Speech Transcript:

Fellow-Citizens of the Senate and House of Representatives:

With devout gratitude to the bountiful Giver of All Good, I
congratulate you that at the beginning of your first regular session
you find our country blessed with health and peace and abundant
harvests, and with encouraging prospects of an early return of
general prosperity.

To complete and make permanent the pacification of the country
continues to be, and until it is fully accomplished must remain, the
most important of all our national interests. The earnest purpose of
good citizens generally to unite their efforts in this endeavor is
evident. It found decided expression in the resolutions announced in
1876 by the national conventions of the leading political parties of
the country. There was a widespread apprehension that the momentous
results in our progress as a nation marked by the recent amendments
to the Constitution were in imminent jeopardy; that the good
understanding which prompted their adoption, in the interest of a
loyal devotion to the general welfare, might prove a barren truce,
and that the two sections of the country, once engaged in civil
strife, might be again almost as widely severed and disunited as they
were when arrayed in arms against each other.

The course to be pursued, which, in my judgment, seemed wisest in the
presence of this emergency, was plainly indicated in my inaugural
address. It pointed to the time, which all our people desire to see,
when a genuine love of our whole country and of all that concerns its
true welfare shall supplant the destructive forces of the mutual
animosity of races and of sectional hostility. Opinions have differed
widely as to the measures best calculated to secure this great end.
This was to be expected. The measures adopted by the Administration
have been subjected to severe and varied criticism. Any course
whatever which might have been entered upon would certainly have
encountered distrust and opposition. These measures were, in my
judgment, such as were most in harmony with the Constitution and with
the genius of our people, and best adapted, under all the
circumstances, to attain the end in view. Beneficent results, already
apparent, prove that these endeavors are not to be regarded as a mere
experiment, and should sustain and encourage us in our efforts.
Already, in the brief period which has elapsed, the immediate
effectiveness, no less than the justice, of the course pursued is
demonstrated, and I have an abiding faith that time will furnish its
ample vindication in the minds of the great majority of my
fellow-citizens. The discontinuance of the use of the Army for the
purpose of upholding local governments in two States of the Union was
no less a constitutional duty and requirement, under the circumstances
existing at the time, than it was a much-needed measure for the
restoration of local self-government and the promotion of national
harmony. The withdrawal of the troops from such employment was
effected deliberately, and with solicitous care for the peace and
good order of society and the protection of the property and persons
and every right of all classes of citizens.

The results that have followed are indeed significant and
encouraging. All apprehension of danger from remitting those States
to local self-government is dispelled, and a most salutary change in
the minds of the people has begun and is in progress in every part of
that section of the country once the theater of unhappy civil strife,
substituting for suspicion, distrust, and aversion, concord,
friendship, and patriotic attachment to the Union. No unprejudiced
mind will deny that the terrible and often fatal collisions which for
several years have been of frequent occurrence and have agitated and
alarmed the public mind have almost entirely ceased, and that a
spirit of mutual forbearance and hearty national interest has
succeeded. There has been a general reestablishment of order and of
the orderly administration of justice. Instances of remaining
lawlessness have become of rare occurrence; political turmoil and
turbulence have disappeared; useful industries have been resumed;
public credit in the Southern States has been greatly strengthened,
and the encouraging benefits of a revival of commerce between the
sections of the country lately embroiled in civil war are fully
enjoyed. Such are some of the results already attained, upon which
the country is to be congratulated. They are of such importance that
we may with confidence patiently await the desired consummation that
will surely come with the natural progress of events.

It may not be improper here to say that it should be our fixed and
unalterable determination to protect by all available and proper
means under the Constitution and the laws the lately emancipated race
in the enjoyment of their rights and privileges; and I urge upon those
to whom heretofore the colored people have sustained the relation of
bondmen the wisdom and justice of humane and liberal local
legislation with respect to their education and general welfare. A
firm adherence to the laws, both national and State, as to the civil
and political rights of the colored people, now advanced to full and
equal citizenship; the immediate repression and sure punishment by
the national and local authorities, within their respective
jurisdictions, of every instance of lawlessness and violence toward
them, is required for the security alike of both races, and is justly
demanded by the public opinion of the country and the age. In this way
the restoration of harmony and good will and the complete protection
of every citizen in the full enjoyment of every constitutional right
will surely be attained. Whatever authority rests with me to this end
I shall not hesitate to put forth.

Whatever belongs to the power of Congress and the jurisdiction of the
courts of the Union, they may confidently be relied upon to provide
and perform; and to the legislatures, the courts, and the executive
authorities of the several States I earnestly appeal to secure, by
adequate, appropriate, and seasonable means, Within their borders,
these common and uniform rights of a united people which loves
liberty, abhors oppression, and reveres justice. These objects are
very dear to my heart. I shall continue most earnestly to strive for
their attainment. The cordial cooperation of all classes, of all
sections of the country and of both races, is required for this
purpose; and with these blessings assured, and not otherwise, we may
safely hope to hand down our free institutions of government
unimpaired to the generations that will succeed us.

Among the other subjects of great and general importance to the
people of this country, I can not be mistaken, I think, in regarding
as preeminent the policy and measures which are designed to secure
the restoration of the currency to that normal and healthful
condition in which, by the resumption of specie payments, our
internal trade and foreign commerce may be brought into harmony with
the system of exchanges which is based upon the precious metals as
the intrinsic money of the world. In the public judgment that this
end should be sought and compassed as speedily and securely as the
resources of the people and the wisdom of their Government can
accomplish, there is a much greater degree of unanimity than is found
to concur in the specific measures which will bring the country to
this desired end or the rapidity of the steps by which it can be
safely reached.

Upon a most anxious and deliberate examination, which I have felt it
my duty to give to the subject, I am but the more confirmed in the
opinion which I expressed in accepting the nomination for the
Presidency, and again upon my inauguration, that the policy of
resumption should be pursued by every suitable means, and that no
legislation would be wise that should disparage the importance or
retard the attainment of that result. I have no disposition, and
certainly no right, to question the sincerity or the intelligence of
opposing opinions, and would neither conceal nor undervalue the
considerable difficulties, and even occasional distresses, which may
attend the progress of the nation toward this primary condition to
its general and permanent prosperity. I must, however, adhere to my
most earnest conviction that any wavering in purpose or unsteadiness
in methods, so far from avoiding or reducing the inconvenience
inseparable from the transition from an irredeemable to a redeemable
paper currency, would only tend to increased and prolonged
disturbance in values, and unless retrieved must end in serious
disorder, dishonor, and disaster in the financial affairs of the
Government and of the people.

The mischiefs which I apprehend and urgently deprecate are confined
to no class of the people, indeed, but seem to me most certainly to
threaten the industrious masses, whether their occupations are of
skilled or common labor. To them, it seems to me, it is of prime
importance that their labor should be compensated in money which is
itself fixed in exchangeable value by being irrevocably measured by
the labor necessary to its production. This permanent quality of the
money of the people is sought for, and can only be gained by the
resumption of specie payments. The rich, the speculative, the
operating, the money-dealing classes may not always feel the
mischiefs of, or may find casual profits in, a variable currency, but
the misfortunes of such a currency to those who are paid salaries or
wages are inevitable and remediless.

Closely connected with this general subject of the resumption of
specie payments is one of subordinate, but still of grave,
importance; I mean the readjustment of our coinage system by the
renewal of the silver dollar as an element in our specie currency,
endowed by legislation with the quality of legal tender to a greater
or less extent.

As there is no doubt of the power of Congress under the Constitution
"to coin money and regulate the value thereof," and as this power
covers the whole range of authority applicable to the metal, the
rated value and the legal-tender quality which shall be adopted for
the coinage, the considerations which should induce or discourage a
particular measure connected with the coinage, belong clearly to the
province of legislative discretion and of public expediency. Without
intruding upon this province of legislation in the least, I have yet
thought the subject of such critical importance, in the actual
condition of our affairs, as to present an occasion for the exercise
of the duty imposed by the Constitution on the President of
recommending to the consideration of Congress "such measures as he
shall judge necessary and expedient."

Holding the opinion, as I do, that neither the interests of the
Government nor of the people of the United States would be promoted
by disparaging silver as one of the two precious metals which furnish
the coinage of the world, and that legislation which looks to
maintaining the volume of intrinsic money to as full a measure of
both metals as their relative commercial values will permit would be
neither unjust nor inexpedient, I must ask your indulgence to a brief
and definite statement of certain essential features in any such
legislative measure which I feel it my duty to recommend.

I do not propose to enter the debate, represented on both sides by
such able disputants in Congress and before the people and in the
press, as to the extent to which the legislation of any one nation
can control this question, even within its own borders, against the
unwritten laws of trade or the positive laws of other governments.
The wisdom of Congress in shaping any particular law that may be
presented for my approval may wholly supersede the necessity of my
entering into these considerations, and I willingly avoid either
vague or intricate inquiries. It is only certain plain and practical
traits of such legislation that I desire to recommend to your
attention.

In any legislation providing for a silver coinage, regulating its
value, and imparting to it the quality of legal tender, it seems to
me of great importance that Congress should not lose sight of its
action as operating in a twofold capacity and in two distinct
directions. If the United States Government were free from a public
debt, its legislative dealing with the question of silver coinage
would be purely sovereign and governmental, under no restraints but
those of constitutional power and the public good as affected by the
proposed legislation. But in the actual circumstances of the nation,
with a vast public debt distributed very widely among our own
citizens and held in great amounts also abroad, the nature of the
silver-coinage measure, as affecting this relation of the Government
to the holders of the public debt, becomes an element, in any
proposed legislation, of the highest concern. The obligation of the
public faith transcends all questions of profit or public advantage
otherwise. Its unquestionable maintenance is the dictate as well of
the highest expediency as of the most necessary duty, and will ever
be carefully guarded by Congress and people alike.

The public debt of the United States to the amount of $729,000,000
bears interest at the rate of 6 per cent, and $708,000,000 at the
rate of 5 per cent, and the only way in which the country can be
relieved from the payment of these high rates of interest is by
advantageously refunding the indebtedness. Whether the debt is
ultimately paid in gold or in silver coin is of but little moment
compared with the possible reduction of interest one-third by
refunding it at such reduced rate. If the United States had the
unquestioned right to pay its bonds in silver coin, the little
benefit from that process would be greatly overbalanced by the
injurious effect of such payment if made or proposed against the
honest convictions of the public creditors.

All the bonds that have been issued since February 12, 1873, when
gold became the only unlimited legal-tender metallic currency of the
country, are justly payable in gold coin or in coin of equal value.
During the time of these issues the only dollar that could be or was
received by the Government in exchange for bonds was the gold dollar.
To require the public creditors to take in repayment any dollar of
less commercial value would be regarded by them as a repudiation of
the full obligation assumed. The bonds issued prior to 1873 were
issued at a time when the gold dollar was the only coin in
circulation or contemplated by either the Government or the holders
of the bonds as the coin in which they were to be paid. It is far
better to pay these bonds in that coin than to seem to take advantage
of the unforeseen fall in silver bullion to pay in a new issue of
silver coin thus made so much less valuable. The power of the United
States to coin money and to regulate the value thereof ought never to
be exercised for the purpose of enabling the Government to pay its
obligations in a coin of less value than that contemplated by the
parties when the bonds were issued. Any attempt to pay the national
indebtedness in a coinage of less commercial value than the money of
the world would involve a violation of the public faith and work
irreparable injury to the public credit.

It was the great merit of the act of March, 1869, in strengthening
the public credit, that it removed all doubt as to the purpose of the
United States to pay their bonded debt in coin. That act was accepted
as a pledge of public faith. The Government has derived great benefit
from it in the progress thus far made in refunding the public debt at
low rates of interest. An adherence to the wise and just policy of an
exact observance of the public faith will enable the Government
rapidly to reduce the burden of interest on the national debt to an
amount exceeding $20,000,000 per annum, and effect an aggregate
saving to the United States of more than $300,000,000 before the
bonds can be fully paid.

In adapting the new silver coinage to the ordinary uses of currency
in the everyday transactions of life and prescribing the quality of
legal tender to be assigned to it, a consideration of the first
importance should be so to adjust the ratio between the silver and
the gold coinage, which now constitutes our specie currency, as to
accomplish the desired end of maintaining the circulation of the two
metallic currencies and keeping up the volume of the two precious
metals as our intrinsic money. It is a mixed question, for scientific
reasoning and historical experience to determine, how far and by what
methods a practical equilibrium can be maintained which will keep
both metals in circulation in their appropriate spheres of common
use.

An absolute equality of commercial value, free from disturbing
fluctuations, is hardly attainable, and without it an unlimited legal
tender for private transactions assigned to both metals would
irresistibly tend to drive out of circulation the clearer coinage and
disappoint the principal object proposed by the legislation in view. I
apprehend, therefore, that the two conditions of a near approach to
equality of commercial value between the gold and silver coinage of
the same denomination and of a limitation of the amounts for which
the silver coinage is to be a legal tender are essential to
maintaining both in circulation. If these conditions can be
successfully observed, the issue from the mint of silver dollars
would afford material assistance to the community in the transition
to redeemable paper money, and would facilitate the resumption of
specie payment and its permanent establishment. Without these
conditions I fear that only mischief and misfortune would flow from a
coinage of silver dollars with the quality of unlimited legal tender,
even in private transactions.

Any expectation of temporary ease from an issue of silver coinage to
pass as a legal tender at a rate materially above its commercial
value is, I am persuaded, a delusion. Nor can I think that there is
any substantial distinction between an original issue of silver
dollars at a nominal value materially above their commercial value
and the restoration of the silver dollar at a rate which once was,
but has ceased to be, its commercial value. Certainly the issue of
our gold coinage, reduced in weight materially below its legal-tender
value, would not be any the less a present debasement of the coinage
by reason of its equaling, or even exceeding, in weight a gold
coinage which at some past time had been commercially equal to the
legal-tender value assigned to the new issue.

In recommending that the regulation of any silver coinage which may
be authorized by Congress should observe these conditions of
commercial value and limited legal tender, I am governed by the
feeling that every possible increase should be given to the volume of
metallic money which can be kept in circulation, and thereby every
possible aid afforded to the people in the process of resuming specie
payments. It is because of my firm conviction that a disregard of
these conditions would frustrate the good results which are desired
from the proposed coinage, and embarrass with new elements of
confusion and uncertainty the business of the country, that I urge
upon your attention these considerations.

I respectfully recommend to Congress that in any legislation
providing for a silver coinage and imparting to it the quality of
legal tender there be impressed upon the measure a firm provision
exempting the public debt heretofore issued and now outstanding from
payment, either of principal or interest, in any coinage of less
commercial value than the present gold coinage of the country.

The organization of the civil service of the country has for a number
of years attracted more and more of the public attention. So general
has become the opinion that the methods of admission to it and the
conditions of remaining in it are unsound that both the great
political parties have agreed in the most explicit declarations of
the necessity of reform and in the most emphatic demands for it. I
have fully believed these declarations and demands to be the
expression of a sincere conviction of the intelligent masses of the
people upon the subject, and that they should be recognized and
followed by earnest and prompt action on the part of the legislative
and executive departments of the Government, in pursuance of the
purpose indicated.

Before my accession to office I endeavored to have my own views
distinctly understood, and upon my inauguration my accord with the
public opinion was stated in terms believed to be plain and
unambiguous. My experience in the executive duties has strongly
confirmed the belief in the great advantage the country would find in
observing strictly the plan of the Constitution, which imposes upon
the Executive the sole duty and responsibility of the selection of
those Federal officers who by law are appointed, not elected, and
which in like manner assigns to the Senate the complete right to
advise and consent to or to reject the nominations so made, whilst
the House of Representatives stands as the public censor of the
performance of official duties, with the prerogative of investigation
and prosecution in all cases of dereliction. The blemishes and
imperfections in the civil service may, as I think, be traced in most
cases to a practical confusion of the duties assigned to the several
Departments of the Government. My purpose in this respect has been to
return to the system established by the fundamental law, and to do
this with the heartiest cooperation and most cordial understanding
with the Senate and House of Representatives.

The practical difficulties in the selection of numerous officers for
posts of widely varying responsibilities and duties are acknowledged
to be very great. No system can be expected to secure absolute
freedom from mistakes, and the beginning of any attempted change of
custom is quite likely to be more embarrassed in this respect than
any subsequent period. It is here that the Constitution seems to me
to prove its claim to the great wisdom accorded to it. It gives to
the Executive the assistance of the knowledge and experience of the
Senate, which, when acting upon nominations as to which they may be
disinterested and impartial judges, secures as strong a guaranty of
freedom from errors of importance as is perhaps possible in human
affairs.

In addition to this, I recognize the public advantage of making all
nominations, as nearly as possible, impersonal, in the sense of being
free from mere caprice or favor in the selection; and in those offices
in which special training is of greatly increased value I believe such
a rule as to the tenure of office should obtain as may induce men of
proper qualifications to apply themselves industriously to the task
of becoming proficients. Bearing these things in mind, I have
endeavored to reduce the number of changes in subordinate places
usually made upon the change of the general administration, and shall
most heartily cooperate with Congress in the better systematizing of
such methods and rules of admission to the public service and of
promotion within it as, may promise to be most successful in making
thorough competency, efficiency, and character the decisive tests in
these matters.

I ask the renewed attention of Congress to what has already been done
by the Civil Service Commission, appointed, in pursuance of an act of
Congress, by my predecessor, to prepare and revise civil-service
rules. In regard to much of the departmental service, especially at
Washington, it may be difficult to organize a better system than that
which has thus been provided, and it is now being used to a
considerable extent under my direction. The Commission has still a
legal existence, although for several years no appropriation has been
made for defraying its expenses. Believing that this Commission has
rendered valuable service and will be a most useful agency in
improving the administration of the civil service, I respectfully
recommend that a suitable appropriation, to be immediately available,
be made to enable it to continue its labors.

It is my purpose to transmit to Congress as early as practicable a
report by the chairman of the Commission, and to ask your attention
to such measures on this subject as in my opinion will further
promote the improvement of the civil service.

During the past year the United States have continued to maintain
peaceful relations with foreign powers.

The outbreak of war between Russia and Turkey, though at one time
attended by grave apprehension as to its effect upon other European
nations, has had no tendency to disturb the amicable relations
existing between the United States and each of the two contending
powers. An attitude of just and impartial neutrality has been
preserved, and I am gratified to state that in the midst of their
hostilities both the Russian and the Turkish Governments have shown
an earnest disposition to adhere to the obligations of all treaties
with the United States and to give due regard to the rights of
American citizens.

By the terms of the treaty defining the rights, immunities, and
privileges of consuls, between Italy and the United States, ratified
in 1868, either Government may, after the lapse of ten years,
terminate the existence of the treaty by giving twelve months' notice
of its intention. The Government of Italy, availing itself of this
faculty, has now given the required notice, and the treaty will
accordingly end on the 17th of September, 1878. It is understood,
however, that the Italian Government wishes to renew it in its
general scope, desiring only certain modifications in some of its
articles. In this disposition I concur, and shall hope that no
serious obstacles may intervene to prevent or delay the negotiation
of a satisfactory treaty.

Numerous questions in regard to passports, naturalization, and
exemption from military service have continued to arise in cases of
emigrants from Germany who have returned to their native country. The
provisions of the treaty of February 22, 1868, however, have proved to
be so ample and so judicious that the legation of the United States at
Berlin has been able to adjust all claims arising under it, not only
without detriment to the amicable relations existing between the two
Governments, but, it is believed, without injury or injustice to any
duly naturalized American citizen. It is desirable that the treaty
originally made with the North German Union in 1868 should now be
extended so as to apply equally to all the States of the Empire of
Germany.

The invitation of the Government of France to participate in the
Exposition of the Products of Agriculture, Industry, and the Fine
Arts to be held at Paris during the coming year was submitted for
your consideration at the extra session. It is not doubted that its
acceptance by the United States, and a well-selected exhibition of
the products of American industry on that occasion, will tend to
stimulate international commerce and emigration, as well as to
promote the traditional friendship between the two countries.

A question arose some time since as to the proper meaning of the
extradition articles of the treaty of 1842 between the United States
and Great Britain. Both Governments, however, are now in accord in
the belief that the question is not one that should be allowed to
frustrate the ends of justice or to disturb the friendship between
the two nations. No serious difficulty has arisen in accomplishing
the extradition of criminals when necessary. It is probable that all
points of disagreement will in due time be settled, and, if need be,
more explicit declarations be made in a new treaty.

The Fishery Commission under Articles XVIII to XXV of the treaty of
Washington has concluded its session at Halifax. The result of the
deliberations of the commission, as made public by the commissioners,
will be communicated to Congress.

A treaty for the protection of trade-marks has been negotiated with
Great Britain, which has been submitted to the Senate for its
consideration.

The revolution which recently occurred in Mexico was followed by the
accession of the successful party to power and the installation of
its chief, General Porfirio Diaz, in the Presidential office. It has
been the custom of the United States, when such changes of government
have heretofore occurred in Mexico, to recognize and enter into
official relations with the de facto government as soon as it should
appear to have the approval of the Mexican people and should manifest
a disposition to adhere to the obligations of treaties and
international friendship. In the present case such official
recognition has been deferred by the occurrences on the Rio Grande
border, the records of which have been already communicated to each
House of Congress in answer to their respective resolutions of
inquiry. Assurances have been received that the authorities at the
seat of the Mexican Government have both the disposition and the
power to prevent and punish such unlawful invasions and depredations.
It is earnestly to be hoped that events may prove these assurances to
be well rounded. The best interests of both countries require the
maintenance of peace upon the border and the development of commerce
between the two Republics.

It is gratifying to add that this temporary interruption of official
relations has not prevented due attention by the representatives of
the United States in Mexico to the protection of American citizens,
so far as practicable; nor has it interfered with the prompt payment
of the amounts due from Mexico to the United States under the treaty
of July 4, 1868, and the awards of the joint commission. While I do
not anticipate an interruption of friendly relations with Mexico, yet
I can not but look with some solicitude upon a continuance of border
disorders as exposing the two countries to initiations of popular
feeling and mischances of action which are naturally unfavorable to
complete amity. Firmly determined that nothing shall be wanting on my
part to promote a good understanding between the two nations, I yet
must ask the attention of Congress to the actual occurrences on the
border, that the lives and property of our citizens may be adequately
protected and peace preserved.

Another year has passed without bringing to a close the protracted
contest between the Spanish Government and the insurrection in the
island of Cuba. While the United States have sedulously abstained
from any intervention in this contest, it is impossible not to feel
that it is attended with incidents affecting the rights and interests
of American citizens. Apart from the effect of the hostilities upon
trade between the United States and Cuba, their progress is
inevitably accompanied by complaints, having more or less foundation,
of searches, arrests, embargoes, and oppressive taxes upon the
property of American residents, and of unprovoked interference with
American vessels and commerce. It is due to the Government of Spain
to say that during the past year it has promptly disavowed and
offered reparation for any unauthorized acts of unduly zealous
subordinates whenever such acts have been brought to its attention.
Nevertheless, such occurrences can not but tend to excite feelings of
annoyance, suspicion, and resentment, which are greatly to be
deprecated, between the respective subjects and citizens of two
friendly powers.

Much delay (consequent upon accusations of fraud in some of the
awards) has occurred in respect to the distribution of the limited
amounts received from Venezuela under the treaty of April 25, 1866,
applicable to the awards of the joint commission created by that
treaty. So long as these matters are pending in Congress the
Executive can not assume either to pass upon the questions presented
or to distribute the fund received. It is eminently desirable that
definite legislative action should be taken, either affirming the
awards to be final or providing some method for reexamination of the
claims. Our relations with the Republics of Central and South America
and with the Empire of Brazil have continued without serious change,
further than the temporary interruption of diplomatic intercourse
with Venezuela and with Guatemala. Amicable relations have already
been fully restored with Venezuela, and it is not doubted that all
grounds of misunderstanding with Guatemala will speedily be removed.
From all these countries there are favorable indications of a
disposition on the part of their Governments and people to
reciprocate our efforts in the direction of increased commercial
intercourse.

The Government of the Samoan Islands has sent an envoy, in the person
of its secretary of state, to invite the Government of the United
States to recognize and protect their independence, to establish
commercial relations with their people, and to assist them in their
steps toward regulated and responsible government. The inhabitants of
these islands, having made considerable progress in Christian
civilization and the development of trade, are doubtful of their
ability to maintain peace and independence without the aid of some
stronger power. The subject is deemed worthy of respectful attention,
and the claims upon our assistance by this distant community will be
carefully considered.

The long commercial depression in the United States has directed
attention to the subject of the possible increase of our foreign
trade and the methods for its development, not only with Europe, but
with other countries, and especially with the States and
sovereignties of the Western Hemisphere. Instructions from the
Department of State were issued to the various diplomatic and
consular officers of the Government, asking them to devote attention
to the question of methods by which trade between the respective
countries of their official residence and the United States could be
most judiciously fostered. In obedience to these instructions,
examinations and reports upon this subject have been made by many of
these officers and transmitted to the Department, and the same are
submitted to the consideration of Congress.

The annual report of the Secretary of the Treasury on the state of
the finances presents important questions for the action of Congress,
upon some of which I have already remarked.

The revenues of the Government during the fiscal year ending June 30,
1877, were $269,000,586.62; the total expenditures for the same period
were $238,660,008.93, leaving a surplus revenue of $30,340,577.69.
This has substantially supplied the requirements of the sinking fund
for that year. The estimated revenues of the current fiscal year are
$265,500,000, and the estimated expenditures for the same period are
$232,430,643.72. If these estimates prove to be correct, there will
be a surplus revenue of $33,069,356.28--an amount nearly sufficient
for the sinking fund for that year. The estimated revenues for the
next fiscal year are $269,250,000. It appears from the report that
during the last fiscal year the revenues of the Government, compared
with the previous year, have largely decreased. This decrease,
amounting to the sum of $18,481,452.54, was mainly in customs duties,
caused partly by a large falling off of the amount of imported
dutiable goods and partly by the general fall of prices in the
markets of production of such articles as pay ad valorem taxes.

While this is felt injuriously in the diminution of the revenue, it
has been accompanied with a very large increase of exportations. The
total exports during the last fiscal year, including coin, have been
$658,637,457, and the imports have been $492,097,540, leaving a
balance of trade in favor of the United States amounting to the sum
of $166,539,917, the beneficial effects of which extend to all
branches of business.

The estimated revenue for the next fiscal year will impose upon
Congress the duty of strictly limiting appropriations, including the
requisite sum for the maintenance of the sinking fund, within the
aggregate estimated receipts.

While the aggregate of taxes should not be increased, amendments
might be made to the revenue laws that would, without diminishing the
revenue, relieve the people from unnecessary burdens. A tax on tea and
coffee is shown by the experience not only of our own country, but of
other countries, to be easily collected, without loss by
undervaluation or fraud, and largely borne in the country of
production. A tax of 10 cents a pound on tea and 2 cents a pound on
coffee would produce a revenue exceeding $12,000,000, and thus enable
Congress to repeal a multitude of annoying taxes yielding a revenue
not exceeding that sum. The internal-revenue system grew out of the
necessities of the war, and most of the legislation imposing taxes
upon domestic products under this system has been repealed. By the
substitution of a tax on tea and coffee all forms of internal
taxation may be repealed, except that on whisky, spirits, tobacco,
and beer. Attention is also called to the necessity of enacting more
vigorous laws for the protection of the revenue and for the
punishment of frauds and smuggling. This can best be done by
judicious provisions that will induce the disclosure of attempted
fraud by undervaluation and smuggling. All revenue laws should be
simple in their provisions and easily understood. So far as
practicable, the rates of taxation should be in the form of specific
duties, and not ad valorem, requiring the judgment of experienced men
to ascertain values and exposing the revenue to the temptation of
fraud.

My attention has been called during the recess of Congress to abuses
existing in the collection of the customs, and strenuous efforts have
been made for their correction by Executive orders. The
recommendations submitted to the Secretary of the Treasury by a
commission appointed to examine into the collection of customs duties
at the port of New York contain many suggestions for the modification
of the customs laws, to which the attention of Congress is invited.

It is matter of congratulation that notwithstanding the severe
burdens caused by the war the public faith with all creditors has
been preserved, and that as the result of this policy the public
credit has continuously advanced and our public securities are
regarded with the highest favor in the markets of the world. I trust
that no act of the Government will cast a shadow upon its credit.

The progress of refunding the public debt has been rapid and
satisfactory. Under the contract existing when I entered upon the
discharge of the duties of my office, bonds bearing interest at the
rate of 4 1/2 per cent were being rapidly sold, and within three
months the aggregate sales of these bonds had reached the sum of
$200,000,000. With my sanction the Secretary of the Treasury entered
into a new contract for the sale of 4 per cent bonds, and within
thirty days after the popular subscription for such bonds was opened
subscriptions were had amounting to $75,496,550, which were paid for
within ninety days after the date of subscription. By this process,
within but little more than one year, the annual interest on the
public debt was reduced in the sum of $3,775,000.

I recommended that suitable provision be made to enable the people to
easily convert their savings into Government securities, as the best
mode in which small savings may be well secured and yield a moderate
interest. It is an object of public policy to retain among our own
people the securities of the United States. In this way our country
is guarded against their sudden return from foreign countries, caused
by war or other disturbances beyond our limits.

The commerce of the United States with foreign nations, and
especially the export of domestic productions, has of late years
largely increased; but the greater portion of this trade is conducted
in foreign vessels. The importance of enlarging our foreign trade, and
especially by direct and speedy interchange with countries on this
continent, can not be overestimated; and it is a matter of great
moment that our own shipping interest should receive, to the utmost
practical extent, the benefit of our commerce with other lands. These
considerations are forcibly urged by all the large commercial cities
of the country, and public attention is generally and wisely
attracted to the solution of the problems they present. It is not
doubted that Congress will take them up in the broadest spirit of
liberality and respond to the public demand by practical legislation
upon this important subject.

The report of the Secretary of War shows that the Army has been
actively employed during the year, and has rendered very important
service in suppressing hostilities in the Indian country and in
preserving peace and protecting life and property in the interior as
well as along the Mexican border. A long and arduous campaign has
been prosecuted, with final complete success, against a portion of
the Nez Perce tribe of Indians. A full account of this campaign will
be found in the report of the General of the Army. It will be seen
that in its course several severe battles were fought, in which a
number of gallant officers and men lost their lives. I join with the
Secretary of War and the General of the Army in awarding to the
officers and men employed in the long and toilsome pursuit and in the
final capture of these Indians the honor and praise which are so
justly their due.

The very serious riots which occurred in several of the States in
July last rendered necessary the employment of a considerable portion
of the Army to preserve the peace and maintain order. In the States of
West Virginia, Maryland, Pennsylvania, and Illinois these disturbances
were so formidable as to defy the local and State authorities, and the
National Executive was called upon, in the mode provided by the
Constitution and laws, to furnish military aid. I am gratified to be
able to state that the troops sent in response to these calls for aid
in the suppression of domestic violence were able, by the influence of
their presence in the disturbed regions, to preserve the peace and
restore order without the use of force. In the discharge of this
delicate and important duty both officers and men acted with great
prudence and courage, and for their services deserve the thanks of
the country.

Disturbances along the Rio Grande in Texas, to which I have already
referred, have rendered necessary the constant employment of a
military force in that vicinity. A full report of all recent military
operations in that quarter has been transmitted to the House of
Representatives in answer to a resolution of that body, and it will
therefore not be necessary to enter into details. I regret to say
that these lawless incursions into our territory by armed bands from
the Mexican side of the line, for the purpose of robbery, have been
of frequent occurrence, and in spite of the most vigilant efforts of
the commander of our forces the marauders have generally succeeded in
escaping into Mexico with their plunder. In May last I gave orders for
the exercise of the utmost vigilance on the part of our troops for the
suppression of these raids and the punishment of the guilty parties,
as well as the recapture of property stolen by them. General Ord,
commanding in Texas, was directed to invite the cooperation of the
Mexican authorities in efforts to this end, and to assure them that I
was anxious to avoid giving the least offense to Mexico. At the same
time, he was directed to give notice of my determination to put an
end to the invasion of our territory by lawless bands intent upon the
plunder of our peaceful citizens, even if the effectual punishment of
the outlaws should make the crossing of the border by our troops in
their pursuit necessary. It is believed that this policy has had the
effect to check somewhat these depredations, and that with a
considerable increase of our force upon that frontier and the
establishment of several additional military posts along the Rio
Grande, so as more effectually to guard that extensive border, peace
may be preserved and the lives and property of our citizens in Texas
fully protected.

Prior to the 1st day of July last the Army was, in accordance with
law, reduced to the maximum of 25,000 enlisted men, being a reduction
of 2,500 below the force previously authorized. This reduction was
made, as required by law, entirely from the infantry and artillery
branches of the service, without any reduction of the cavalry. Under
the law as it now stands it is necessary that the cavalry regiments
be recruited to 100 men in each company for service on the Mexican
and Indian frontiers. The necessary effect of this legislation is to
reduce the infantry and artillery arms of the service below the
number required for efficiency, and I concur with the Secretary of
War in recommending that authority be given to recruit all companies
of infantry to at least 50 men and all batteries of artillery to at
least 75 men, with the power, in case of emergency, to increase the
former to 100 and the latter to 122 men each.

I invite your special attention to the following recommendations of
the Secretary of War:

First. That provision be made for supplying to the Army a more
abundant and better supply of reading matter.

Second. That early action be taken by Congress looking to a complete
revision and republication of the Army Regulations.

Third. That section 1258 of the Revised Statutes, limiting the number
of officers on the retired list, be repealed.

Fourth. That the claims arising under the act of July 4, 1864, for
supplies taken by the Army during the war, be taken from the offices
of the Quartermaster and Commissary Generals and transferred to the
Southern Claims Commission, or some other tribunal having more time
and better facilities for their prompt investigation and decision
than are possessed by these officers.

Fifth. That Congress provide for an annuity fund for the families of
deceased soldiers, as recommended by the paymaster-General of the
Army.

The report of the Secretary of the Navy shows that we have six
squadrons now engaged in the protection of our foreign commerce and
other duties pertaining to the naval service. The condition and
operations of the Department are also shown. The total expenditures
for the fiscal year ending June 30, 1877, were $16,077,974.54. There
are unpaid claims against the Department chargeable to the last year,
which are presented to the consideration of Congress by the report of
the Secretary. The estimates for the fiscal year commencing July 1,
1878, are $16,233,234.40, exclusive of the sum of $2,314,231
submitted for new buildings, repairs, and improvements at the several
navy-yards. The appropriations for the present fiscal year, commencing
July 1, 1877, are $13,592,932.90. The amount drawn from the Treasury
from July 1 to November 1, 1877, is $5,343,037.40, of which there is
estimated to be yet available $1,029,528.30, showing the amount of
actual expenditure during the first four months of the present fiscal
year to have been $4,313,509.10.

The report of the Postmaster-General contains a full and clear
statement of the operations and condition of the Post-Office
Department. The ordinary revenues of the Department for the fiscal
year ending June 30, 1877, including receipts from the money-order
business and from official stamps and stamped envelopes, amounted to
the sum of $27,531,585.26. The additional sum of $7,013,000 was
realized from appropriations from the general Treasury for various
purposes, making the receipts from all sources $34,544,885.26. The
total expenditures during the fiscal year amounted to $33,486,322.44,
leaving an excess of total receipts over total expenditures of
$1,058,562.82, and an excess of total expenditures over ordinary
receipts of $5,954,737.18. Deducting from the total receipts the sum
of $63,261.84, received from international money orders of the
preceding fiscal year, and deducting from the total expenditures the
sum of $1,163,818.20, paid on liabilities incurred in previous fiscal
years, the expenditures and receipts appertaining to the business of
the last fiscal year were as follows:

Expenditures - $32,322,504.24

Receipts (ordinary, from money-order business and from official
postage

Rutherford. B. Hayes