ought to make our credit the best on earth. With a less burden of taxation than the citizen has endured for six years past, the entire public debt could be paid in ten years. But it is not desirable that the people should be taxed to pay it in that time. Year by year the ability to pay increases in a rapid ratio. But the burden of interest ought to be reduced as rapidly as can be done without the violation of contract. The public debt is represented, in great part, by bonds having from five to twenty and from ten to forty years to run, bearing interest at the rate of six per cent. and five per cent. respectively. It is optional with the Government to pay these bonds at any period after the expiration of the least time mentioned upon their face. The time has already expired when a great part of them may be taken up, and is rapidly approaching when all inay be. It is believed that all which are now due may be replaced by bonds bearing a rate of interest not exceeding four and a half per cent., and as rapidly as the remainder become due that they may be replaced in the same way. To accomplish this it may be necessary to authorize the interest to be paid at either of three or four of the money centres of Europe, or by any assistant treasurer of the United States, at the option of the holder of the bond. I suggest this subject for the consideration of Congress, and also, simultane- ously with this, the propriety of redeeming our currency, as before suggested, at its market value at the time the law goes into effect, increasing the rate at which currency will be bought and sold from day to day, or week to week, at the same rate of interest as Government pays upon its bonds.

"The subject of tariff and internal taxation will necessarily receive your attention. The revenues of the country are greater than the requirements, and may with safety be reduced. But as the funding of the debt in a four or a four and a half per cent. loan would reduce annual current expenses largely, thus, after funding, justifying a greater reduction of taxation than would be now expedient, I suggest postponement of this question until the next meeting of Congress.

"It may be advisable to modify taxation and tariff in instances where unjust or burdensome discriminations are made by the present laws; but a general revision of the laws regulating this subject I recommend the postponement of for the present. I also suggest the renewal of the tax on incomes, but at a reduced rate, say of three per cent., and this tax to expire in three years.

"With the funding of the National Debt, as here suggested, I feel safe in saying that taxes and the revenue from imports may be reduced safely from sixty to eighty millions per annum at once, and may be still further reduced from year to year, as the resources of the country are developed.

"The report of the Secretary of the Treasury shows the receipts of the Government for the fiscal year ending June 30, 1869, to be $370,943,747, and the expenditures, including interest, bounties, &c., to be $321,490,597. The estimates for the ensuing year are

more favourable to the Government, and will no doubt show a much larger decrease of the public debt.

"The receipts in the Treasury, beyond expenditures, have exceeded the amount necessary to place to the credit of the sinking fund as provided by law. To lock up the surplus in the Treasury and withhold it from circulation, would lead to such a contraction of the currency as to cripple trade and seriously affect the prosperity of the country. Under these circumstances, the Secretary of the Treasury and myself heartily concurred in the propriety of using all the surplus currency in the Treasury in the purchase of Government bonds, thus reducing the interest bearing indebtedness of the country, and of submitting to Congress the question of the disposition to be made of the bonds so purchased. The bonds now held by the Treasury amount to about seventy-five millions, including those belonging to the sinking fund. I recommend that the whole be placed to the credit of the sinking fund.

"Your attention is respectfully invited to the recommendations of the Secretary of the Treasury for the creation of the office of Commissioner of Customs Revenue; for the increase of salaries to certain classes of officials; the substitution of increased national bank circulation to replace the outstanding three per cent. certificates; and most especially to his recommendation for the repeal of laws allowing shares of fines, penalties, forfeitures, &c., to officers of the Government or to informers.

"The office of Commissioner of Internal Revenue is one of the most arduous and responsible under the Government. It falls but little, if any, short of a cabinet position in its importance and responsibilities. I would ask for it, therefore, such legislation as, in your judgment, will place the office upon a footing of dignity commensurate with its importance, and with the character and qualifications of the class of men required to fill it properly.

"As the United States is the freest of all nations, so, too, its people sympathize with all peoples struggling for liberty and selfgovernment. But while so sympathizing, it is due to our honour that we should abstain from enforcing our views upon unwilling nations, and from taking an interested part, without invitation, in the quarrels between different nations or between governments and their subjects. Our course should always be in conformity with strict. justice and law, international and local. Such has been the policy of the Administration in dealing with these questions. For more than a year a valuable province of Spain, and a near neighbour of ours, in whom all our people cannot but feel a deep interest, has been struggling for independence and freedom. The people and Government of the United States entertain the same warm feelings and sympathies for the people of Cuba, in their pending struggle, that they manifested throughout the previous struggles between Spain and her former colonies, in behalf of the latter. But the contest has at no time assumed the conditions which amount to a war in the sense of international law, or which would show the existence

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of a de facto political organization of the insurgents sufficient to justify a recognition of belligerency.

"The principle is maintained, however, that this nation is its own judge when to accord the rights of belligerency, either to a people struggling to free themselves from a government they believe to be oppressive, or to independent nations at war with each other.

"The United States have no disposition to interfere with the existing relations of Spain to her colonial possessions on this continent. They believe that in due time Spain and other European powers will find their interest in terminating those relations, and establishing their present dependencies as independent powers— members of the family of nations. These dependencies are no longer regarded as subject to transfer from one European power to another. When the present relation of colonies ceases, they are to become independent powers, exercising the right of choice and of self-control in the determination of their future condition and relations with other powers.

"The United States, n order to put a stop to bloodshed in Cuba, and in the interest of a neighbouring people, proposed their good offices to bring the existing contest to a termination. The offer, not being accepted by Spain on a basis which we believed could be received by Cuba, was withdrawn. It is hoped that the good offices of the United States may yet prove advantageous for the settlement of this unhappy strife.

"Meanwhile a number of illegal expeditions against Cuba have been broken up.

"It has been the endeavour of the Administration to execute the neutrality laws in good faith, no matter how unpleasant the taskmade so by the sufferings we have endured from lack of like good faith towards us by other nations.

"On the 26th of March last the United States schooner 'Lizzie Major' was arrested on the high seas by a Spanish frigate, and two passengers taken from it and carried as prisoners to Cuba. Representations of these facts were made to the Spanish Government as soon as official information of them reached Washington. The two passengers were set at liberty, and the Spanish Government assured the United States that the captain of the frigate in making the capture had acted without law, that he had been reprimanded for the irregularity of his conduct, and that the Spanish authorities in Cuba would not sanction any act that could violate the rights or treat with disrespect the sovereignty of this nation.

"The question of the seizure of the brig' Mary Lowell' at one of the Bahama Islands, by Spanish authorities, is now the subject of correspondence between this Government and those of Spain and Great Britain.

"The Captain-General of Cuba, about May last, issued a proclamation authorizing search to be made of vessels on the high seas. Immediate remonstrance was made against this, whereupon the Captain-General issued a new proclamation limiting the right of

search to vessels of the United States so far as authorized under the treaty of 1795. This proclamation, however, was immediately withdrawn.

"I have always felt that the most intimate relations should be cultivated between the Republic of the United States and all independent nations on this continent. It may be well worth considering whether new treaties between us and them may not be profitably entered into, to secure more intimate relations, friendly, commercial, and otherwise.

"The subject of an inter-oceanic canal, to connect the Atlantic and Pacific Oceans, through the Isthmus of Darien, is one in which commerce is greatly interested. Instructions have been given to our Minister to the Republic of the United States of Colombia to endeavour to obtain authority for a survey by this Government, in order to determine the practicability of such an undertaking, and a charter for the right of way to build, by private enterprise, such a work, if the survey proves it to be practicable.

"In order to comply with the agreement of the United States as to a mixed commission at Lima for the adjustment of claims, it became necessary to send a commissioner and secretary to Lima in August last. No appropriation having been made by Congress for this purpose, it is now asked that one be made covering the past and future expenses of the Commission.

"The good offices of the United States to bring about a peace between Spain and the South American republics, with which she is at war, having been accepted by Spain, Peru, and Chili, a congress has been invited, to be held in Washington during the present winter.

"A grant has been given to Europeans of an exclusive right of transit over the territory of Nicaragua, to which Costa Rica has given its assent, which it is alleged conflicts with vested rights of citizens of the United States. The Department of State has now this subject under consideration.

"The Minister of Peru having made representations that there was a state of war between Peru and Spain, and that Spain was constructing, in and near New York, thirty gun-boats, which might be used by Spain in such a way as to relieve the naval force at Cuba so as to operate against Peru, orders were given to prevent their departure. No further steps having been taken by the representative of the Peruvian Government to prevent the departure of these vessels, and I not feeling authorized to detain the property of a nation with which we are at peace, on a mere Executive order, the matter has been referred to the courts to decide.

"The conduct of the war between the allies and the Republic of Paraguay has made the intercourse with that country so difficult that it has been deemed advisable to withdraw our representative from there.

"Toward the close of the last Administration a convention was signed at London for the settlement of all outstanding claims between

Great Britain and the United States, which failed to receive the advice and consent of the Senate to its ratification. The time and the circumstances attending the negotiation of that treaty were unfavourable to its acceptance by the people of the United States, and its provisions were wholly inadequate for the settlement of the grave wrongs that had been sustained by this Government, as well as by its citizens. The injuries resulting to the United States by reason of the course adopted by Great Britain during our late civil war, in the increased rates of insurance; in the diminution of exports and imports, and other obstructions to domestic industry and production; in its effect upon the foreign commerce of the country; in the decrease and transfer to Great Britain of our commercial marine; in the prolongation of the war and the increased cost (both in treasure and in lives) of its suppression could not be adjusted and satisfied as ordinary commercial claims, which continually arise between commercial nations. And yet the Convention treated them simply as such ordinary claims, from which they differ more widely in the gravity of their character than in the magnitude of their amount, great even as is that difference. Not a word was found in the treaty, and not an inference could be drawn from it, to remove the sense of the unfriendliness of the course of Great Britain, in our struggle for existence, which had so deeply and universally impressed itself upon the people of this country.

"Believing that a convention thus misconceived in its scope and inadequate in its provisions would not have produced the hearty, cordial settlement of pending questions, which alone is consistent with the relations which I desire to have firmly established between the United States and Great Britain, I regarded the action of the Senate in rejecting the treaty to have been wisely taken in the interest of peace, and as a necessary step in the direction of a perfect and cordial friendship between the two countries. A sensitive people, conscious of their power, are more at ease under a great wrong, wholly unatoned, than under the restraint of a settlement which satisfies neither their ideas of justice nor their grave sense of the grievance they have sustained. The rejection of the treaty was followed by a state of public feeling on both sides which I thought not favourable to an immediate attempt at renewed negotiations. I accordingly so instructed the Minister of the United States to Great Britain, and found that my views in this regard were shared by her Majesty's Ministers. I hope that the time may soon arrive when the two Governments can approach the solution of this momentous question with an appreciation of what is due to the rights, dignity, and honour of each, and with the determination not only to remove the causes of complaint in the past, but to lay the foundation of a broad principle of public law, which will prevent future differences, and tend to firm and continued peace and friendship.

"This is now the only grave question which the United States has with any foreign nation.