue their circulation, bearing 6 per cent interest; and that they
are exempt from taxation by the Government and the States, and
thereby enhanced 2 per cent in the hands of the holders. We thus have
an aggregate of 17 per cent which may be received upon each dollar by
the owners of Government securities. A system that produces such
results is justly regarded as favoring a few at the expense of the
many, and has led to the further inquiry whether our bondholders, in
view of the large profits which they have enjoyed, would themselves
be averse to a settlement of our indebtedness upon a plan which would
yield them a fair remuneration and at the same time be just to the
taxpayers of the nation. Our national credit should be sacredly
observed, but in making provision for our creditors we should not
forget what is due to the masses of the people. It may be assumed
that the holders of our securities have already received upon their
bonds a larger amount than their original investment, measured by a
gold standard. Upon this statement of facts it would seem but just
and equitable that the 6 per cent interest now paid by the Government
should be applied to the reduction of the principal in semiannual
installments, which in sixteen years and eight months would liquidate
the entire national debt. Six per cent in gold would at present rates
be equal to 9 per cent in currency, and equivalent to the payment of
the debt one and a half times in a fraction less than seventeen
years. This, in connection with all the other advantages derived from
their investment, would afford to the public creditors a fair and
liberal compensation for the use of their capital, and with this they
should be satisfied. The lessons of the past admonish the lender that
it is not well to be over-anxious in exacting from the borrower rigid
compliance with the letter of the bond.

If provision be made for the payment of the indebtedness of the
Government in the manner suggested, our nation will rapidly recover
its wonted prosperity. Its interests require that some measure should
be taken to release the large amount of capital invested in the
securities of the Government. It is not now merely unproductive, but
in taxation annually consumes $150,000,000, which would otherwise be
used by our enterprising people in adding to the wealth of the
nation. Our commerce, which at one time successfully rivaled that of
the great maritime powers, has rapidly diminished, and our industrial
interests are in a depressed and languishing condition. The
development of our inexhaustible resources is checked, and the
fertile fields of the South are becoming waste for want of means to
till them. With the release of capital, new life would be infused
into the paralyzed energies of our people and activity and vigor
imparted to every branch of industry. Our people need encouragement
in their efforts to recover from the effects of the rebellion and of
injudicious legislation, and it should be the aim of the Government
to stimulate them by the prospect of an early release from the
burdens which impede their prosperity. If we can not take the burdens
from their shoulders, we should at least manifest a willingness to
help to bear them.

In referring to the condition of the circulating medium, I shall
merely reiterate substantially that portion of my last annual message
which relates to that subject.

The proportion which the currency of any country should bear to the
whole value of the annual produce circulated by its means is a
question upon which political economists have not agreed. Nor can it
be controlled by legislation, but must be left to the irrevocable
laws which everywhere regulate commerce and trade. The circulating
medium will ever irresistibly flow to those points where it is in
greatest demand. The law of demand and supply is as unerring as that
which regulates the tides of the ocean; and, indeed, currency, like
the tides, has its ebbs and flows throughout the commercial world.

At the beginning of the rebellion the bank-note circulation of the
country amounted to not much more than $200,000,000; now the
circulation of national-bank notes and those known as "legal-tenders"
is nearly seven hundred millions. While it is urged by some that this
amount should be increased, others contend that a decided reduction
is absolutely essential to the best interests of the country. In view
of these diverse opinions, it may be well to ascertain the real value
of our paper issues when compared with a metallic or convertible
currency. For this purpose let us inquire how much gold and silver
could be purchased by the seven hundred millions of paper money now
in circulation. Probably not more than half the amount of the latter;
showing that when our paper currency is compared with gold and silver
its commercial value is compressed into three hundred and fifty
millions. This striking fact makes it the obvious duty of the
Government, as early as may be consistent with the principles of
sound political economy, to take such measures as will enable the
holders of its notes and those of the national banks to convert them,
without loss, into specie or its equivalent. A reduction of our paper
circulating medium need not necessarily follow. This, however, would
depend upon the law of demand and supply, though it should be borne
in mind that by making legal-tender and bank notes convertible into
coin or its equivalent their present specie value in the hands of
their holders would be enhanced 100 per cent.

Legislation for the accomplishment of a result so desirable is
demanded by the highest public considerations. The Constitution
contemplates that the circulating medium of the country shall be
uniform in quality and value. At the time of the formation of that
instrument the country had just emerged from the War of the
Revolution, and was suffering from the effects of a redundant and
worthless paper currency. The sages of that period were anxious to
protect their posterity from the evils which they themselves had
experienced. Hence in providing a circulating medium they conferred
upon Congress the power to coin money and regulate the value thereof,
at the same time prohibiting the States from making anything but gold
and silver a tender in payment of debts.

The anomalous condition of our currency is in striking contrast with
that which was originally designed. Our circulation now embraces,
first, notes of the national banks, which are made receivable for all
dues to the Government, excluding imposts, and by all its creditors,
excepting in payment of interest upon its bonds and the securities
themselves; second, legal tender, issued by the United States, and
which the law requires shall be received as well in payment of all
debts between citizens as of all Government dues, excepting imposts;
and, third, gold and silver coin. By the operation of our present
system of finance however, the metallic currency, when collected, is
reserved only for one class of Government creditors, who, holding its
bonds, semiannually receive their interest in coin from the National
Treasury. There is no reason which will be accepted as satisfactory
by the people why those who defend us on the land and protect us on
the sea; the pensioner upon the gratitude of the nation, bearing the
scars and wounds received while in its service; the public servants
in the various departments of the Government; the farmer who supplies
the soldiers of the Army and the sailors of the Navy; the artisan who
toils in the nation's workshops, or the mechanics and laborers who
build its edifices and construct its forts and vessels of war,
should, in payment of their just and hard-earned dues, receive
depreciated paper, while another class of their countrymen, no more
deserving are paid in coin of gold and silver. Equal and exact
justice requires that all the creditors of the Government should be
paid in a currency possessing a uniform value. This can only be
accomplished by the restoration of the currency to the standard
established by the Constitution, and by this means we would remove a
discrimination which may, if it has not already done so, create a
prejudice that may become deep-rooted and widespread and imperil the
national credit.

The feasibility of making our currency correspond with the
constitutional standard may be seen by reference to a few facts
derived from our commercial statistics.

The aggregate product of precious metals in the United States from
1849 to 1867 amounted to $1,174,000,000, while for the same period
the net exports of specie were $741,000,000. This shows an excess of
product over net exports of $433,000,000. There are in the Treasury
$103,407,985 in coin; in circulation in the States on the Pacific
Coast about $40,000,000, and a few millions in the national and other
banks--in all less than $160,000,000. Taking into consideration the
specie in the country prior to 1849 and that produced since 1867, and
we have more than $300,000,000 not accounted for by exportation or by
returns of the Treasury, and therefore most probably remaining in the
country.

These are important facts, and show how completely the inferior
currency will supersede the better, forcing it from circulation among
the masses and causing it to be exported as a mere article of trade,
to add to the money capital of foreign lands. They show the necessity
of retiring our paper money, that the return of gold and silver to the
avenues of trade may be invited and a demand created which will cause
the retention at home of at least so much of the productions of our
rich and inexhaustible gold-bearing fields as may be sufficient for
purposes of circulation. It is unreasonable to expect a return to a
sound currency so long as the Government and banks, by continuing to
issue irredeemable notes, fill the channels of circulation with
depreciated paper. Notwithstanding a coinage by our mints since 1849
of $874,000,000, the people are now strangers to the currency which
was designed for their use and benefit, and specimens of the precious
metals bearing the national device are seldom seen, except when
produced to gratify the interest excited by their novelty. If
depreciated paper is to be continued as the permanent currency of the
country, and all our coin is to become a mere article of traffic and
speculation to the enhancement in price of all that is indispensable
to the comfort of the people, it would be wise economy to abolish our
mints, thus saving the nation the care and expense incident to such
establishments, and let our precious metals be exported in bullion.
The time has come, however, when the Government and national banks
should be required to take the most efficient steps and make all
necessary arrangements for a resumption of specie payments. Let
specie payments once be earnestly inaugurated by the Government and
banks, and the value of the paper circulation would directly
approximate a specie standard.

Specie payments having been resumed by the Government and banks, all
notes or bills of paper issued by either of a less denomination than
$20 should by law be excluded from circulation, so that the people
may have the benefit and convenience of a gold and silver currency
which in all their business transactions will be uniform in value at
home and abroad. Every man of property or industry, every man who
desires to preserve what he honestly possesses or to obtain what he
can honestly earn, has a direct interest in maintaining a safe
circulating medium--such a medium as shall be real and substantial,
not liable to vibrate with opinions, not subject to be blown up or
blown down by the breath of speculation, but to be made stable and
secure. A disordered currency is one of the greatest political evils.
It undermines the virtues necessary for the support of the social
system and encourages propensities destructive of its happiness; it
wars against industry, frugality, and economy, and it fosters the
evil spirits of extravagance and speculation. It has been asserted by
one of our profound and most gifted statesmen that--Of all the
contrivances for cheating the laboring classes of mankind, none has
been more effectual than that which deludes them with paper money.
This is the most effectual of inventions to fertilize the rich man's
fields by the sweat of the poor man's brow. Ordinary tyranny,
oppression, excessive taxation--these bear lightly on the happiness
of the mass of the community compared with a fraudulent currency and
the robberies committed by depreciated paper. Our own history has
recorded for our instruction enough, and more than enough, of the
demoralizing tendency, the injustice, and the intolerable oppression
on the virtuous and well-disposed of a degraded paper currency
authorized by law or in any way countenanced by government. It is one
of the most successful devices, in times of peace or war, of
expansions or revulsions, to accomplish the transfer of all the
precious metals from the great mass of the people into the hands of
the few, where they are hoarded in secret places or deposited under
bolts and bars, while the people are left to endure all the
inconvenience, sacrifice, and demoralization resulting from the use
of depreciated and worthless paper.

The Secretary of the Interior in his report gives valuable
information in reference to the interests confided to the supervision
of his Department, and reviews the operations of the Land Office,
Pension Office, Patent Office, and Indian Bureau.

During the fiscal year ending June 30. 1868, 6,655,700 acres of
public land were disposed of. The entire cash receipts of the General
Land Office for the same period were $1,632,745, being greater by
$284,883 than the amount realized from the same sources during the
previous year. The entries under the homestead law cover 2,328,923
acres, nearly one-fourth of which was taken under the act of June 21,
1866, which applies only to the States of Alabama, Mississippi,
Louisiana, Arkansas, and Florida.

On the 30th of June, 1868, 169,643 names were borne on the pension
rolls, and during the year ending on that day the total amount paid
for pensions, including the expenses of disbursement, was
$24,010,982, being $5,391,025 greater than that expended for like
purposes during the preceding year.

During the year ending the 30th of September last the expenses of the
Patent Office exceeded the receipts by $171, and, including reissues
and designs, 14,153 patents were issued.

Treaties with various Indian tribes have been concluded, and will be
submitted to the Senate for its constitutional action. I cordially
sanction the stipulations which provide for reserving lands for the
various tribes, where they may be encouraged to abandon their nomadic
habits and engage in agricultural and industrial pursuits. This
policy, inaugurated many years since, has met with signal success
whenever it has been pursued in good faith and with becoming
liberality by the United States. The necessity for extending it as
far as practicable in our relations with the aboriginal population is
greater now than at any preceding period. Whilst we furnish
subsistence and instruction to the Indians and guarantee the
undisturbed enjoyment of their treaty rights, we should habitually
insist upon the faithful observance of their agreement to remain
within their respective reservations. This is the only mode by which
collisions with other tribes and with the whites can be avoided and
the safety of our frontier settlements secured.

The companies constructing the railway from Omaha to Sacramento have
been most energetically engaged in prosecuting the work, and it is
believed that the line will be completed before the expiration of the
next fiscal year. The 6 per cent bonds issued to these companies
amounted on the 5th instant to $44,337,000, and additional work had
been performed to the extent of $3,200,000.

The Secretary of the Interior in August last invited my attention to
the report of a Government director of the Union Pacific Railroad
Company who had been specially instructed to examine the location,
construction, and equipment of their road. I submitted for the
opinion of the Attorney-General certain questions in regard to the
authority of the Executive which arose upon this report and those
which had from time to time been presented by the commissioners
appointed to inspect each successive section of the work. After
carefully considering the law of the case, he affirmed the right of
the Executive to order, if necessary, a thorough revision of the
entire road. Commissioners were thereupon appointed to examine this
and other lines, and have recently submitted a statement of their
investigations, of which the report of the Secretary of the Interior
furnishes specific information.

The report of the Secretary of War contains information of interest
and importance respecting the several bureaus of the War Department
and the operations of the Army. The strength of our military force on
the 30th of September last was 48,000 men, and it is computed that by
the 1st of January next this number will be decreased to 43,000. It
is the opinion of the Secretary of War that within the next year a
considerable diminution of the infantry force may be made without
detriment to the interests of the country; and in view of the great
expense attending the military peace establishment and the absolute
necessity of retrenchment wherever it can be applied, it is hoped
that Congress will sanction the reduction which his report
recommends. While in 1860 sixteen thousand three hundred men cost the
nation $16,472,000, the sum of $65,682,000 is estimated as necessary
for the support of the Army during the fiscal year ending June 30,
1870. The estimates of the War Department for the last two fiscal
years were, for 1867, $33,814,461, and for 1868 $25,205,669. The
actual expenditures during the same periods were, respectively,
$95,224,415 and $123,246,648. The estimate submitted in December last
for the fiscal year ending June 30, 1869, was $77,124,707; the
expenditures for the first quarter, ending the 30th of September
last, were $27,219,117, and the Secretary of the Treasury gives
$66,000,000 as the amount which will probably be required during the
remaining three quarters, if there should be no reduction of the
Army--making its aggregate cost for the year considerably in excess
of ninety-three millions. The difference between the estimates and
expenditures for the three fiscal years which have been named is thus
shown to be $175,545,343 for this single branch of the public
service.

The report of the Secretary of the Navy exhibits the operations of
that Department and of the Navy during the year. A considerable
reduction of the force has been effected. There are 42 vessels,
carrying 411 guns, in the six squadrons which are established in
different parts of the world. Three of these vessels are returning to
the United States and 4 are used as storeships, leaving the actual
cruising force 35 vessels, carrying 356 guns. The total number of
vessels in the Navy is 206, mounting 1,743 guns. Eighty-one vessels
of every description are in use, armed with 696 guns. The number of
enlisted men in the service, including apprentices, has been reduced
to 8,500. An increase of navy-yard facilities is recommended as a
measure which will in the event of war be promotive of economy and
security. A more thorough and systematic survey of the North Pacific
Ocean is advised in view of our recent acquisitions, our expanding
commerce, and the increasing intercourse between the Pacific States
and Asia. The naval pension fund, which consists of a moiety of the
avails of prizes captured during the war, amounts to $14,000,000.
Exception is taken to the act of 23d July last, which reduces the
interest on the fund loaned to the Government by the Secretary, as
trustee, to 3 per cent instead of 6 per cent, which was originally
stipulated when the investment was made. An amendment of the pension
laws is suggested to remedy omissions and defects in existing
enactments. The expenditures of the Department during the last fiscal
year were $20,120,394, and the estimates for the coming year amount to
$20,993,414.

The Postmaster-General's report furnishes a full and clear exhibit of
the operations and condition of the postal service. The ordinary
postal revenue for the fiscal year ending June 30, 1868. was
$16,292,600, and the total expenditures, embracing all the service
for which special appropriations have been made by Congress, amounted
to $22,730,592, showing an excess of expenditures of $6,437,991.
Deducting from the expenditures the sum of $1,896,525, the amount of
appropriations for ocean-steamship and other special service, the
excess of expenditures was $4,541,466. By using an unexpended balance
in the Treasury of $3,800,000 the actual sum for which a special
appropriation is required to meet the deficiency is $741,466. The
causes which produced this large excess of expenditure over revenue
were the restoration of service in the late insurgent States and the
putting into operation of new service established by acts of
Congress, which amounted within the last two years and a half to
about 48,700 miles--equal to more than one-third of the whole amount
of the service at the close of the war. New postal conventions with
Great Britain, North Germany, Belgium, the Netherlands, Switzerland,
and Italy, respectively, have been carried into effect. Under their
provisions important improvements have resulted in reduced rates of
international postage and enlarged mail facilities with European
countries. The cost of the United States transatlantic ocean mail
service since January 1, 1868, has been largely lessened under the
operation of these new conventions, a reduction of over one-half
having been effected under the new arrangements for ocean mail
steamship service which went into effect on that date. The attention
of Congress is invited to the practical suggestions and
recommendations made in his report by the Postmaster-General.

No important question has occurred during the last year in our
accustomed cordial and friendly intercourse with Costa Rica,
Guatemala, Honduras, San Salvador, France, Austria, Belgium,
Switzerland, Portugal, the Netherlands, Denmark, Sweden and Norway,
Rome, Greece, Turkey, Persia, Egypt, Liberia, Morocco, Tripoli,
Tunis, Muscat, Siam, Borneo, and Madagascar.

Cordial relations have also been maintained with the Argentine and
the Oriental Republics. The expressed wish of Congress that our
national good offices might be tendered to those Republics, and also
to Brazil and Paraguay, for bringing to an end the calamitous war
which has so long been raging in the valley of the La Plata, has been
assiduously complied with and kindly acknowledged by all the
belligerents. That important negotiation, however, has thus far been
without result.

Charles A. Washburn, late United States minister to Paraguay, having
resigned, and being desirous to return to the United States, the
rear-admiral commanding the South Atlantic Squadron was early
directed to send a ship of war to Asuncion, the capital of Paraguay,
to receive Mr. Washburn and his family and remove them from a
situation which was represented to be endangered by faction and
foreign war. The Brazilian commander of the allied invading forces
refused permission to the Wasp to pass through the blockading forces,
and that vessel returned to its accustomed anchorage. Remonstrance
having been made against this refusal, it was promptly overruled, and
the Wasp therefore resumed her errand, received Mr. Washburn and his
family, and conveyed them to a safe and convenient seaport. In the
meantime an excited controversy had arisen between the President of
Paraguay and the late United States minister, which, it is
understood, grew out of his proceedings in giving asylum in the
United States legation to alleged enemies of that Republic. The
question of the right to give asylum is one always difficult and
often productive of great embarrassment. In states well organized and
established, foreign powers refuse either to concede or exercise that
right, except as to persons actually belonging to the diplomatic
service. On the other hand, all such powers insist upon exercising
the right of asylum in states where the law of nations is not fully
acknowledged, respected, and obeyed.

The President of Paraguay is understood to have opposed to Mr.
Washburn's proceedings the injurious and very improbable charge of
personal complicity in insurrection and treason. The correspondence,
however, has not yet reached the United States.

Mr. Washburn, in connection with this controversy, represents that
two United States citizens attached to the legation were arbitrarily
seized at his side, when leaving the capital of Paraguay, committed
to prison, and there subjected to torture for the purpose of
procuring confessions of their own criminality and testimony to
support the President's allegation against the United States
minister. Mr. McMahon, the newly appointed minister to Paraguay,
having reached the La Plata, has been instructed to proceed without
delay to Asuncion, there to investigate the whole subject. The
rear-admiral commanding the United States South Atlantic Squadron has
been directed to attend the new minister with a proper naval force to
sustain such just demands as the occasion may require, and to
vindicate the rights of the United States citizens referred to and of
any others who may be exposed to danger in the theater of war. With
these exceptions, friendly relations have been maintained between the
United States and Brazil and Paraguay.

Our relations during the past year with Bolivia, Ecuador, Peru, and
Chile have become especially friendly and cordial. Spain and the
Republics of Peru, Bolivia, and Ecuador have expressed their
willingness to accept the mediation of the United States for
terminating the war upon the South Pacific coast. Chile has not
finally declared upon the question. In the meantime the conflict has
practically exhausted itself, since no belligerent or hostile
movement has been made by either party during the last two years, and
there are no indications of a present purpose to resume hostilities on
either side. Great Britain and France have cordially seconded our
proposition of mediation, and I do not forego the hope that it may
soon be accepted by all the belligerents and lead to a secure
establishment of peace and friendly relations between the Spanish
American Republics of the Pacific and Spain--a result which would be
attended with common benefits to the belligerents and much advantage
to all commercial nations. I communicate, for the consideration of
Congress, a correspondence which shows that the Bolivian Republic has
established the extremely liberal principle of receiving into its
citizenship any citizen of the United States, or of any other of the
American Republics, upon the simple condition of voluntary registry.

The correspondence herewith submitted will be found painfully replete
with accounts of the ruin and wretchedness produced by recent
earthquakes, of unparalleled severity, in the Republics of Peru,
Ecuador, and Bolivia. The diplomatic agents and naval officers of the
United States who were present in those countries at the time of those
disasters furnished all the relief in their power to the sufferers,
and were promptly rewarded with grateful and touching acknowledgments
by the Congress of Peru. An appeal to the charity of our
fellow-citizens has been answered by much liberality. In this
connection I submit an appeal which has been made by the Swiss
Republic, whose Government and institutions are kindred to our own,
in behalf of its inhabitants, who are suffering extreme destitution,
produced by recent devastating inundations.

Our relations with Mexico during the year have been marked by an
increasing growth of mutual confidence. The Mexican Government has
not yet acted upon the three treaties celebrated here last summer for
establishing the rights of naturalized citizens upon a liberal and
just basis, for regulating consular powers, and for the adjustment of
mutual claims.

All commercial nations, as well as all friends of republican
institutions, have occasion to regret the frequent local disturbances
which occur in some of the constituent States of Colombia. Nothing has
occurred, however, to affect the harmony and cordial friendship which
have for several years existed between that youthful and vigorous
Republic and our own.

Negotiations are pending with a view to the survey and construction
of a ship canal across the Isthmus of Darien, under the auspices of
the United States. I hope to be able to submit the results of that
negotiation to the Senate during its present session.

The very liberal treaty which was entered into last year by the
United States and Nicaragua has been ratified by the latter
Republic.

Costa Rica, with the earnestness of a sincerely friendly neighbor,
solicits a reciprocity of trade, which I commend to the consideration
of Congress.

The convention created by treaty between the United States and
Venezuela in July, 1865, for the mutual adjustment of claims, has
been held, and its decisions have been received at the Department of
State. The heretofore-recognized Government of the United States of
Venezuela has been subverted. A provisional government having been
instituted under circumstances which promise durability, it has been
formally recognized.

I have been reluctantly obliged to ask explanation and satisfaction
for national injuries committed by the President of Hayti. The
political and social condition of the Republics of Hayti and St.
Domingo is very unsatisfactory and painful. The abolition of slavery,
which has been carried into effect throughout the island of St.
Domingo and the entire West Indies, except the Spanish islands of
Cuba and Porto Rico, has been followed by a profound popular
conviction of the rightfulness of republican institutions and an
intense desire to secure them. The attempt, however, to establish
republics there encounters many obstacles, most of which may be
supposed to result from long-indulged habits of colonial supineness
and dependence upon European monarchical powers. While the United
States have on all occasions professed a decided unwillingness that
any part of this continent or of its adjacent islands shall be made a
theater for a new establishment of monarchical power, too little has
been done by us, on the other hand, to attach the communities by
which we are surrounded to our own country, or to lend even a moral
support to the efforts they are so resolutely and so constantly
making to secure republican institutions for themselves. It is indeed
a question of grave consideration whether our recent and present
example is not calculated to check the growth and expansion of free
principles, and make those communities distrust, if not dread, a
government which at will consigns to military domination States that
are integral parts of our Federal Union, and, while ready to resist
any attempts by other nations to extend to this hemisphere the
monarchical institutions of Europe, assumes to establish over a large
portion of its people a rule more absolute, harsh, and tyrannical than
any known to civilized powers.

The acquisition of Alaska was made with the view of extending
national jurisdiction and republican principles in the American
hemisphere. Believing that a further step could be taken in the same
direction, I last year entered into a treaty with the King of Denmark
for the purchase of the islands of St. Thomas and St. John, on the
best terms then attainable, and with the express consent of the
people of those islands. This treaty still remains under
consideration in the Senate. A new convention has been entered into
with Denmark, enlarging the time fixed for final ratification of the
original treaty.

Comprehensive national policy would seem to sanction the acquisition
and incorporation into our Federal Union of the several adjacent
continental and insular communities as speedily as it can be done
peacefully, lawfully, and without any violation of national justice,
faith, or honor. Foreign possession or control of those communities
has hitherto hindered the growth and impaired the influence of the
United States. Chronic revolution and anarchy there would be equally
injurious. Each one of them, when firmly established as an
independent republic, or when incorporated into the United States,
would be a new source of strength and power. Conforming my
Administration to these principles, I have or no occasion lent
support or toleration to unlawful expeditions set on foot upon the
plea of republican propagandism or of national extension or
aggrandizement. The necessity, however, of repressing such unlawful
movements clearly indicates the duty which rests upon us of adapting
our legislative action to the new circumstances of a decline of
European monarchical power and influence and the increase of American
republican ideas, interests, and sympathies.

It can not be long before it will become necessary for this
Government to lend some effective aid to the solution of the
political and social problems which are continually kept before the
world by the two Republics of the island of St. Domingo, and which
are now disclosing themselves more distinctly than heretofore in the
island of Cuba. The subject is commended to your consideration with
all the more earnestness because I am satisfied that the time has
arrived when even so direct a proceeding as a proposition for an
annexation of the two Republics of the island of St. Domingo would
not only receive the consent of the people interested, but would also
give satisfaction to all other foreign nations.

I am aware that upon the question of further extending our
possessions it is apprehended by some that our political system can
not successfully be applied to an area more extended than our
continent; but the conviction is rapidly gaining ground in the
American mind that with the increased facilities for
intercommunication between all portions of the earth the principles
of free government, as embraced in our Constitution, if faithfully
maintained and carried out, would prove of sufficient strength and
breadth to comprehend within their sphere and influence the civilized
nations of the world.

The attention of the Senate and of Congress is again respectfully
invited to the treaty for the establishment of commercial reciprocity
with the Hawaiian Kingdom entered into last year, and already ratified
by that Government. The attitude of the United States toward these
islands is not very different from that in which they stand toward
the West Indies. It is known and felt by the Hawaiian Government and
people that their Government and institutions are feeble and
precarious; that the United States, being so near a neighbor, would
be unwilling to see the islands pass under foreign control. Their
prosperity is continually disturbed by expectations and alarms of
unfriendly political proceedings, as well from the United States as
from other foreign powers. A reciprocity treaty, while it could not
materially diminish the revenues of the United States, would be a
guaranty of the good will and forbearance of all nations until the
people of the islands shall of themselves, at no distant day,
voluntarily apply for admission into the Union.

The Emperor of Russia has acceded to the treaty negotiated here in
January last for the security of trade-marks in the interest of
manufacturers and commerce. I have invited his attention to the
importance of establishing, now while it seems easy and practicable,
a fair and equal regulation of the vast fisheries belonging to the
two nations in the waters of the North Pacific Ocean.

The two treaties between the United States and Italy for the
regulation of consular powers and the extradition of criminals,
negotiated and ratified here during the last session of Congress,
have been accepted and confirmed by the Italian Government. A liberal
consular convention which has been negotiated with Belgium will be
submitted to the Senate. The very important treaties which were
negotiated between the United States and North Germany and Bavaria
for the regulation of the rights of naturalized citizens have been
duly ratified and exchanged, and similar treaties have been entered
into with the Kingdoms of Belgium and Wurtemberg and with the Grand
Duchies of Baden and Hesse-Darmstadt. I hope soon to be able to
submit equally satisfactory conventions of the same character now in
the course of negotiation with the respective Governments of Spain,
Italy, and the Ottoman Empire.

Examination of claims against the United States by the Hudsons Bay
Company and the Puget Sound Agricultural Company, on account of
certain possessory rights in the State of Oregon and Territory of
Washington, alleged by those companies in virtue of provisions of the
treaty between the United States and Great Britain of June 15, 1846,
has been diligently prosecuted, under the direction of the joint
international commission to which they were submitted for
adjudication by treaty between the two Governments of July 1, 1863,
and will, it is expected, be concluded at an early day.

No practical regulation concerning colonial trade and the fisheries
can be accomplished by treaty between the United States and Great
Britain until Congress shall have expressed their judgment concerning
the principles involved. Three other questions, however, between the
United States and Great Britain remain open for adjustment. These are
the mutual rights of naturalized citizens, the boundary question
involving the title to the island of San Juan, on the Pacific coast,
and mutual claims arising since the year 1853 of the citizens and
subjects of the two countries for injuries and depredations committed
under the authority of their respective Governments. Negotiations upon
these subjects are pending, and I am not without hope of being able to
lay before the Senate, for its consideration during the present
session, protocols calculated to bring to an end these justly
exciting and long-existing controversies.

We are not advised of the action of the Chinese Government upon the
liberal and auspicious treaty which was recently celebrated with its
plenipotentiaries at this capital.

Japan remains a theater of civil war, marked by religious incidents
and political severities peculiar to that long-isolated Empire. The
Executive has hitherto maintained strict neutrality among the
belligerents, and acknowledges with pleasure that it has been frankly
and fully sustained in that course by the enlightened concurrence and
cooperation of the other treaty powers, namely Great Britain, France,
the Netherlands, North Germany, and Italy.

Spain having recently undergone a revolution marked by extraordinary
unanimity and preservation of order, the provisional government
established at Madrid has been recognized, and the friendly
intercourse which has so long happily existed between the two
countries remains unchanged.

I renew the recommendation contained in my communication to Congress
dated the 18th July last--a copy of which accompanies this message
that the judgment of the people should be taken on the propriety of
so amending the Federal Constitution that it shall provide--

First. For an election of President and Vice-President by a direct
vote of the people, instead of through the agency of electors, and
making them ineligible for reelection to a second term.

Second. For a distinct designation of the person who shall discharge
the duties of President in the event of a vacancy in that office by
the death, resignation, or removal of both the President and
Vice-President.

Third. For the election of Senators of the United States directly by
the people of the several States, instead of by the legislatures;
and

Fourth. For the limitation to a period of years of the terms of
Federal judges.

Profoundly impressed with the propriety of making these important
modifications in the Constitution, I respectfully submit them for the
early and mature consideration of Congress. We should, as far as
possible, remove all pretext for violations of the organic law, by
remedying such imperfections as time and experience may develop, ever
remembering that "the constitution which at any time exists until
changed by an explicit and authentic act of the whole people is
sacredly obligatory upon all."

In the performance of a duty imposed upon me by the Constitution, I
have thus communicated to Congress information of the state of the
Union and recommended for their consideration such measures as have
seemed to me necessary and expedient. If carried into effect, they
will hasten the accomplishment of the great and beneficent purposes
for which the Constitution was ordained, and which it comprehensively
states were "to form a more perfect Union, establish justice, insure
domestic tranquillity, provide for the common defense, promote the
general welfare, and secure the blessings of liberty to ourselves and
our posterity." In Congress are vested all legislative powers, and
upon them devolves the responsibility as well for framing unwise and
excessive laws as for neglecting to devise and adopt measures
absolutely demanded by the wants of the country. Let us earnestly
hope that before the expiration of our respective terms of service,
now rapidly drawing to a close, an all-wise Providence will so guide
our counsels as to strengthen and preserve the Federal Unions,
inspire reverence for the Constitution, restore prosperity and
happiness to our whole people, and promote "on earth peace, good will
toward men."