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 stamps) - 27,468,323,420 -