government may deem this war a favorable occa- selves to our judgment as more just, more husion for establishing, by the temporary sacrifice mane, and more consonant with modern civilizaof their neutral rights, a precedent which shall tion than those belligerent pretensions which justify the future exercise of those extreme bel- great naval powers have heretofore sought to inligerent pretensions that their naval power ren- troduce into the maritime code. To forego our ders so formidable. The opportunity for obtain- undeniable right to the exercise of those pretening the tacit assent of European governments to a sions is a policy higher, worthier of us and our line of conduct which ignores the obligations of cause than to revoke our adhesion to principles the declaration of Paris, and treats that instru- that we approve. Let our hope for redress rest ment rather as a theoretical exposition of princi- rather on a returning sense of justice which canples than a binding agreement, may be consid- not fail to awaken a great people to the consciousered by the British Ministry as justifying them ness that the war in which we are engaged ought in seeking a great advantage for their own coun- rather to be made a reason for forbearance of adtry at the expense of ours. But we cannot per- vantage than an occasion for the unfriendly conmit, without protest, the assertion that interna- duct of which we make just complaint. tional law or morals regard as “impartial neutral- The events of the last year have produced imity" conduct avowed to be "exceedingly advan-portant changes in the condition of our Southern tageous" to one of the belligerents. neighbor. The occupation of the capital of MexI have stated that we are without adequate ico by the French army, and the establishment remedy against the injustice under which we suf- of a provisional government, followed by a radfer. There are but two measures that seem ap-ical change in the constitution of the country, plicable to the present condition of our relations with neutral powers. One is, to imitate the wrong of which we complain, to retaliate by the declaration of a paper blockade of the coast of the United States, and to capture all neutral vessels trading with their ports that our cruisers can intercept on the high seas. This measure I cannot recommend. It is true that, in so doing, we should but follow the precedents set by Great Britain and France in the Berlin and Milan decrees, and the British Orders in Council at the beginning of the present century. But it must be remembered that we, ourselves, protested against those very measures as signal violations of the law of nations, and declared the attempts to excuse them, on the ground of their being retaliatory, utterly insignificant. Those blockades are now quoted by writers on public law as a standing reproach on the good name of the nations who were betrayed by temporary exasperation into wrong-doing, and ought to be regarded rather as errors to be avoided than as examples to be followed. The other measure is not open to this objection. The second article of the declaration of Paris, which provides "that the neutral flag cov- have excited lively interest. Although preferring our own government and institutions to those of other countries, we can have no disposition to contest the exercise, by them, of the same right of self-government which we assert for ourselves. If the Mexican people prefer a monarchy to a republic, it is our plain duty to cheerfully acquiesce in their decision, and to evince a sincere and friendly interest in their prosperity. If, however, the Mexicans prefer maintaining their former institutions, we have no reason to apprehend any obstacle to the free exercise of their choice. The Emperor of the French has solemnly disclaimed any purpose to impose on Mexico a form of government not acceptable to the nation; and the eminent personage to whom the throne has been tendered declines its acceptance, unless the offer be sanctioned by the suffrages of the people. In either event, therefore, we may confidently expect the continuance of those peaceful relations which have been maintained on the frontier, and even a large development of the commerce already existing to the mutual advantage of the two countries. It has been found necessary, since your adjournment, to take action on the subject of certain foreign consuls within the Confederacy. The nature of this action, and the reasons on which it was based, are so fully exhibited in the correspondence of the State department, which is transmitted to you, that no additional comment is required. In connection with this subject of our relations with foreign countries, it is deemed opportune to communicate my views in reference to the treaties made by the Government of the United States at a date anterior to our separation, and which were consequently binding on us as well as on foreign powers, when the separation took effect. It was partly with a view to entering into such arrangements as the change in our government had made necessary, that we felt it our duty to send commissioners abroad, for the ourvose of entering into the negotiations proper to fix the relative rights and obligations of the parties to those treaties. As this tender on our part has been declined, as foreign nations have refused us the benefit of the treaties to which we were parties, they certainly have ceased to be binding on us; and, in my opinion, our relations with European nations are, therefore, now controlled exclusively by the general rules of the law of nations. It is proper to add, that these remarks are intended to apply solely to treaty obligations toward foreign governments, and have no reference to rights of individuals. FINANCES. The state of the public finances is such as to demand your earliest and most earnest attention. I need hardly say that a prompt and efficacious remedy for the present condition of the currency is necessary to the successful performance of the functions of government. Fortunately, the resources of our country are so ample, and the spirit of the people so devoted to its cause, that they are ready to make any necessary contribution. Relief is thus entirely within our reach, if we have the wisdom to legislate in such manner as to render available the means at our disposal. of July, 1861, the President of the United States had developed, in his message, the purpose "to make the contest a short and decisive one," and had called on Congress for four hundred thousand men, and four hundred millions of dollars. The Congress had exceeded the Executive recommendation, and had authorized the levy of half a million of volunteers, besides largely increasing the regular land and naval forces of the United States. The necessity thus first became urgent that a financial scheme should be devised on a basis sufficiently large for the vast proportions of the contest with which we were threatened. Knowing that the struggle, instead of being "short and decisive," would be indefinite in duration, and could only end when the United States should awaken from their delusion of conquest, a permanent system was required, fully adapted to the great exigencies before us. The plan devised by Congress, at that time, was based on the theory of issuing treasury notes, convertible, at the pleasure of the holder, into eight per cent bonds, the interest of which was to be payable in coin; and it was correctly assumed that any tendency to depreciation that might arise from over-issue of the currency would be checked by the constant exercise of the holdAt the commencement of the war, we were er's right to fund the notes at a liberal interest, far from anticipating the magnitude and duration payable in specie. This system depended for of the struggle in which we were engaged. The success on the continued ability of government most sagacious foresight could not have predict- to pay the interest in specie; and means were, ed that the passions of the Northern people therefore, provided for that purpose in the law would lead them blindly to the sacrifice of life, authorizing the issues. An internal tax, termed treasure, and liberty, in so vain a hope as that a war-tax, was levied, the proceeds of which, toof subjugating thirteen independent States, in- gether with the revenue from imports, were habited by many millions of people, whose birth- deemed sufficient for the object designed. This right of freedom is dearer to them than life. A scheme required, for its operation, that our comlong exemption from 'direct taxation by the gen-merce with foreign nations should not be suseral government had created an aversion to its raising revenue by any other means than by duties on imports, and it was supposed that these duties would be ample for current peace expenditures, while the means for conducting the war could be raised almost exclusively by the use of the public credit. The first action of the provisional Congress was therefore confined to passing a tariff law, and to raising a sum of fifteen millions of dollars by loan, with a pledge of a small export duty on cotton, to provide for the redemption of the debt. At its second session, war was declared to exist between the Confederacy and the United States, and provision was made for the issue of twenty millions of dollars in treasury notes, and for borrowing thirty millions of dollars on bonds. The tariff was revised, and preparatory measures taken to enable the Congress to levy internal taxation at its succeeding session. These laws were passed in May, and the States of Virginia, North-Carolina, Tennessee, and Arkansas, having joined the Confederacy, the Congress adjourned to meet in the city of Richmond in the following month of July. Prior to the assembling of your predecessors in Richmond, at their third session, near the end pended. It was not to be anticipated that such suspension would be permitted otherwise than by an effective blockade; and it was absurd to suppose that a blockade "sufficient really to prevent access" to our entire coast, could be maintained. We had the means, therefore, (if neutral nations had not combined to aid our enemies by the sanction of an illegal prohibition on their commerce,) to secure the receipt into the treasury of coin sufficient to pay the interest on the bonds, and thus maintain the treasury notes at rates nearly equal to par in specie. So long as the interest continued to be thus paid with the reserve of coin preexisting in our country, experience sustained the expectations of those who devised the system. Thus on the first of the following December, coin had only reached a premium of about twenty per cent, although it had already become apparent that the commerce of the country was threatened with permanent suspension by reason of the conduct of neutral nations, and that the necessary result must be the exhaustion of our specie reserve. Wheat, in the beginning of the year 1862, was selling at one dollar and thirty cents per bushel, not exceeding, therefore, its average price in time of peace. The other agricultural products of the country were at similar moderate rates, thus indicating that there was no excess of circulation, and that the rate of premium on specie was heightened by the exceptional causes which tended to its exhaustion without the possibility of renewing the supply. This review of the policy of your predecessors is given in justice to them, and it exhibits the condition of the finances at the date when the permanent government was organized. In the mean time the popular aversion of internal taxation by the general government had influenced the legislation of the several States, and in only three of them-South-Carolina, Mississippi, and Texas-were the taxes actually collected from the people. The quota devolving upon the remaining States had been raised by the issue of bonds and State treasury notes, and the public debt of the country was thus actually increased instead of being diminished by the taxation imposed by Congress. Neither at the first nor second session of the present Congress were means provided by taxation for maintaining the government, the legislation being confined to authorizing further sales of bonds and issues of treasury notes. Although repeated efforts were made to frame a proper system of taxation, you were confronted with an obstacle which did not exist for your predeces sors, and which created grave embarrassment in devising any scheme of taxation. About two thirds of the entire taxable property of the confederate States consists of lands and slaves. The general power of taxation vested in Congress by the Provisional Constitution (which was to be only temporary in its operation) was not restricted by any other condition than that "all duties, imports, and excises should be uniform throughout the States of the Confederacy." But the permanent Constitution sanctioning the principle that taxation and representation ought to rest on the same basis, specially provides that "representatives and direct taxes shall be apportioned among the several States according to their respective numbers, which shall be determined by adding to the whole number of free persons including those bound to service for a term of years, and excluding Indians not taxed three fifths of all slaves." It was further ordered that a census should be made within three years after the first meeting of Congress, and that "no capitation or other direct tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken." It is plain that, under the provisions, capitation and direct taxes must be levied in proportion to the census when made. It is also plain that the duty is imposed on Congress to provide for making a census prior to the twenty-second of February, 1865. It may further be stated that, according to the received construction of the Constitution of the United States, (a construction acquiesced in for upward of sixty years,) taxes on lands and slaves are direct taxes, and the conclusion seems necessarily to be that, in repealing without modification, in our Constitu tion, the language of the Constitution of 1787, our convention intended to attach to it the meaning which had been sanctioned by long and uninterrupted acquiescence. So long as there seemed to be a probability of being able to carry out these provisions of the Constitution in their entirety, and in conformity with the intentions of its authors, there was an obvious difficulty in framing any system of taxation. A law which should exempt from the burden two thirds of the property of the country would be so unfair to the owners of the remaining third as it would be inadequate to meet the requirements of the public service. The urgency of the need was such, however, that, after great embarrassment, and more than three months of assiduous labor, you succeeded in framing the law of the twenty-fourth April, 1863, by which you sought to reach, so far as was practicable, every resource of the country, except the capital invested in real estate and slaves, and by means of an income-tax and a tax in kind on the product of the soil, as well as by license on business occupations and professions, to command resources sufficient for the wants of the country. But a very large proportion of these resources could only be made available at the close of the present and the commencement of the ensuing year, while the intervening exigencies permitted no delay. In this state of affairs, superinduced almost unavoidably by the fortunes of the war in which we are engaged, the issues of treasury notes have been increased until the currency in circulation amounts to more than six hundred millions of dollars, or more than threefold the amount required by the business of the country. I need not enlarge upon the evil effects of this condition of things. They are unfortunately but too apparent. In addition to the difficulty presented to the necessary operations of the government, and the efficient conduct of the war, the most deplorable of all its results is undoubtedly its corrupting influence on the morals of the people. The possession of large amounts of treasury notes has naturally led to a desire for investment, and with a constantly increasing volume of currency there has been an equally constant increase of price in all objects of investment. This effect has stimulated purchase by the apparent certainty of profit, and a spirit of speculation has thus been fostered, which has so debasing an influence and such ruinous consequences, that it is our highest duty to remove the cause, and no measures directed to that end can be too prompt or too stringent. Reverting to the constitutional provisions a!ready cited, the question recurs whether it be possible to execute the duty of apportioning in accordance with the census ordered to be made as a basis. So long as this appeared to be practicable, none can deny the propriety of your course in abstaining from the imposition of direct taxes till you could exercise the power in the precise mode pointed out by the terms of the fundamental law. But it is obvious that there are many duties imposed by the Constitution which depend for their fulfilment on the undisturbed possession of the territory within which they are to be performed. The same instrument which orders a census to be made in all the States imposes the duty on the Confederacy "to guarantee to every State a republican form of government." It enjoins on us "to protect each State from invasion," and while declaring that its great objects and purposes are, "to establish justice, insure domestic tranquillity and secure the blessings of liberty to ourselves and our posterity," it confers the means and thereby imposes on us the paramount duty of effecting its intent, by "laying and collecting taxes, duties, imposts, and excises necessary to pay the debts, provide for the common defence, and carry on the government of the confederate States." would there be in imposing on the remainder the whole amount of the taxation of the entire State in proportion to its representation? What else would this be in effect than to increase the burthen of those who are the heaviest sufferers by the war, and to make our own inability to protect them from invasion, as we are required to do by the Constitution, the ground for adding to their losses by an attempted adherence to the letter, in violation of the spirit of that instrument? No such purpose could have been entertained, and no such result contemplated by the framers of the Constitution. It may add weight to these considerations, if we reflect that, although the Constitution provided that it should go into operation with a representation temporarily distributed among the States, it expressly ordains, after providing for a census within three years, that this temporary distribution of representative power is to endure "until such enumeration shall be made." Would any one argue that, because the census cannot be made within the fixed period, the government must, at the expiration of that period, perish for want of a rep subject can be viewed, I am led to the conclusion already announced, and which is understood to be in accordance with a vote taken in one or both houses at our last session. I shall, therefore, until we are able to pursue the precise mode required by the Constitution, deem it my duty to approve any law levying the taxation which you are bound to impose for the defence of the country, in any other practicable mode which shall distribute the burthen uniformly and impartially on the whole property of the people. None would pretend that the Constitution is violated because, by reason of the presence of hostile armies, we are unable to guarantee a republican form of government to those States or portions of States now temporarily held by the enemy, and as little justice would there be in imputing blame for the failure to make the cen-resentative body? In any aspect in which the sus, when that failure is attributable to causes not foreseen by the authors of the Constitution, and beyond our control. The general intent of our constitutional charter is unquestionably that the property of the country is to be taxed in order to raise revenue for the common defence, and the special mode provided for levying this tax is impracticable from unforeseen causes. It is, in my judgment, our primary duty to execute the general intent expressed by the terms of the instrument which we have sworn to obey, and we cannot excuse ourselves for the failure to fulfil this obligation on the ground that we are unable to perform it in the precise mode pointed out. Whenever it shall be possible to execute our duty in all its parts, we must do so in exact compliance with the whole letter and spirit of the Constitution. Until that period shall arrive, we must execute so much of it as our condition renders practicable. Whenever the withdrawal of the enemy shall place it in our power to make a census and apportionment of direct taxes, any other mode of levying them will be contrary to the will of the lawgiver, and incompatible with our obligation to obey that will; until that period the alternative left is to obey the paramount precept, and to execute it according to the only other rule provided, which is to "make the tax uniform throughout the confederate States." The considerations just presented are greatly enforced by the reflection that any attempt to apportion taxes among States, some of which are wholly or partially in the occupation of hostile forces, would subvert the whole intention of the framers of the Constitution, and be productive of the most revolting injustice, instead of that just correlation between taxation and representation which it was their purpose to secure. With large portions of some of the States occupied by the enemy, what justice VOL. VIII-Doc. 18 In your former legislation you have sought to avoid the increase in the volume of notes in circulation by offering inducements to voluntary funding. The measures adopted for that purpose have been but partially successful, and the evil has now reached such a magnitude as to permit no other remedy than the compulsory reduction of the currency to the amount required by the business of the country. This reduction should be accompanied by a pledge that, under no stress of circumstances, will that amount be exceeded. No possible mode of using the credit of the government can be so disastrous as one which disturbs the basis of all exchanges, renders impossible all calculations of future values, augments, in constantly increasing proportions, the price of all commodities, and so depreciates all fixed wages, salaries, and incomes, as to render them inadequate to bare subsistence. If to these be added the still more fatal influence on the morals and character of the people, to which I have already adverted, I am persuaded you will concur in the conclusion that an inflexible adherence to a limitation of the currency to a fixed sum is an indispensable element of any system of finance now to be adopted. The holders of the currency now outstanding can only be protected in the recovery of their just claims by substituting for their notes some other security. If the currency is not greatly of the burden on the note-holder, but to force and promptly reduced, the present scale of in- those who have few or none of the notes to part flated prices will not only continue to exist, but with a share of their possessions to those who by the very fact of the large amounts thus made hold the notes in excess, in order to obtain the requisite in the conduct of the war, those prices means of satisfying the demands of the tax-gathwill reach rates still more extravagant, and the erer. This is the only mode by which it is pracwhole system will fall under its own weight, ticable to make all contribute as equally as posthus rendering the redemption of the debt im-sible in the burden which all are bound to share, possible, and destroying its whole value in the and it is for this reason that taxation adequate to hands of the holder. If, on the contrary, a fund- the public exigencies, under our present circumed debt, with interest secured by adequate taxa-stances, must be the basis of any funding systion, can be substituted for the outstanding cur- tem or other remedy for restoring stability to our rency, its entire amount will be made available finances. to the holder, and the government will be in a condition enabling it, beyond the reach of any probable contingency, to prosecute the war to a successful issue. It is, therefore, demanded, as well by the interest of the creditor as of the country at large, that the evidences of the public debt now outstanding, in the shape of treasury notes, be converted into bonds bearing adequate interest, with a provision for taxation sufficient to insure punctual payment, and final redemption of the whole debt. THE ARMY, To the report of the Secretary of War you are referred for details relative to the condition of the army and the measures of legislation required for maintaining its efficiency, recruiting its numbers, and furnishing the supplies necessary for its support. Though we have lost many of the best of our soldiers and most patriotic of our citizens-the sad and unavoidable result of the battles and toils of such a campaign as that which will render the year 1863 ever memorable in our annals The report of the Secretary of the Treasury presents the outlines of a system which, in conjunction with existing legislation, is intended to the army is believed to be, in all respects, in secure the several objects of a reduction of the better condition than at any previous period of circulation within fixed reasonable limits; of the war. Our gallant defenders, now veterans, providing for the future wants of the govern- familiar with danger, hardened by exposure, and ment; of furnishing security for the punctual confident in themselves and their officers, endure payment of interest and final extinction of the privations with cheerful fortitude and welcome principal of the public debt; and of placing the battle with alacrity. The officers, by experience whole business of the country on a basis as near in field-service and the action of examining boards a specie standard as is possible during the contin- in relieving the incompetent, are now greatly uance of the war. I earnestly recommend it to more efficient than at the commencement of the your consideration, and that no delay be permit- war. The assertion is believed to be fully justited to intervene before your action on this vital fied, that, regarded as a whole, for character, subject. I trust that it will be suffered to en-valor, efficiency, and patriotic devotion, our army gross your attention until you shall have disposed of it in the manner best adapted to attain the important results which your country anticipate from your legislation. has not been equalled by any like number in the history of the war. In view of the large conscription recently ordered by the enemy, and their subsequent call for volunteers, to be followed, if effectual, by a still further draft, we are admonished that no effort must be spared to add largely to our effective force as promptly as possible. The sources of supply are to be found by restoring to the army all those who are improperly absent, putting an end to substitution, modifying the exemption law, restricting details, and placing in the ranks such of the able-bodied men now employed as wagoners, nurses, cooks, and other employés, as are doing service for which the negroes may be found competent. It may be added that, in considering this subject, the people ought steadily to keep in view that the government, in contracting debt, is but their agent; that its debt is their debt. As the currency is held exclusively by ourselves, it is obvious that, if each person held treasury notes in exact proportion to the value of his whole means, each would in fact owe himself the amount of the notes held by him, and, were it possible to distribute the currency among the people in this exact proportion, a tax levied on the currency alone, to an amount sufficient to reduce it to proper limits, would afford the best of all The act of the sixteenth of April, 1862, proremedies. Under such circumstances, the notes vides: "That persons not liable for duty may be remaining in the hands of each holder, after the received as substitutes for those who are, under payment of his tax, would be worth quite as such regulations as may be prescribed by the much as the whole sum previously held, for it Secretary of War." The policy of granting this would purchase at least an equal amount of com- privilege has not been sustained by experience. modities. The result cannot be perfectly at- Not only has the numerical strength of the army tained by any device of legislation, but it can be been seriously impaired by the frequent deserapproximated by taxation. A tax on all values tions for which substitutes have become notohas, for its effect, not only to impose a due sharerious, but dissatisfaction has been excited among |