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Digressing from this question of authority for a moment, the reimbursement of California by the Federal Government consists of four principal items. The first is a sum of $1,459,000, expended in the payment of the men, the volunteers, $5 in gold extra per month.

The next item amounts to $900,000, which was used in the payment of an extra compensation to the men who enlisted. In cases of new enlistments, they paid at the beginning of 1864 $160 per man, and in cases of reenlistments of veterans $140 per man.

The total amount claimed on account of expenditures for the militia is $468,000.

Those three main sums, with several small items included totaling less than $100,000, make a total claim in round numbers of $2,920,315.

Added to the aggregate of those three items is the amount expended for interest by the State on bonds issued to raise the sums above named amounting, up to 1929, to $3,541,800. That interest is computed by the Secretary of War and the Army Board up to 1889, and by the State treasurer of California from 1889 to 1929, all certified by the Comptroller General of the United States. (S. Rept. 351, 72d Cong., 1st sess., pp. 4-5.)

This claim for interest is confined entirely to actual sums the State of California paid out as interest on the bonds by which the money here sought to have refunded was secured during the Civil War. California, of course, did not have that money in the Treasury and this money was supplied during the war by the issue ance and sale of bonds. These bonds were subsequently refunded, but there is still outstanding and unredeemed $840,000 bonds, upon which the State is paying interest. But the total amount of interest actually paid by the State up to December 31, 1929, is in the amounts stated, as certified by the Comptroller General and the treasurer of the State of California. So there seems to be no question about the amounts involved in the California case.

Going back to the authority that California had to charge the Federal Government for these expenditures, I refer to the act of Congress passed on the 27th day of July 1861. The substance of this act is as follows:

"That the Secretary of the Treasury be, and he is hereby, directed, out of any money in the Treasury not otherwise appropriated, to pay to the Governor of any Štate, or to his duly authorized agents, the costs, charges, and expenses properly incurred by such State for enrolling, subsisting, clothing, supplying, arming, equipping, paying, and transporting its troops employed in aiding to suppress the present insurrection against the United States, to be settled upon proper vouchers to be filed and passed upon by the proper accounting officers of the Treasury.”

Now, some doubt arose in the interpretation of that act as to the time to which it was to apply; so Congress on the 8th of March 1862 passed an act providing that it should apply to expenditures before as well as after the passage of the act. However, I believe that amendment has no application to California because all the amounts claimed here were expended after the passage of the act.

That was the general situation: Congress authorizing and encouraging the loyal States to proceed on their own responsibility to provide for the general defense of the Nation, with the promise of reimbursement.

A peculiar situation, local to the Pacific coast and particularly to California, existed in reference to the depreciation of the currency of the United States. California was producing gold at a rate that was considered a very great production at that time. Gold was the common medium of exchange in California. Ordinarily or frequently debts were paid by gold dust or nuggets itself, by the gold bullion instead of by coin. So it was the standard and the only standard money of that part of our country.

Paper money was generally depreciated, you might say it was doubly or increasingly so under these conditions in California.

On the 9th day of February 1863 the Secretary of the Treasury made an order requiring all the soldiers on the Pacific coast to be paid in Treasury notes, which debarred them from any gold payments, and, of course, confined the payments to Treasury notes which were a depreciated currency.

On the 28th day of February, which was only 19 days after the Secretary of the Treasury made this order, gold was worth $170 in California, as measured by the value of Treasury notes.

Mr. CELLER. When you say it was worth $170, just what do you mean?

Mr. LEA. One hundred dollars worth of gold was worth $170 in Treasury notes. I mention that simply to give specific information showing the variations in the value of paper money as contrasted with gold.

You can, of course, readily appreciate what effect that would have upon the service men who were receiving $13 a month for their service; I am referring to the privates.

On the 27th of April 1863 the California Legislature made an appropriation of $600,000 and in subsequent years followed that by additional appropriations, for what was called the “soldiers' relief fund.”

In the language of the act itself, this appropriation was provided for the purpose of—

"Paying compensation to the soldiers of the companies of California Volunteers raised in this State for the service of the United States to aid in repelling invasion, suppressing insurrection, enforcing the laws and protecting the public property, in addition to the pay allowed them by the United States."

Section 2 of this act provided for the payment of $5 a month extra in gold to each enlisted man. The total sum paid by the State of California on account of this act was $1,420,000. Ordinarily Treasury notes amounting to $13, worth, say, $6.50 or $7, in gold, was the monthly pay of a private in California. So California, through this act of its legislature, provided $5 additional to be paid in gold to make up the difference.

The question of the necessity of this action is a matter of more or less extensive treatment in the Senate report, and I shall not attempt to go into that in detail. Nevertheless, I shall try to give you somewhat of a birdseye view of the reasons for that legislation.

On the 14th of March 1863 General Wright brought up the question of the necessity of payment in gold. General Wright was the commanding general of the United States Army in the California territory. General Wright said in his report to Adjutant General Thomas in reference to California conditions (S.Rept. 351, p. 16):

"Recruiting is slow. The greatest embarrassment is the want of funds. We cannot possibly get along on this coast without specie. With Treasury notes fluctuating in value, frequently at a discount of 50 percent, it is impossible to make contracts, and when purchases are made we pay nearly double price. * * *"

Then, writing again on the 30th of April, following that letter, he said:

“We are, however, laboring in this country under the greatest difficulties and embarrassments, both in the procurement of men and means. One cause is the high price of labor due to the wonderful development of mines, and a still greater and controlling cause is the depreciation of our currency. Gold being the basis of our circulation, coin only is used in all business transactions, and Treasury notes can only be used at a great discount. This operates with peculiar hardship on all persons in the service of the Government."

Then, following the statement of General Wright, on the same page of the report of the Senate, I will read this excerpt from the letter of Major Drew to Adjutant General Drum under date of March 4, 1863:

"I allude to their nonpayment since they entered the service.

That is the nonpayment of the officers and commands in California. Further he says, speaking of the fact that not having received their pay, they had to borrow money to purchase their horses, equipments, and so forth:

The money borrowed has been specie and must be paid in the same currency, while payments to soldiers is liable to be made in Treasury notes, worth here not more than 50 or 55 cents per dollar, and very little sale for them even at those low figures.

Good men will not enlist for $6 or $7 a month while $13 is the regular pay, and, moreover, is being realized by every soldier in every other department than the Pacific."

Following that, on page 19, you will see an excerpt from General Wright in a letter to the War Department, to The Adjutant General, in which he states: “The legislature of this State has adjourned.”

This is the legislature that was requested by the governor to consider these matters.

"A bill was passed giving $5 per month to each volunteer soldier furnished by the State from the commencement of their service. The legislature also appropriated about $24,000 to aid in raising the new regiment and battalions now in progress of organization. This will give nearly a thousand dollars to each company to be raised."

Then on the 14th of April, in a further letter to Adjutant General Thomas, General Wright said:

“We have been greatly embarrassed for want of funds, but the State legislature has just made an appropriation to assist in raising these troops, giving about $1,000 to each company. This will be of the greatest service."

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Incidentally, on the question of the payment of the $5 extra, I refer you to an excerpt on page 29 of the Senate report, a decision made by Comptroler of the Treasury, Tracewell, in 1903, in reference to the legality of a claim of the State of Pennsylvania for gold premium on money borrowed to raise troops. The quotation from Comptroller Tracewell is as follows:

“For reimbursement of expenses incurred by the State in raising troops to suppress the insurrection of 1861, Pennsylvania is entitled to reimbursement of the amount expended by it for gold premium on interest payments, said premium having been paid under an act of the State at the time the loan was consummated.”

Mr. CELLER. Was the money paid to the State of Pennsylvania in that case?

Mr. LEA. I am informed that it was. This is the decision of the Comptroller on the question. I will state to the committee that if now or at any time there is any doubt in their minds or they wish further information, we shall be glad to try to furnish it. Mr. Kappler, the attorney for the State, I think, can furnish the committee with any information that may be desired.

Mr. FREE. It might be well to say to the committee at this time, not only was the claim of Pennsylvania paid, but a claim of the State of Nevada, which is on all fours with that of the State of California, was paid, just a year or two ago.

Mr. Lea. I understand also that a similar payment was confirmed to the State of Massachusetts.

Mr. SWING. And Kentucky and Texas.
Mr. CELLER. Were those matters referred to this committee?

Mr. LEA. I referred to the Pennsylvania case as being one in which the Government had confirmed the payment of a premium; while these States just mentioned by Mr. Swing are States that had claims similar to the general nature of the California claim. The Nevada case was reported out of this committee, passed Congress and has been settled.

The act of April 4, 1864, passed by the Legislature of California, provided for the additional payments of $140 and $160, as I have heretofore mentioned, to men who enlisted and veterans who reenlisted for the period of the war; $160 for an enlistment and $140 additional for a reenlistment.

Part of the theory of making those payments was to cover the expense of transporting a man from the place of his residence to the place of enlistment. The regular United States troops serving in California at the beginning of the war were practically all removed from California to the East, and that largely created the necessity of California raising its own troops. Now, when the terms of enlistment of these men were about to expire and the Government was faced with the necessity of doing something to prevent that, there was a choice between two alternatives: One was to pay an additional amount such as was paid by California and keep these experienced men in the service, or else go to the East and bring new untrained men to take their places. If they went to New York, which was a common point of embarkation, the expense, it was estimated, would be not less than $160 per man. So they reached the conclusion if they could keep an experienced man in the service and pay him $140 to reenlist, be was a more useful man to the service than a new man brought out to the frontier and into those unusual conditions with which the average man in the East was unfamiliar.

These California troops were scattered over the Pacific coast region, you might say, at different periods, and particularly over the States of California, Nevada, Arizona, New Mexico, Utah, Idaho, and elsewhere. They were divided up into comparatively small companies and distributed over the States, one expedition going as far as western Texas on the south; other men were sent up into Nevada to keep open and maintain the mail lines, the transportation lines with the East, there being no railroads at that tinie; and others were sent north into Oregon and into Idaho and Utah. So they were stationed at remote posts, living under crude and hard natural conditions. It was not a desirable service. There was little of glory in the service they were performing, but was nevertheless necessary in the common defense.

The amount paid by the State for these additional enlistments totaled $900,000. Bonds were issued to raise the money for that purpose. In 1850 the Government passed a general law providing for additional pay and allowances for men who served in remote sections of the country which were practically the same as was granted by California. The posts in California were included in that law. But that law was repealed in 1861, if I remember rightly.

There is a letter of General Carleton printed on page 29 of the Senate report on this question as to whether or not volunteers who should be discharged by

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enlistment in veteran Volunteers should not receive their mileage from the place of said discharge to the place of original enrollment. The Comptroller had made a ruling that the men discharged were not entitled to compensation to return them to their homes, and so, discussing this general question, General Carleton said:

“But since that decision was made it is very doubtful if the California Volunteers will reenlist. Their present term of office will expire next August and September. Before that time other troops will have to be sent here to take their places unless these can be induced to reenlist.”

This letter was written in November 1863.
Continuing with this letter, further down:

“If the Government does not deny their traveling allowances and will give the bounty named I believe the most of these regiments can be got to remain. If the Government will not do this I beg to give timely notice of the necessities which will exist to have troops sent to take their places in time to be in position before the terms of service of these men expire. * The true economy of the question would be promoted by making the bounties so liberal as to induce them to reenter the service for 3 years or during the war.".

Now, the militia expense originated as I briefly indicated before. There is an excerpt in the Senate report on page 11 that is informative on that subject, a letter from General Wright, the commanding general on the Pacific coast, who states:

In view of the state of feeling existing in certain localities and the impossibility of posting my troops at every point, the best interests of the Government req uire that we should encourage, by every means in our power, the formation of volunteer companies of patriotic men.

I have assured Governor Stanford of my cordial cooperation in such formation.”

Then, in January 1863, he further wrote to Adjutant General Thomas:

“After consultation with the members of the legislature and also with Governor Stanford, it was the unanimous opinion that the best interests of the Government would be subserved by organizing four companies of militia."

The feature which is mainly the reason I make this quotation is to show what this record shows to be was the practice of Federal authorities, representatives of the Army on the Pacific coast, of being in constant conference and cooperation with the Governor and the legislature of California. I think that situation is so clearly established that it is not a matter of controversy.

You will recall that in the letter of the Secretary of War, Mr. Seward, from which I quoted at the very beginning of my remarks, the President suggested, and that suggestion was transmitted to the Governor of California, that these expenditures should be made the subject of conference between the Federal authorities and those of the State. The State of California under the general act which I quoted, was given authority to provide for the defenses of the State, and the State was to be reimbursed for funds properly expended, or expenses properly incurred. In other words, those words in the statute which provided for the repayment of expenses properly incurred” necessarily carried a wide discretion. In other words, who was going to determine whether or not the expense was proper, or whether it was properly incurred? If it was properly incurred, it was a charge against the Federal Government. But not being able, not having the funds to carry on these operations, not being in a position to do it, the Federal Government clothes the State of California with authority to take care of that part of its defense, to provide for the general defense. California became, in effect, the agent of the Federal Government, clothed with this general authority.

Of course, an agent binds his principal so long as he is within his authority, and where he is clothed with discretion, what he does pursuant to that discretion, binds his principal under the liberal interpretation of his authority this act requires. In other words, the agent is not to be punished for making a mistake, if it is made in good faith and within the reasonable scope of his authority. The general rule of agency is referred to in the Senate report, at page 36, quoting Story, as follows:

“Whether the authority be expressed or implied, it necessarily carries with it or includes in it as an incident all the powers which are necessary or proper or usual as means to effectuate the purposes for which the agency was created.

“In cases of necessity or great urgency it is only necessary that the agent should act bona fide and with reasonable discretion in order to bind the principal."

Of course, I do not desire to reduce this case to a purely technical proposition. That is not the theory of referring to Story, but it is just to remind the committee of those general principles that are involved, as a matter of justice.

It could not be contemplated that the Federal Government intended to hold California to the strictest conformity to what somebody in the Federal Govern. ment might subsequently think was the right thing to be done under those emergency circumstances.

After the war was over, this matter dragged along. California attempted to collect its war expenditures, but without success. In 1882 Congress passed an act for the investigation of these expenditures and a report to Congress. That act was amended in 1886, which constituted the Army board of investigation and made it a board to consist of the Secretary of War and three generals of the Army. About 3 years later, this board reported. It fixed the amount of the liability to California and approved the justness of the claim.

The board's report is referred to on pages 24 and 25 of the Senate report, from which I will quote. The first quotation is in reference to the extra payment of $5 per man.

*It was under circumstances and exigencies such as these that the legislature themselves—all appeals to the General Government having proved futile-provided the necessary relief by the law of April 27, 1863.

“There is every reason for the belief that the predominating if not the only reason of the State authorities in enacting this measure was to allow to their volunteers in the United States service such a stipend as would together with the pay received by them from the General Government amount to a fair and just compensation. In fact, as has been already stated, this was expressly declared to be the purpose of the act."

Calling the attention of the committee to one phase that underlies this whole matter, it is perfectly apparent that California had no motive to make these expenditures except the general and commendable motive of trying to provide for the general defenge of the Government.

Now, quoting from the provision of the Army board's report with reference to enlistment payments:

“With respect to the circumstances and exigencies under which this expenditure was incurred by the State, it appears to be plain that it was the earnest desire of the legislature that such troops as the State had been or might thereafter be called upon to furnish the General Government should be promptly supplied.

“The time was approaching when the terms of most of the volunteer regiments raised in California in the early part of the war would expire. These regiments were occupying important stations in the State and in the Territories of Utah, Arizona, and New Mexico, and it was obvious that it would become necessary either to continue them in service by filling them up with new recruits or reenlisted veterans, or, in the event of their disbandment, to replace them by new organizations. Volunteering under the calls of the previous year had progressed tardily, while lucrative employment in the State was abundant and the material inducements for men to enter the Army were small. It was probable that unless these latter were considerably increased recruiting would come to a standstill,

and under all the circumstances, and prompted by the desire above mentioned, the legislature doubtless deemed it wise to enact the bounty law of April 4, 1864."

This report confirms General Carleton's communication on the subject, hereinbefore quoted.

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INTEREST

The amount claimed by California for interest actually paid by the State on money borrowed to aid the United States up to July 1, 1889, is in round numbers $1,500,545 as reported by the Comptroller General and embodied in the report of the Army Board of 1889.

The interest from that date to December 31, 1929, is certified to by Charles G. Johnson, State treasurer of the State of California, whose certificate appears on pages 40 and 41 of the Senate report, amounting to $2,041,254.

In this connection, I call the attention of the committee to the case of United States v. State of New York decided by the Supreme Court and reported in 160 U.S. 598.

This decision specifically decides that interest paid on money borrowed by a State in aid of the United States is a just and proper charge against the Government under circumstances quite similar to those involved in the California case. This decision is also enlightening on account of its interpretation and exposition

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