the annals of no nation show the cheerful surrender of so much money, property and precious life for a cause believed to be true and in value above price. They cannot now barter it for the saving of a little gold.

Scornfully denying such an imputation, it is said that the people of the State cannot bear any increased taxation; otherwise, the sources of the power of paying anything are destroyed, and the Commonwealth so crippled that it cannot endure the burden, and, instead of growing stronger, will lapse into greater weakness. In other words, they ground their non-payment on inability. This is an argument that demands and is entitled to an audience. Not that even inability gives a State the right to repudiate its just obligations; certainly not, even for its own preservation, till it has made a fair and honest effort to adjust amicably with its creditors. I do not believe that a State, any more than an individual, by the mere asserted exercise of what she pleases to call her sovereignty, can afford, to override the fundamental principles of justice and fair dealing, if she wishes to preserve the respect of her own citizens and her place among the nations of the earth. Whilst it is undoubtedly true that self-preservation is the first law of nations as it is of nature, by its very terms it is never to be appealed to save in the last resort, and as a means when moral methods have failed.

If the State of Virginia, then, is not able to pay the debt or the full interest thereon, and ultimately the principal, she ought to have recourse to the other measure this side of force to which I have referred-an honorable and amicable adjustment with her creditors.

On the 14th day of March, 1878, the General Assembly of Virginia passed a bill, which became a law, making a proposition to the creditors, having in it no principle of force, but a simple proposal of settlement. By the terms of that law, as the Executive, I issued my proclamation, and thereby announced its provisions. I published it in leading papers in this and other cities, and sent it by mail to bondholders and prominent men of business in this country and Europe, urging a consideration of its contents and a response. Of course, I could not write to, or hope to reach, the hundreds of thousands of bondholders, large and small, scattered over the civilized globe. I hoped to reach rather those, who by virtue of their standing controlled in their own or others' right, great amounts, or who independently, in consideration of their known experience and wisdom, were centres of influence. In this extensive correspondence, and in interviews I have had, I have not found the State's creditors "Shylocks," and men filled with cupidity and meanness and grasping cruelty, as they are so graphically described by many who want to take away from them their dues. I have found them gentlemen who are willing to listen to reason, and consider and weigh every statement made to them in good faith.

The result of this correspondence and intercourse are recommendations from the most powerful corporations and houses, and the most respectable and influential business men in the world. These I now lay before the General Assembly.

The first is from the Council of Foreign Bondholders, London, England, presided over by the Right Honorable Edward Pleydell Bouverie, and with a membership from among the most prominent and potential gentlemen, in social, business, and financial circles, in the kingdom. This contains a general proposition of 4 per cent. in gold upon the whole debt, principauterest funded, exempt from taxes, with coupons receivable for all taxes, debts, dues and demands due the State, with sinking fund, the proceeds of the 4 per cent. to be distributed by the creditors among

themselves, so as to make the law effective. This proposition is fully set forth in a copy of an act with schedule annexed, and returned with this message, marked A.

The second proposition is from L. G. & G. C. Ward, signing for Baring Brothers & Co.; August Belmont signing for himself, and on behalf of the Messrs. De Rothschild of London and Paris, Brown, Brothers & Co., Richard 'Irvin & Co., and Chs. M. Fry (president of the Bank of New York), recommending 4 per cent. for the consol and 33 in gold for all the other classes of bonds, principal and interest funded, with coupons, to be received for taxes or other dues to the State with suitable sinking fund. This is set forth in appendix to this message, marked B.

I can conceive of only four objections, if I may so call them, that can be urged against these liberal recommendations, by which, in effect, one-third of the annual interest of the debt is surrendered by the creditors.

It may be insisted, that a distinction is drawn between the holders of consols with tax-receivable coupons, and the other classes of creditors. I suppose no one would not prefer that they should be put upon the same footing, as their claims have equal equity. But whilst the creditors ask us to pay only two-thirds of the promise, it surely cannot be urged as any injustice on the part of the State, when for the purpose of perfecting the distribution, those creditors suggest how the common fund shall be divided among themselves. They, representing every class of indebtedness, and considering the respective rights and equities of the parties for and in behalf of whom they speak, make the recommendation. The objection to its acceptance does not lie with the State, which would, if possible, divide equally.

Another objection will probably be to the tax-receivable coupon feature in these recommendations. I hope the General Assembly will view this matter as I do, and consider how utterly unimportant it is when there are sufficient revenues to meet them. The trouble that has arisen from the funding bill is not because the coupons are receivable for taxes, but because the revenues are not sufficient to discharge them. Were they sufficient the coupons, instead of clogging the wheels of government, would aid business by constituting a circulating medium. They are the common mode that enlightened nations have adopted of announcing their confidence in themselves, thereby strengthening their credit abroad. Who ever hears of any objection urged against their being issued by the United States and the English governments, and their operations being hampered thereby? Be sure to make the revenues large enough, and favor will soon attach to the coupons, and instead of their being odious, they will become the pledge that the Commonwealth respects her faith as she values her life.

Some may seek objection to the funding of the interest. No one denies that we owe the interest, and I am quite sure that no reasonable man ought to object to that, when those who receive the benefit of it, in the same act give up one-third of their whole accruing interest upon the entire debt.

Another, and the most important inquiry is, will this settlement demand an increase of taxation? I answer, it will. I answer thus decidedly, because I want now no halfway or unfinished settlement. Whatever conclusion is reached, let it be final: so that any future issue on this dread question will never more lift its head to disturb the peace and impede the growth and prosperity of the Commonwealth.

The deficit under these recommendations would be about as follows:

The amount of interest to be raised on whole debt funded, principal and interest, at 4 per cent.

The amount from revenues as they now stand to be applied to payment of interest, as per report of Auditor.......

To which add interest on. Literary Fund.......

To be provided for........

$1,341,558 00

972,262 49

369,295 51

84,349 64

$453,645 15

This deficit of $453,645.15 can be met by the State, and not be too seriously felt certainly not so as to cripple business and impair the progress in improvement of her industrial interests and enterprises. The large reductions in expenditure of government made at your last session will now begin to tell; the reduction in salaries and criminal expenses, and biennial sessions of your own body. The spirit of economy, as you will see from the reports of the various Institutions, that is now pervading their management, will tell still further and considerably in the reduction of expenses. An improvement of the "Moffett Liquor Law" that will make it effective; or if this cannot or will not be done, its repeal, and the adoption of a system of liquor tax that will meet the objects aimed at by that law: : a stamp tax, which I regard as one that can both be easily paid, and easily collected; a tax on oysters, a large and valuable source of revenue now almost entirely idle and unproductive; and if these are not acceptable to you, or are insufficient, an increase of tax on real and personal property. As you can readily for yourselves see, even if the whole fell upon this last subject, it would and could be borne without unendurable suffering, and the rise in values by the settlement of this debt trouble would soon relieve us of the burden. It would be most desirable that some law could be devised by which there would be a fuller and more faithful return of personal property; there is supposed to be much of it never reached by the tax-gatherer, and thus lost to the revenues of the State. And I would most respectfully urge a return to the old law with regard to the collection of taxes. The present has many objections. Among the most serious is the postponement of the time of their collection. If the people want protection to their lives and persons and property, to have tus protection, they must be taxed. And the longer they are postponed, the harder they are to pay. To a reflecting man, living under a good government, there is no expenditure for which he receives such full consideration as tha the pays in the shape of taxes.

I shall not enter into any discussion of the details of these recommendations, and how they can be made effective. That is more properly a matter for the investigation of your proper committee. I am sure they will consider them with the calmness and impartiality their grave importance demands.

My duty in this connection is discharged. I now commit this subject of the State debt to the action of the General Assembly. None more vital ever came before this or any other that has convened in this capitol. Upon its settlement rests the future of the Commonwealth. Our creditors have come forward in generous spirit, and recognizing our troubles, have offered to help us bear them; they have aimed no blow at the life of the State, or at what seems to be so dear to her people-her Public Free School

system; but they have tendered their aid that both may survive in the fulness of their strength and beauty. I feel as though a brighter day is dawning for our beloved Commonwealth; depression is to be followed by hope, stagnation by the revival of business, capital and labor to come and help us develop our boundless resources, and the New Virginia upon whose history we are entering to be none the less honorable and glorious than the Old.

I submit the Reports of the various Asylums and Institutions of learning, and ask your careful consideration of the suggestions of their Superintendents and Boards. Also Reports of the Superintendent of Public Instruction, Treasurer and Second Auditor, Fish Commissioner and Superintendent of Public Printing, to which I likewise call your attention. Your special attention is requested to the status of the property where the Central Lunatic Asylum is now located, the lease of which expires on the 31st December, 1879, and to the recommendations of the Board.

The Public Tobacco Warehouse, under the advice of the AttorneyGeneral and gentlemen members of the Committee on Public Property in the House of Delegates, has been conducted on State account. I submit the Report of the Inspectors and invite your attention to its suggestions.

On the 6th March, 1878, an act was passed ordering the Governor, Attorney-General and Secretary of the Commonwealth, as commissioners, to advertise, inviting sealed proposals for the lease of the Penitentiary. This was done through the columns of papers in the city of Richmond and in other cities North, West and South. No proposals have been received, coming within the purview of that act.

A very serious fire has occurred on the premises of the Penitentiary by which the State has lost, according to the estimate of the Superintendent and Board, $35,000. This is the more serious on account of the present condition of our finances. I invite attention to the reports and suggestions of the Superintendent and Board, as to this fire.

The heavy pressure of other graver matters has prevented my giving to the general Penitentiary system, and to the working of our own and its improvement, if possible, that attention and thought which it so justly demands. I have been trying to gather information as to the operation of different systems in the various States, but am not sufficiently informed as yet to make any well digested recommendations to the General Assembly. The Lease system has been tried in some States, and has in its working encountered difficulties that have excited well grounded opposition. The employment of the convicts in manufacturing meets objection from the young and growing manufactures of the State. And so with any system that can be adopted. It affords pleasure to know that the amended criminal code is having a happy effect in reducing the number of convicts, and it is hoped will in a short time render them more manageable.

Under an act of General Assembly passed at your last session, a very large number-from 400 to 500-have been and are still employed in restoring the James river and Kanawha canal. Applications from other existing and projected improvements are now on file in my office for some of these convicts, but under the ruling of the Attorney-General the canal has priority of claim to their services. Negotiations are now going on with regard to the property and franchises of this canal which will be brought in due time to the attention of the General Assembly. FRED. W. M. HOLLIDAY.

APPENDIX A.

AN ACT, ETC.

WHEREAS, it is believed by the General Assembly that the rate of interest heretofore agreed to be paid by the State on the public debt is greater than can be borne without destroying the industrial interests of the State; and whereas, duly appointed representatives of the creditors have, in view of this belief, expressed their willingness to endeavor to obtain the consent of the creditors to an abatement in the rate of interest; and whereas, it is highly expedient, in the best interest of the State, to secure an amicable settlement, with the creditors, by which the credit of the State may be restored and enhanced, and the aggregate amount of interest payable by the State reduced within limits which will be not too onerous to her population; therefore,

I. Be it enacted by the General Assembly of Virginia, that the Governor is hereby authorized to cause to be funded all the debt of the State, as hereinafter mentioned, with the accrued interest added from September 30th, 1877, viz:

exclusive of the accrued interest from the date before mentioned. II. To provide for funding such debt, the Governor is hereby authorized to create and issue a like amount of gold four per cent. registered or coupon bonds, at the option of the funders, to run for forty years from the 1st day of July, 1879, interest to be paid at the rate of four per cent. per annum in gold, half yearly, on the 1st day of January and the 1st day of July in each year, in the cities of Richmond, New York and London. The State shall have the option of redeeming any or all of the said bonds by the payment of the principal and accrued interest to the date of notice to the holders of such redemption, at par in gold, at any time after the expiration of ten years from the 1st day of July, 1879; provided that the State shall redeem all such bonds in this manner, or by the operation of the sinking fund hereinafter mentioned, by the expiration of forty years from the said 1st day of July, 1879.

The coupons shall be receivable at and after maturity for all taxes, debts, dues, and demands due the State, which shall be expressed on their face; and the bonds shall bear on their face a declaration to the effect that the redemption thereof is secured by a sinking fund, provided for by the law under which they are issued.

The bonds and coupons shall be forever exempt from taxation by the State, or by any county or corporation therein, which shall also be cxpressed on the face of the bonds.