Cyclopædia of Political Science, Political Economy, and the Political History of the United States
UNITED STATES NOTES. A brief sketch in reference to the bills of credit or treasury notes, issued by the government, by the colonies, and of the circulating notes issued by the banks previous to the adoption of the constitution, is given in the article on "Banking in the United States," in the first volume of this Cyclopædia. The committee appointed by the federal convention held in Philadelphia on May 14, 1787, reported, on Aug. 6, a draft of the constitution, which contained, in article thirteen, a clause giving qualified authority to the states to issue paper money, as follows: "No state without the consent of the legislature of the United States shall emit bills of credit, or make anything but specie a tender in payment of debt." This clause, after discussion, was finally so amended as to read as follows: "No state shall coin money; emit bills of credit, make anything but gold and silver coin a tender in payment of debts."
—The eighth clause of the first section of the seventh article of the constitution as presented for the consideration of the convention, provided that "the legislature of the United States shall have power to borrow money, and emit bills on the credit of the United States." This clause, as embodied in the eighth section of the first article of the constitution as finally adopted, reads, "The congress shall have power to borrow money on the credit of the United States." The debate*141 on the question of striking out the words "and emit bills," is given in full for the reason that the subject of making bills of credit issued by the government a legal tender, is here for the first time discussed, and was not subsequently at any time, as far as I am aware, discussed at any length by congress, though it was twice presented for their consideration, until the legal tender acts of 1862 were brought before congress for its consideration. "Mr. Gouverneur Morris moved to strike out, 'and emit bills on the credit of the United States.' If the United States had credit, such bills would be unnecessary; if they had not, unjust and useless. Mr. Butler seconds the motion. Mr. Madison: Will it not be sufficient to prohibit the making them a tender? This will remove the temptation to emit them with unjust views. And promissory notes, in that shape, may in some emergencies be best. Mr. Gouverneur Morris: Striking out the words will leave room still for notes of a responsible minister, which will do all the good without the mischief. The moneyed interest will oppose the plan of government, if paper emissions be not prohibited. Mr. Gorham was for striking out without inserting any prohibition. If the words stand, they may suggest and lead to the measure. Mr. Mason had doubts on the subject. Congress, he thought, would not have the power, unless it were expressed. Though he had a mortal hatred to paper money, yet as he could not foresee all emergencies, he was unwilling to tie the hands of the legislature. He observed that the late war could not have been carried on, had such a prohibition existed. Mr. Gorham: The power, as far as it will be necessary or safe, is involved in that of borrowing. Mr. Mercer was a friend to paper money, though in the present state and temper of America, he should neither propose nor approve of such a measure. He was consequently opposed to a prohibition of it altogether. It will stamp suspicion on the government, to deny it a discretion on this point. It was impolitic, also, to excite the opposition of all those who were friends to paper money. The people of property would be sure to be on the side of the plan, and it was impolitic to purchase their further attachment with the loss of the opposite class of citizens. Mr. Ellsworth thought this a favorable moment to shut and bar the door against paper money. The mischiefs of the various experiments which had been made were now fresh in the public mind, and had excited the disgust of all the respectable part of America. By withholding the power from the new government, more friends of influence would be gained to it than by almost anything else. Paper money can in no case be necessary. Give the government credit, and other resources will offer. The power may do harm, never good. Mr. Randolph, notwithstanding his antipathy to paper money, could not agree to strike out the words, as he could not foresee all the occasions that might arise. Mr. Wilson: It will have a most salutary influence on the credit of the United States to remove the possibility of paper money. This expedient can never succeed while its mischiefs are remembered. And as long as it can be resorted to, it will be a bar to other resources. Mr. Butler remarked that paper was a legal tender in no country in Europe. He was urgent for disarming the government of such a power. Mr. Mason was still averse to tying the hands of the legislature altogether. If there was no example in Europe, as just remarked, it might be observed, on the other side, that there was none in which the government was restrained on this head. Mr. Read thought the words, if not struck out, would be as alarming as the mark of the beast in Revelation. Mr. Langdon had rather reject the whole plan than retain the three words, 'and emit bills.' On the motion for striking out, New Hampshire, Massachusetts, Connecticut, Pennsylvania, Delaware, Virginia, North Carolina, South Carolina, Georgia, aye—9; New Jersey, Maryland, no—2. The clause for borrowing money was agreed to, nem. con. Adjourned."
—Nine states voted to strike out, and two states to retain. Virginia voted in the affirmative, and in explanation of his vote, Mr. Madison appended the following note: "This vote in the affirmative by Virginia was occasioned by the acquiescence of Mr. Madison, who became satisfied that striking out the words would not disable the government from the use of public notes as far as they could be safe and proper: and would only cut off the pretext for a paper currency, and particularly for making the bills a tender either for public or private debts."
—The constitution was adopted on Sept. 17, 1787, and three years thereafter, Hamilton, in his report of Dec. 13, 1790, on a national bank, said: "The emitting of paper money by the authority of government is wisely prohibited to the individual states by the national constitution; and the spirit of that prohibition ought not to be disregarded by the government of the United States. Though paper emissions, under a general authority, might have some advantages not applicable, and be free from some disadvantages which are applicable, to the like emissions by the states separately, yet they are of a nature so liable to abuse—and, it may even be affirmed, so certain of being abused—that the wisdom of the government will be shown in never trusting itself with the use of so seducing and dangerous an expedient."
—Although notes of different forms were issued subsequently by the government at various dates, some of which were receivable for all dues payable to the government, no circulating notes were issued, which by the terms of law were made a full legal tender until the passage of the act of Feb. 25, 1862, which was nearly seventy-five years after the adoption of the constitution.
—Some of the treasury notes, issued since the adoption of the constitution, and previous to the passage of the legal-tender act, were receivable for all dues to the government, and others not: some were payable at a fixed date, both with and without interest: some were fundable at any time after the date of their issue, others at a fixed date in United States bonds.
—During the late civil war, treasury notes were also issued of all these different forms, and also notes payable on demand, receivable for all dues to the government, and others payable on demand, not receivable for duties on imports, or payable by the government for interest upon the public debt, but in every other respect a full legal tender to and by the government, and between the people in all payments.
—No notes were issued from 1789 to 1812, a period of twenty-three years. Such notes were issued in the years 1812, 1813, 1814 and 1815, and at various dates from 1837 to 1847. They were again issued in 1857, and subsequently, in the years 1860, 1861 and thereafter. The periods for the issue of these notes may be summarized as follows: first, the war of 1812; second, the financial panic of 1837; third, the Mexican war; fourth, the financial crisis of 1857; and fifth, the war of the rebellion. It will thus be seen that there have been five emergencies in which congress, without any special constitutional authority, has seen fit to authorize such issues. The original debt had, at the beginning of 1812, been reduced from seventy-five millions to forty-five millions.
—TREASURY NOTES OF THE WAR OF 1812. In 1810 it was found impossible to meet all of the annual reduction of the debt required by law from the sinking fund, and a temporary loan was authorized to make up the deficiency, which amounted to $2,750,000. This loan was paid the next year. In 1811, however, recourse was had to a loan, and the one authorized by congress for that year was taken so slowly, that, in May, the secretary for the first time recommended the issue of treasury notes upon the following principle, viz.: "1. Not to exceed, in the whole, the amount which may ultimately not be subscribed to the loan: that is to say, that the amount received on account of the loan, and that of the treasury notes, shall not, together, exceed eleven millions; which limits, therefore, the greatest possible amount of treasury notes to less than $4,900,000. 2. To bear an interest of 5 2/5 per cent. a year, equal to 1½ per cent. per day on a hundred dollar note. 3. To become payable by the treasury one year after the date of their respective issues. 4. To be, in the meanwhile, receivable in payment of all duties, taxes, or debts, due to the United States." He did not propose that the notes should be fundable in the loan which they were intended to re-enforce. This recommendation of Secretary Gallatin was made in his letter of May 14, 1812, to Mr. Langdon Cheves, chairman of the committee of ways and means of the house, and, in conformity therewith, a bill was reported by that committee on June 12, 1812.
—War was declared against Great Britain June 18, 1812. The failure of the loan was due to the fact that the money had to be borrowed from the very classes who had been opposed to the war: therefore, when the bill for authorizing treasury notes was put upon its passage on June 16, it met with much opposition.
—It was argued, that the notes under the bill were not equal in value to gold and silver, and would not be received by the banks or the people, who were prejudiced against such government paper; that if issued they could not be redeemed, and would depreciate; that the measure would be subversive of public and private credit; that it was a confession of impaired credit; that to allow the notes to be deposited in banks and to accept bank paper in exchange was to depreciate the government's paper; that if issued, additional taxes should be imposed and set apart for the redemption of the notes, as in the case of the English exchequer notes; that the proposed notes were the same as the old continental money, and would depreciate in the same way. Others opposed the bill simply because they opposed the war or any preparation for it. In case war proved unavoidable the necessary funds should be raised by taxes and loans. The shortness of the time for which the notes were to be issued, was another objection. The public revenues would not meet the engagement, and engagements should not be entered into without a certainty of fulfillment. Taxes were necessary. It was a paltry expedient never suggested by Hamilton or Wolcott, and not even the spontaneous production of Gallatin; that the first suggestion of the latter was to authorize a loan on such terms as would have insured its success. It was a humiliating spectacle to exhibit the government failing in negotiating its first war loan.
—On the other hand, the supporters of the bill maintained that the notes would be received by the banks in the same manner as any good individual paper was received. The banks would give the government credit for them, and in return the government could draw gold and silver from the banks. The notes would be even more valuable to the latter than specie, as they could be kept as an interest-bearing reserve. They would have currency, being receivable in duties, taxes, and debts due the government, and, as interest accumulated, they would increase in value. In reply to the suggestions that money should be raised by taxes, it was stated, that when, previously, measures of that kind had been proposed, the opposition had refused to consent. The issue of treasury notes, bearing interest at 5 2/5 per cent. only, did not indicate bad, but rather good, credit. Individuals in good credit could not borrow at less than 6 per cent. There was no depreciation of government paper in exchanging the notes for bank paper, as the latter was ready money, while the former were payable one year after date. It was denied that the people had or would have any prejudice against treasury notes. They were not prejudiced against bank notes, and the proposed notes bearing interest had many advantages over bank paper. The proposed notes would be in no way inferior to exchequer bills: in fact, it was only want of credit that compelled the English government to set aside certain revenues to meet the latter. The treasury notes would have two advantages over exchequer bills; one, the superior credit of the United States; and the other, that they were receivable for taxes and public dues. They were also superior to public stocks, in that, while bearing interest, they also can serve as currency, the same as gold and silver, thus enhancing the medium of circulation. There was no resemblance between them and continental money. When the latter was issued, the government was dependent on the pledges of the several states for its revenues, but now its credit was above suspicion, its power to raise revenue complete, and its ability to pay its debts undoubted. War was unavoidable. Both loans and taxes would have to be resorted to. The proposed notes were nothing but a loan with extraordinary advantages, taking, however, but little from the circulating medium of the country. In many transactions they would have all the effect of money. While not secured by any specific fund set apart for their redemption, the entire duties and taxes of the year are indirectly pledged for this purpose, since they are receivable in payment of such duties and taxes. The revenues of the year were estimated at eight millions, and the proposed issue of notes was five millions only. The faith of the government was pledged for their redemption. That faith had never been violated. The resources of the government were ample beyond those of any other nation. Its sources of revenue were unimproved land, a productive agriculture, an extensive commerce, an enterprising people, and an unlimited right of taxation. The anticipated abuse of a privilege was no argument against its legitimate use.
—The bill passed the house June 17, 1812, yeas 85, nays 41. It passed the senate June 26, and became a law June 30, 1812. By it the president was authorized to issue treasury notes to an amount not exceeding $5,000,000. The notes were redeemable, at such places as were expressed on them, within one year of the date of their issue. They bore interest at the rate of 5 2/5 per cent. per annum from the day of issue, being one and one-half cents a day on a hundred dollar note, payable at the place where the principal was payable. They were signed by persons designated by the president, and the compensation of these persons was fixed at one dollar and twenty-five cents each for one hundred notes signed. They were counter-signed by the commissioners of loans for the state in which the notes were respectively made payable. With the approval of the president, the secretary of the treasury was authorized to borrow money upon the security of the notes, and to pay them to such banks as would give the government credit for them at par. When the notes were paid to collectors of revenue and receivers of public money, the interest ceased on the day of payment. The commissioners of the sinking fund were authorized to cause the principal and interest to be paid when due, and to purchase them at not more than par, in the same way as they purchased other public securities, with a view of reducing the debt. They were made payable to order, transferable by delivery and assignment on indorsement by persons to whose order they were made payable.
—The notes were made everywhere receivable for duties, taxes, and in payment of public land, at their par value with accrued interest on the day paid in. Penalties were imposed for counterfeiting them, and an appropriation made for the expense of printing and preparing the notes.
—There was nothing in the law regulating the denominations in which they should be issued, but, as a matter of fact, none were issued of a denomination of less than one hundred dollars.
—The largest amount authorized under this act, outstanding at any one time, was five millions. The notes authorized were all issued before the end of the year 1813, and were all redeemed during the year 1814. The secretary estimated that there would be a deficit of nineteen millions for the year 1813. Congress authorized sixteen millions of this amount to be obtained by loans, without the usual provision that the bonds should be sold at par, or specifying the rate of interest. The loan was placed with great difficulty, the sixteen millions authorized being obtained from the avails of $18,109,377.43 of stock, bearing interest at 6 per cent. To supply the remainder, a bill was introduced into the house on Jan. 27, 1813, to authorize a new issue of treasury notes. The bill was similar in its provisions to the act of 1812: the arguments for and against the measure, were, in the main, the same as those in 1812. The opposition complained that much favoritism had been shown in the dealings of the banks. It was alleged that among the banks granting credit, in return for the treasury notes deposited, as authorized by the law of 1812, were those acting as depositaries of public moneys derived from the deposits of collectors and public agents; that this very money so deposited by the government agents was again loaned to the government on the credit of treasury notes. On the other hand, it was urged that the use of banks as depositaries was unavoidable, and that, in any event, banks would receive incidental benefit from keeping government deposits. Even if a stock loan was substituted for treasury notes the money realized therefrom would be deposited with the same banks until required by the government. The bill passed the house by a vote of 79 to 41, and the senate by a vote of 17 to 9, and became a law on Feb. 25, 1813.
—The greatest amount of notes authorized by this act, outstanding at any one time, was five millions: they were all redeemable by the first quarter of the calendar year of 1815, but at the close of that quarter only $1,483,900 had been redeemed, and all of the remainder was not finally paid until the year 1820, although the greatest portion was called in by 1817. They were issued in denominations of not less than $100. An act similar in all respects to that of Feb. 25, 1813, passed the house by vote of 83 to 48, and the senate without debate, on March 1, and was approved March 4, 1814. It authorized the issue of five millions of treasury notes, and of an additional five millions, which, if issued, was to be considered as part of a stock loan for the year, which was subsequently to be authorized. This loan for twenty-five millions was authorized on March 24 of the same year, and could only be placed at a large discount. An additional five millions was therefore issued in place of an equal amount of stock, making in all ten millions of treasury notes issued under this act. These notes were for the first time issued in denominations of less than $100, notes of the denomination of twenty dollars being placed in circulation. The whole ten millions were issued previous to June 30, 1815. The policy of congress seemed to be to keep the authorized issue of treasury notes each year below the amount of the revenue of the year, or, if more was authorized, they were to be in lieu of, and to re-enforce, stock loans.
—On Dec. 26, 1814, an act was passed which authorized the issue of $7,500,000 of treasury notes in place of portions of the loans of March 24 and Nov. 15 not already placed, and three millions more for the expenses of the war department. These notes bore the same rate of interest and were for the same time as those of the act of June 30, 1812, and under this act, $8,318,400 of notes were issued, a portion of which was in the denominations of twenties and fifties.
—On Aug. 31, 1814, specie payments were suspended except in New England. The accounts of the treasury department show that there were outstanding on Sept. 30, 1814, $10,649,800 of treasury notes. Mr. Crawford was succeeded in October by Secretary Dallas, and the latter, in his report to the committee of ways and means on Oct. 17, 1814, says: "The condition of the circulating medium presents another copious source of mischief and embarrassment. The stock of specie was diminished by exportation, and would remain so withdrawn from use. The multiplication of banks had increased the paper currency so that it was difficult to calculate its amount, and still more difficult to ascertain its value. Bank currency was of no benefit since the suspension of specie payments, and there virtually existed no circulating medium common to all the citizens of the United States. The money transactions of private individuals were at a stand, and the fiscal obligations of the government labored with extreme inconvenience. Under favorable circumstances, the limited issue of treasury notes would probably afford relief, but they were an expensive substitution for coin or bank notes." He concluded by recommending the establishment of a national bank. This statement was called out by a report made by Mr. Eppes, chairman of the committee of ways and means of the house, on Oct. 10, 1874, in which, in order to secure the circulation of treasury notes, it was recommended that notes of small denominations should be issued, to be funded into 8 per cent. stock, payable to bearer, and transferred by delivery, receivable in all payments of public lands and taxes. The internal revenue taxes were to be pledged for payment of interest, and they were to be exchangeable for stock at 8 per cent, or redeemable in specie after six months' notice from the government. On Nov. 24, 1814, in a report to the committee to which a bill for establishing a national bank had been referred, Mr. Dallas mentions, as one of the means at the disposal of the treasury, the issue of treasury notes, "which none but necessitous creditors, contractors in distress or government agents acting officially were willing to accept." He also states that the act of Nov. 15, 1814, authorizing treasury notes to be taken in payment for subscriptions to loans, was passed too late; that the interest on the public debt had not been punctually paid, and that a large amount of treasury notes had already been dishonored. In a subsequent communication of Dec. 14, 1814, he said that the non-payment of treasury notes, and the risk of not paying the interest on the funded debt, were chiefly owing to the suspension of specie payments by the banks, and the consequent impracticability of transferring public funds from the place where they were deposited to the place where they were needed. The difficulty referred to in meeting the interest upon the public debt was in Boston. A state bank had large government deposits, and a draft was sent to meet the interest, upon Oct. 1, 1814. The state bank declined paying in coin or bank notes, and the creditors refused to receive the treasury notes that were offered instead. After the suspension, the government was deprived of the use of specie, and as the banks in each state refused credit and circulation to the notes of banks in other states, no transfer of funds could be made to places where they were wanted to meet treasury notes: consequently the credit of these notes was lessened, and creditors refused to accept them in payment. On Nov. 12, 1814, Mr. Hall, of Georgia, introduced in the house a series of five resolutions to revive the credit of treasury notes. The second resolution provided that the notes should be a legal tender between citizens, and between citizens and foreigners, for all debts then due or afterward to become due, which the house refused to consider by a vote of 95 to 42—more than two-thirds. These resolutions were evidently introduced as measures in opposition to the proposition for a national bank, and the other four resolutions were subsequently laid upon the table by a large majority.
—On Jan. 30, 1815, a bill authorizing the issue of treasury notes was introduced in the house, and referred to a committee of the whole. The bill passed the house Feb. 11, and the senate Feb. 21, and was approved Feb. 24, 1815; it was the last of a series of five acts, commencing with that of June 30, 1812, the first four of which had authorized the issue of treasury notes bearing interest at the rate of 5 2/5 per cent. The following is the form of the large notes issued under this act:
Endorsed on the back: "Pay the bearer, Jos. Delafield."
This act authorized the issue and reissue of treasury notes to an amount not exceeding twenty-five millions upon principles essentially different from those governing prior issues. These notes might be of any denomination: if of a denomination less than $100, they were designated as "small treasury notes," were payable to bearer, and bore no interest; if of a denomination of $100 or upward, they were payable to order, transferable by indorsement, and bore interest at the same rate as those of $100 and upward previously authorized. The "small treasury notes" were of this form:
These notes were not chargeable upon the sinking fund, as in the case of the first three acts of the series, nor were they payable out of any money in the treasury not otherwise appropriated, as in the previous act of Dec. 26, 1814, but rested entirely upon the provision making them fundable into stock. The principal and interest were not payable at any specified time, but the notes were everywhere receivable in all payments to the United States. The act reduced the pay of those signing the notes to seventy-five cents for each one hundred notes, and also provided that treasury notes of previous issue should be fundable into 6 per cent. stock. The holders of the small treasury notes could exchange them at pleasure, in sums of not less than $100, for certificates of funded stock bearing interest at 7 per cent. The treaty of peace was signed on Dec. 14, 1814, but the news reached Washington a few days only before the passage of the bill, which, although a war measure, was carried through, inasmuch as it was considered necessary to the regulation of the disordered finances of the country. The whole amount of treasury notes, absolute and contingent, which was authorized by these five acts, was $60,500,000, of which amount $36,680,794 was issued. The following table exhibits the amount issued under each act:
—Although the treasury notes of 1815 of small denominations originally issued, amounted to only $3,392,994, the law made them fundable into 7 per cent. stock, payable after Dec. 31; and as the notes were reissuable, they were, under various exigencies, again and again paid out, until the whole amount of the 7 per cent. stock, issued for the purpose of funding them, amounted to $9,070,386. On account of the high rate of interest of these bonds, the small treasury notes were in demand, and a small amount was sold at a premium of 4 per cent., and $1,365,000 at a premium of $32,107.64, or about 2½ per cent. The secretary, in his annual report for 1815, says: "The treasury notes, which were issued under act passed previous to Feb. 24, 1815, were, for the most part, of a denomination too high to serve as a current medium of exchange; and it was soon ascertained that the small treasury notes, fundable at an interest of 7 per cent., though of a convenient denomination for common use, would be converted into stock almost as soon as they were issued." *142 The notes of $100 and upward, though fundable into 6 per cent. bonds, were depreciated from 8 to 10 per cent. below bank notes, which bore no interest, but were redeemable in specie.
—In recapitulation, it may be stated that the treasury notes of the period of the war of 1812 were issued under five acts of congress, as stated in the table. The notes of the first three acts were made chargeable to the sinking fund—those of the last two, not; those of the first two acts were in denominations of not less than $100; those of the next two were not less than $20; and those of the last act were in denominations of 3, 5, 10, 20, 50, 100 dollars and upward. Those of the first three acts were not originally fundable into stock, but were made so by the act of Nov. 15, 1814, and by the subsequent act of Feb. 24, 1815. The notes of the acts of Dec. 26, 1814, became fundable by the act of Feb. 24, 1815, but those of the last-named act were fundable by the terms of their authorization. The notes of all the acts but the last were made payable one year from the date of their issue; those of the last act were payable at no fixed date. All of these notes (with the exception of the small treasury notes, which were without interest) bore interest at the rate of 5 2/5 per cent. None of these notes had any legal-tender quality, and congress, without debate, rejected the only proposition for giving them this quality. The denominations, except in the case of the small notes of 1815, were too large for purposes of circulation, and the inducements for funding these were so great that they could not be used for that purpose. As long as the banks redeemed their notes in specie, treasury notes appear to have kept at par, but when specie payments were suspended, they began to depreciate, and appear to have been kept from great discount by the funding acts of Nov. 25, and Feb. 24, 1815. It is said, "that of eighty millions of loans negotiated by the government during this period, the avails were only thirty-four millions, after deducting discounts and depreciations." (See
—TREASURY NOTES OF THE PERIOD OF THE FINANCIAL CRISIS OF 1837. In anticipation of a large surplus, congress, by act of June 23, 1836, provided for the distribution of a large amount of government money among the states in proportion to their representation in the senate and house of representatives, and three installments amounting in all to $27,063,430, were so distributed. (See
—The revenues for the year (1837) were from six to ten millions short of the expenditures. The public funds already deposited with the states were unavailable, and there was another installment to be deposited on Oct. 1. The secretary recommended the withholding of this installment, and, in order to supply currency, an issue of treasury notes, the small denominations to bear no interest, and the large with interest.
—A large party in congress were in favor of rechartering the bank of the United States. The advocates of treasury notes urged the issue principally upon the ground of necessity, there being no currency upon which the government could rely to make and receive payments. Many were in favor of a substitute to be issued by the proposed new bank of the United States. A bill was presented and passed by the senate. When it came to the house, objection was made that it was a money bill, which the senate had no constitutional right to originate. This point was not discussed, but the committee of ways and means presented their own bill, by which the issue of ten millions in treasury notes was authorized. The bill encountered much opposition, particularly from those in favor of authorizing a new bank, but passed the house on Oct. 9, 1837, by a vote of 127 to 98, which was a strict party vote. In the senate, the next day, Mr. Benton moved to make the lowest denomination of notes $100, instead of $50, as provided in the bill. He presented strong objections to the issue of treasury notes. Nothing but the fact that the government must otherwise stop for want of funds, would induce him to vote for paper money in time of peace. He particularly objected to the policy of reducing the denominations of paper currency. It was the most dangerous feature of the system, and would drive all specie from circulation. Mr. Clay spoke in favor of Mr. Benton's motion, and characterized the whole measure to be, to all intents and purposes, a great bank experiment, and alluded to the inconsistency of issuing, in time of profound peace, ten millions additional notes after decrying the banks for enlarging their circulation. Mr. Webster favored Mr. Benton's motion. It was lost by a vote of 25 to 16. The bill then passed by a vote of 35 to 6, both Mr. Benton and Mr. Webster voting for it, and Mr. Clay against it. This bill authorized the issue of treasury notes to an amount not exceeding ten millions, and in denominations not exceeding fifty dollars. The interest was not to exceed 6 per cent.; and they were to be payable, principal and interest, after one year from date, and were, for the first time, signed by the treasurer and countersigned by the register. They were to be issued in payment of the debts of the United States to any creditor who would receive them, and were to be receivable in payment of all debts and dues to the government. They were not reissuable, and the authority to issue terminated Dec. 31, 1838. The ten millions authorized were issued by Secretary Woodbury previous to July 1, 1838. About two millions were issued at the nominal rate of interest of 1 mill per cent.; three millions at 2 per cent.; and over four millions at 5 per cent. On account of the low rate of interest upon a large portion of the notes, the object for which they were issued, namely, to supply a circulating medium, was thwarted, for they were soon presented in payment of taxes, and over five millions were retired before the whole amount had been issued.
—At the end of 1837 the secretary estimated that the balance in the treasury for July, 1838, would be $34,187,000, of which $28,101,644 was due from the states, $1,100,000 due chiefly from insolvent banks, and $3,500,000 from other banks, payment of which was postponed. These sums, and the bullion fund in the mint, reduced the estimated available balance in July, 1838, to about one million. This estimate was nearly correct, for congress was advised by the president, in May, 1838, that only $216,000 of available funds remained in the treasury. There were several propositions in the house, one of which was a bill for authorizing loan certificates, which should be a legal tender to public creditors, but not receivable for dues to the government. The question of the legal tender was not discussed. Mr. Cambreleng, of New Jersey, from the committee of ways and means, reported a short bill, authorizing the issue of treasury notes to the amount of the issue of October, 1837, which had been redeemed and canceled. The interest upon the issues already made under the laws of 1837 had been too small, and they had been immediately paid into the treasury when due. There were gratifying signs of a revival of prosperity. The northern banks had resumed specie payment sooner than expected. This he ascribed to the firmness of the president in refusing to allow dues to the United States to be paid in notes of banks not paying specie. He referred to the passage of the free banking act of New York as a presage of sound banking in future. He also urged the necessity of providing notes to enable the treasury to meet its payment. The objections to the bill were much the same as those urged in the debate during the previous session, though they were presented with more force and completeness, particularly by Mr. Caleb Cushing. He said that such issues were bills of credit not warranted by the constitution; that they were based only upon the faith of the government; that such measures were considered of doubtful and dangerous character by all the friends of democratic institutions; and that Madison and others had always been opposed to the issues of government paper founded not on funds or specie, but only upon faith or credit, and only consented to its expediency in remarkable exigencies. Experience had shown, that whatever interest they might bear, whether 1 mill or 6 per cent., they would not be above the value of the notes of good banks. It was said, that, if the United States under the constitution could issue these bills, so could the states. They were the same as continental money, although bearing interest. Much of the currency issued by the states, during the revolution, denominated bills of credit, bore interest. Chief Justice Marshall's definition of bills of credit was, "paper issued by the sovereign authority, and intending to circulate as money." These notes are issued by sovereign authority, and intended to circulate as money. They operate unequally, and afford no general relief: they are below par in New York, and at 5 per cent. premium in Charleston. The bill was amended to obviate some technical objections, and finally passed by a small majority, 106 to 99, on May 16, 1838. It came up in the senate on May 18. Wright of New York, Benton, Calhoun, Brown and Talmadge were in favor of it. Webster, Clay, Crittenden and Preston were on the other side. The discussion took a wide range, involving the causes of the condition of the treasury, and the constitutionality of the issue of treasury notes. It passed by a vote of 27 to 13, and was approved on May 21, 1838. Nearly five millions were issued within one month after the passage of the bill, which showed conclusively the pressing needs of the treasury. Under the previous acts of October, 1837, and May 21, 1838, the authority to issue treasury notes expired on Jan. 1, 1839. The whole issue was not to exceed ten millions, and the latter act permitted the reissue of those paid in.
—The whole amount which had been issued to December, 1838, was $15,709,801.01, and bore at different rates interest as follows: $6,888,809.60 bore interest at 6 per cent.; $4,280,273.72 bore interest at 5 per cent.; $2,784,844.73 bore interest at 2 per cent.; and $1,755,881.96 bore interest at 1 mill per cent. There had been redeemed, up to the same date, $7,955,250, leaving $7,754,560 outstanding. The authority to reissue expired with the year.
—On Jan. 1, 1839, there was a large amount of notes in the treasury, which continued to grow larger until March 2, 1839, when an act was passed, extending the authority to reissue until June 30, 1839, providing the whole amount outstanding did not exceed ten millions. In December, 1839, Secretary Woodbury reported that at no time had more than ten millions been outstanding, and that the amount outstanding was less than the amount due from suspended banks, and from the Pennsylvania bank of the United States, to the government, and that the principal and interest on the treasury notes had always been promptly paid when desired. A bill was subsequently presented by Mr. Jones, chairman of the committee of ways and means. Amendments were offered with the object of making it imperative that the notes should bear interest at not less than 2 per cent., and to make them negotiable and transferable only by indorsement, in the same manner as bills of exchange the first to prevent the issuance of notes at the nominal rate of 1 mill per cent., or one-thousandth of 1 per cent., per annum, and the second to prevent their circulation as money, and both to cure, as was alleged, the constitutional difficulty. The whigs refused to vote, leaving no quorum. On March 24, 1840, the house continued in session from ten o'clock until five p. m. of the next day. Finally, when the house adjourned, the consideration of the bill was fixed for the following Friday, and on that day—March 27, 1840—it finally passed the house by a vote of 25 to 8. It passed the senate on March 30, 1840, and was approved the following day. The following is the form of a $100 note issued under this act:
—On each end of the reverse were printed the figures 100. Under this act the issues amounted to $7,114,251. Notes were to be redeemed sooner than one year, if the condition of the treasury would admit, and at any time within the year, after sixty days' notice.
—The secretary, in his report for 1840, states, that treasury notes had been at par during the year, although never hearing interest higher than 5 2/5 per cent., *143 and subject to payment after sixty days' notice. To meet the wants of the treasury, a treasury note bill was introduced, and passed congress on Feb. 15, 1841. This law authorized an issue of notes, in the aggregate, of $10,000,000, one-half to be issued in payment of amounts due and payable prior to March 4, 1841, and the remaining $5,000,000 in payment of amounts due and payable after that date. In all, $7,529,062 were issued under act of Feb. 15, 1841.
—In the fall of 1840, Harrison had been elected president to succeed Van Buren, but died April 4, 1841. He was the representative of the whig party, which had, since the year 1837, so bitterly opposed the issue of treasury notes. Mr. Ewing of Ohio was appointed secretary of the treasury by President Harrison. In his report to congress at its special session of May 31, 1841, he said that, from Jan. 1, 1837, to March 4, 1841, the expenditures of the government had exceeded the revenues by over $31,000,000. Of about twenty-six millions of treasury notes issued under the acts from Oct. 12, 1837, to Feb. 15, 1841, inclusive, all but about six millions had, as claimed by Secretary Woodbury, been issued in anticipation of revenues, or upon the basis of existing debts due to the United States, leaving about six millions outstanding when the new administration came in. Mr. Ewing estimated that the deficit in the revenues for the year 1841, after meeting the current expenses and redeeming the treasury notes then outstanding and to be issued, would be $12,088,215, which he considered to be the amount of the public debt. He objected to the issue of treasury notes, and recommended a loan redeemable after eight years or upon six months' notice by the government.
—A bill was introduced by Millard Fillmore, chairman of the committee of ways and means, on June 24. It provided a loan, payable after Jan. 1, 1856, with interest at 5 per cent., and authority was given the secretary to purchase the bonds out of any surplus in the treasury. It was objected that the loan was unnecessary, and that it was the commencement of a scheme to organize a national bank. The debate was bitterly political. It was urged, that as this was an administration measure the loan should be paid within the term of the administration. This point was foolishly conceded, but the rate of interest was raised to 6 per cent. As thus amended the bill became a law on July 21, 1841. The reduction of the length of the loan from eight to three years, together with the proviso that no stock could be sold below par, destroyed the usefulness of the measure, and less than one-half, or only $5,672,076, of the stock was sold, which was about equal to the amount of treasury notes outstanding.
—On Sept. 13, 1841, Mr. Ewing was succeeded by Secretary Forward of Pennsylvania. The policy of the administration was changed by the death of the president. The repeal of the independent treasury act Aug. 13, 1841, which had been authorized at the close of the Van Buren administration, was about the only point gained by the Harrison administration, and this repeal practically left the treasury to be managed by those who were unfriendly to the policy of the whig party.
—A bill for the issue and reissue of treasury notes was introduced into the house by Mr. Fillmore, Jan. 5, 1842. Among other proposed amendments which were rejected, was one by Mr. Benton, heavily taxing all bank circulation, especially small notes. The bill became a law Jan. 31, 1842. Under it the amount authorized to be outstanding at any one time was limited to five millions, but the total amount issued and reissued was $7,959,994. The subsequent act of Aug. 31, 1842, authorized the issue and reissue of treasury notes, provided the amount outstanding at any one time should not exceed six millions, and under it notes to the amount of $3,025,554.89 were issued.
—All of the notes issued since the act of Oct. 12, 1837, were issued payable either one or two years after date, chiefly for one year. These notes were continually falling due and embarrassing the treasury. Eleven millions of such notes were to fall due during the year 1843, and accordingly another bill was introduced by Mr. Fillmore, providing for the reissue of such notes as should be redeemed before July 1, 1844. The bill became a law on March 3, 1843.
—The treasury notes outstanding on the dates named from November, 1837, to March, 1843, are shown in the following table:*144
—John C. Spencer succeeded Walter Forward as secretary of the treasury, on March 3, 1843, and was himself succeeded, on June 15, 1844, by George M. Bibb. Under the act of March 3, 1843, Mr. Spencer issued about $850,000 treasury notes. Each note on its face promised to pay one year after date, fifty dollars, with interest at the rate of 1 mill per $100 per annum. On the back of each note was indorsed, "This note will be purchased at par for the amount of principal and interest thereof, on presentation at either of the Depositories of the Treasury in the City of New York." These notes, which were issued at the nominal rate of interest of one thousandth of 1 per cent. per annum, and by the indorsement made payable on demand, were considered by congress an evasion of the act under which they were issued, and the committee of ways and means were instructed, on Jan. 15, 1844, "to inquire and report whether the notes lately issued by the treasury department, bearing a nominal interest and convertible into coin on demand, and now forming part of the circulating medium of the country, are authorized by the existing laws and constitution of the United States"; and the report of the committee, which also contains a letter of the secretary, giving his views on the subject, is interesting from the fact that it contains the principal constitutional arguments against the issue of paper money by the government.*145
—During the second session of the 27th congress, after the veto, by President Tyler, of a bill to authorize the organization of a bank of the United States, the president recommended the passage of a bill for the issue of exchequer bills of not less than $5 in denomination, which notes were to be signed by the treasurer of the United States, and countersigned by the president of the board of exchequer, and redeemable in gold and silver on demand at the agency where issued. This bill, which was prepared at the treasury department, did not become a law, and it was claimed by the committee that the notes issued by Secretary Spencer were in most respects like the exchequer notes proposed in this bill. The principal difference was, that while the exchequer notes were to be in denominations as low as $5, without interest, the notes issued were of denominations not less than $50, and bore a merely nominal rate of interest. It was claimed by the committee that the constitution authorized the government to borrow money, but not to issue bills of credit; that borrowing money implied the paying of interest for the money borrowed; that interest-bearing treasury notes payable at a future day were a temporary loan, not designed to circulate as money, and could properly be issued; while notes bearing no interest and payable on demand were bills of credit, and could be issued only in violation of the constitution.
—From March 3, 1843, until July 26, 1846, no new issues of treasury notes were authorized. From 1837 to 1844 treasury notes amounting to $47,002,900 were issued under eight different acts, of which $46,216,935.82 were redeemed by the close of 1845. The lowest denomination for any one note was $50, but where new notes were issued in place of old ones the accrued interest was often added. The amount authorized to be originally issued by these several acts was thirty-one millions. The remainder consisted of reissues.
—The following table exhibits the amount of treasury notes issued each year, under different acts of congress, from Oct. 12, 1837, to March 3, 1843, from which it will be seen that the total amount issued was $47,002,900, all of which was sold or issued at par. Interest varied from 1 mill per cent. to 6 per cent., and the amount authorized was fifty-one millions.
—TREASURY NOTES OF THE PERIOD OF THE MEXICAN WAR. On July 1, 1844, the public debt of the United States amounted to $24,748,188, and consisted principally of stocks not payable until the lapse of ten and twenty years.*146 The 5 per cent. stocks payable in ten years, were at a premium of 106, and the 6 per cent. stocks payable in twenty years, at a premium of 116. The secretary estimated that the revenue under the tariff of 1842 would yield a much larger amount than was necessary. Accordingly, congress, in July, 1846, passed a bill amending the tariff and reducing the duties on imports. In the meantime, during the year 1845, difficulties with Mexico, owing to the annexation of Texas, rendered war inevitable, and on May 13, 1846, war was declared. Secretary Walker estimated, that, if the war should continue for a year, there would be a deficiency of more than twelve millions; and, in order to meet this deficiency, a bill was reported from the committee on ways and means, which, with some additions, embodied the provision of the act of Oct. 12, 1837, as to treasury notes, and that of April 14, 1842, as to a loan. The following is the form of a $100 note issued under this act:
The bill referred to authorized an issue of treasury notes to an amount of ten millions, which could also be reissued, and also a loan which could be issued in lieu of treasury notes; the amount of both not to exceed ten millions. The stock was to be redeemable after ten years, no notes of less than $50 were to be issued, and they were to be signed by the treasurer and the register. The rate of interest was not to exceed 6 per cent. Notes were to be used in payment of public creditors who would receive them, and the secretary could borrow money on them. The bill became a law July 22, 1846. Under this act, $7,687,800 of notes were issued, and $4,999,149 of stock. Of these notes $2,086,550 bore interest at 5 2/5 per cent., and $1,766,450 at 1 mill per cent. per annum.
—In January, 1847, the treasury was again in need, and to meet this necessity a bill was introduced, authorizing the issue of twenty-three millions of treasury notes, and an additional five millions under the act of July 22, 1846. This was an elaborate bill, containing all necessary provisions within itself, without referring back to the provisions of previous acts, as had been usually the case in legislation of this kind. The debate was principally upon the conduct of the war, and, after one or two amendments had been agreed to, the bill passed the house on the same day that it was introduced, by a vote of 166 to 22. In the senate on Jan. 25, a resolution to postpone its consideration was lost, and the debate took considerable latitude, principally upon the tariff question. The general sentiment appeared to be, that in the midst of the war the honor of the country must be sustained. Finally, with some slight amendments, the bill passed, on Jan. 27, 1847, by a vote of 43 to 2, and became a law on the following day.
—Notes issued under this act were not to be of a less denomination than $50, and were receivable in payment of public dues, including duties on imports, and were redeemable at the expiration of one or two years, and the interest was to cease at the expiration of sixty days' notice. The following is the form of a 6 per cent. $100 note issued under this act:
The principal of the notes was fundable into 6 per cent. bonds, redeemable after Dec. 30, 1867, and this privilege was extended to the holders of notes issued under previous acts. Reissues were authorized, but the amount of stock and notes, at any one time, was not to exceed twenty-three millions. The right to issue treasury notes, under the act of July 22, 1846, was extended by the fifteenth section to the period fixed by these acts, and on the same terms, but the issue, under this section, was not to exceed five millions. $12,371,150 of these notes were issued previous to July 1, 1847, and $11,956,950 additional notes were issued during the next fiscal year. The whole amount of issues and reissues under the act was $26,122,100, all of which were either sold or paid to public creditors at par. The rate of interest of the notes was 5 2/5 and 6 per cent., and United States 6 per cent. bonds, chiefly for the purpose of redeeming these notes, were issued under the same act, amounting to $28,230,350.
—The treasury notes issued under the act of Jan. 28, 1847, were all retired, with the exception of about $200,000, previous to July 1, 1850, and no additional treasury notes were authorized, until the passage of the act of Dec. 23, 1857. Secretary Cobb, in his report for that year, estimated that the receipts would exceed the expenditures, but said that the financial revulsion which had caused the banks to suspend specie payment in October of that year, had also caused a large part of the dutiable merchandise to be stored without payment of duty, where it could remain under the law for three years, although it was probable that a considerable portion would be withdrawn and the duties paid previous to that date. Meanwhile, means should be provided for meeting the demands upon the treasury, and he recommended that authority should be given to issue treasury notes "for an amount not exceeding twenty millions of dollars, and payable within a limited time, and carry a specified rate of interest." A bill, in accordance with the suggestion of the secretary, was introduced into both houses of congress on Dec. 18, 1857. It passed the senate on the following day, by a vote of 31 to 18, and the house on the 22d by a vote of 118 to 86, and was approved on the following day and became a law. The bill provided for the issue of notes payable in one year from date of issue to an amount not exceeding twenty millions. $6,000,000 were to be issued at a rate of interest not exceeding 6 per cent. The remainder was to be sold after public advertisement of not less than thirty days, at their par value, for specie, to the bidders offering to take them at the lowest rate of interest, not exceeding 6 per cent. The interest upon the notes was to expire, after maturity of notes, upon sixty days' notice from the secretary, of his readiness to redeem such notes; they were to be issued in denominations of not less than $100, and were to be signed by the treasurer and register; they were receivable in payment of all dues to the United States. The whole amount authorized was issued, and the amount of issues and reissues, in all, was $52,778,900. The interest upon these notes was as follows: $6,323,600 at 3 per cent.; $985,000 at from 3½ to 4 per cent.; $688,000 at 4¼ per cent.; $10,055,700 at 4½ per cent.; $4,532,500 at 4¾ per cent.; $7,533,900 at 5 per cent.; $8,204,500 at 5½ per cent.; $3,514,100 at 5¾ per cent.; and $10,941,600 at 6 per cent. The following is the form of a 3 per cent. $100 note issued under this act:
—The table given at foot of page 971 exhibits the different kinds of treasury notes outstanding on February 1, 1884, which were issued from the organization of the government to the date of the passage of the act of March 2, 1861.
—TREASURY NOTES OF THE PERIOD OF THE CIVIL WAR. The total public debt on June 20, 1860, was $64,769,703.08. The outstanding treasury notes issued under act of June 23, 1857, were $19,690,500. The amount of treasury notes outstanding, issued under acts previous to that date, was $105,111.64. The act of June 22, 1860, authorized a loan of twenty-one millions, at a rate of interest not exceeding 6 per cent., to be reimbursed within a period not more than twenty years, and not less than ten years. The money was to be used in the redemption of treasury notes, and to replace any amount paid to the treasurer in such notes for public dues. Under this authority, proposals were invited by Secretary Cobb, on Sept. 8, 1860, for ten millions of this loan, which amount was "ample to meet all the treasury notes that would fall due before Jan. 1, 1861." In his report for Dec. 4, 1860, he says: "The rate of interest was fixed at 5 per centum per annum, under the conviction that the loan could be readily negotiated at that rate, for, at that time, the 5 per cent. stock of the United States was selling in the market at the premium of 3 per cent. The result realized this just expectation, and the whole amount offered was taken, either at par or a small premium." Before, however, the time had arrived for payment on the part of the bidders, political complications arose, which affected the credit of the government so unfavorably, that the amount realized was but $7,022,000, the subscribers of $2,978,000 having failed to make good their subscriptions. The secretary stated, that, in the present condition of the country, capitalists were unwilling to invest in United States stock at par, and recommended a repeal of so much of the act of June 22, 1860, as authorized the issue of the additional stock, and asked for authority for the issue of treasury notes for the same amount, "to be negotiated at such rates as will command the confidence of the country." He recommended that the public lands be unconditionally pledged for the ultimate redemption of all the treasury notes which it may become necessary to issue, and suggested, "that there should always exist in the department power to issue treasury notes for a limited amount, under the direction of the President, to meet unforeseen contingencies. It is a power which can never be abused, as the amount realized from such source can only be used to meet lawful demands upon the treasury. No secretary of the treasury, or president, would ever exercise it, unless compelled to do so by the exigencies of the public service. On the other hand, it would enable the government to meet, without embarrassment, those sudden revulsions to which the country is always liable, and which can not always be anticipated. I have already stated that provision should be made at once to relieve the treasury from its present embarrassment, produced by the causes referred to. To do this, congress should authorize the issue of an additional amount of treasury notes, not less than ten millions of dollars: with this means the department would be enabled to meet all lawful demands upon it for the present. The extent of the financial crisis, through which the country is now passing, can not new be determined, and until it is better known, no policy can be recommended of a permanent character."
—Secretary Cobb resigned on Dec. 10, but the act of Dec. 17, 1860, was passed in compliance with the suggestions contained in his report. The pledge of the proceeds of the public land was not given in the act, and one of the reasons for withholding such legislation was, that it would interfere with the passage of the homestead bill, which was then under consideration. The act authorized the issue of ten millions of treasury notes in denominations of not less than $50, redeemable in one year from the date of issue, with interest at the rate of 6 per cent., but the secretary was authorized to issue such notes after advertisement at the lowest rate of interest offered. Of these notes, five millions were offered to subscribers. The bids were opened Dec. 28, and only $500,000 were taken at 12 per cent. It was important to negotiate the loan in order to meet the interest on government bonds upon Jan. 1. The remainder of the loan was subscribed by the banks in New York, previous to that date, at 12 per cent. Gen. John A. Dix was appointed secretary of the treasury on Jan. 11, and bids for the remaining $5,000,000 were opened on the 19th, and the notes awarded at the average rate of 10 5/8 per cent., as follows:
The whole ten millions were issued, redeemable at the expiration of one year from date, bearing interest as follows: $70,200 at 6 per cent.; $384,500 at rates varying from 6 to 10 per cent.; $1,027,500 at 10 per cent.; $3,688,700 at rates from 10 to 12 per cent.; and $4,840,000 at 12 per cent. Additional offers bearing interest, ranging from 15 to 36 per cent., were declined. The amount of treasury notes outstanding on Dec. 1, 1860, previous to the passage of this act, was $14,599,700, of which $42,600 was payable in 1859, $3,133,400 in 1860, and $11,423,700 in 1861. Of these notes, $8,684,200 bore interest at 6 per cent., and the remainder at lower rates.
—Secretary Dix, in a letter to the chairman of the committee of ways and means, dated Jan. 18, 1861, says: "Within the last few days the amount of overdue treasury notes presented for redemption has exceeded the power of the treasurer to place drafts for payment on the assistant treasurer at New York, where the holders desire the remittances to be made; and an accumulation of warrants, to the amount of about $433,000, has accrued on this account in the treasurer's hands, which he has been unable to pay." He also says: "That notice issued on the 18th ultimo invited proposals for the exchange of five millions of dollars for treasury notes, and offers at 12 per cent. or less were made only to the amount of $1,831,000; offers to exchange $465,000 for notes bearing interest at rates varying from 18 to 36 per cent. were also received. The offers at 12 per cent. and less were accepted; those above that rate were rejected. The remainder of the five millions offered was soon thereafter taken at 12 per cent., and the whole amount was pledged to the payment of over-due treasury notes and other pressing demands on the treasury. * * During the last quarter, about eight millions of treasury notes were redeemed, which, with the two and one-half millions redeemed since the first instant, make ten and a half millions. The amount received from the loan, a small fraction above seven millions, threw upward of three and a half millions of these notes on the other resources of the treasury for redemption. This is one of the principal causes of the delay and difficulty which have recently existed in providing for other demands of public service." So low had the credit of the government fallen, through the political agitations and troubles just previous to the war of the rebellion, that he closed his communication by calling attention to the fact, that, "there are deposited with twenty-six of the states for safe keeping, over twenty-eight millions of dollars belonging to the United States, for the payment of which the promise of these states is pledged by written instruments on file in this department. The annual statement of receipts and expenditures for the year ending June 30, 1860, represents this amount as part of the 'balance in the treasury' on that day. * * I refer to this final resource as an available one, should the public exigencies demand it. It is not doubted that the greater portion of the amount so deposited would be promptly and cheerfully paid should an exigency arise involving the public honor or safety. If, instead of calling for these deposits, it should be deemed advisable to pledge them for the repayment of any money the government might find it necessary to borrow, loans contracted on such a basis of security, superadding to the plighted faith of the United States that of the individual states, could hardly fail to be acceptable to capitalists."
—During the following month the act of Feb. 8, 1861, was passed, which authorized a loan not exceeding twenty-five millions of 6 per cent. bonds, the avails to be used in the payment of current expenses, for the redemption of outstanding treasury notes, and to replace in the treasury such amounts as had been paid in treasury notes. Of this loan, bearing 6 per cent. interest, and having twenty years to run, $18,415,000 was issued, at an aggregate discount of $2,019,776, or an average rate of $83.03 for $100. In less than a month after the passage of this act providing for the payment of the treasury notes outstanding, the act of March 2, 1861, was passed, which authorized a loan of ten millions at 6 per cent., redeemable upon three months' notice, after July 1, 1871, payable July 1, 1881, or, instead thereof, the issue of $10,000,000 of new notes in denominations of not less than $50, bearing interest at the rate of 6 per cent. per annum, payable semi-annually, receivable in payment of all debts due the United States, including customs duties, and redeemable at pleasure, within two years from the passage of the act. The same act largely increased the duties on imports, and authorized the substitution of treasury notes for the whole or a part of the loans previously authorized. Under this act, $35,364,450 in all, of treasury notes, were issued, of which $22,468,100 were redeemable in two years, and $12,896,350 redeemable in sixty days after date; and a considerable portion of these notes were paid out to creditors.
—General Dix was succeeded by Secretary Chase on March 7, 1861. The great increase of import duties, imposed by the act of March 2, had caused the bonds of the government to advance in the market, and it seemed to be a favorable time to offer the remainder of the bonds authorized by the act of Feb. 8, 1861. Bids for eight millions of the bonds were opened on April 2. Offers at from 94 to par were received for $3,099,000, and 93½ for the remainder of the loans. All bids below 94 were rejected. In the midst of these negotiations it became known that arrangements were being made to send an additional force for the relief of Fort Sumter. No additional bonds were sold until May 31, when $7,310.000 were sold at an average rate of $85.34 for $100. In place of bonds, five millions of treasury notes were offered, and the bids opened on April 11 amounted to only one million; but shortly thereafter the whole amount offered was taken. The United States 6 per cent. bonds were selling in the market at 83, and money at call was worth from 4 to 5 per cent.; but the treasury notes bearing 6 per cent. interest could be held and used or sold at a profit for the purpose of paying duties. Additional treasury notes of the same kind, as has been seen, were subsequently sold, amounting, in all, to more than thirty-five millions, at rates ranging from par to 1 27/100 per cent. premium. On page 974 will be found the form of a $50 note issued under the act of March 2, 1861.
—Civil war was inaugurated by the attack on Fort Sumter on April 12. The fort surrendered on April 14, and on the following day President Lincoln issued a call for seventy-five thousand soldiers. The southern states were declared blockaded. Seven of these states had, by ordinances, publicly declared their secession from the Union, and their defiance of the national authority, and a convention at Montgomery, Alabama, had organized a new government, under the name of "The Confederate States of America." Massachusetts soldiers, on their way to Washington, were attacked by a mob in Baltimore. In the month of May the confederate capital was removed to Richmond; North Carolina and Arkansas seceded, and the Union army crossed the Potomac into Virginia, and took possession of Alexandria and Arlington Heights. In June, Tennessee passed an ordinance of secession, and Gen. Butler was defeated at Big Bethel. The two-year treasury notes which had been recently issued at par, were at 2½ per cent. discount; and the government, instead of disposing of the notes, borrowed five millions at sixty days upon them as collateral security. During the following month the disastrous results of the first battle of Bull Run startled the entire country. The Union army, defeated, fell back upon Washington, and the capital of the country was believed to be in danger. Two days thereafter, President Lincoln called for five hundred thousand three-year volunteers. An extra session of congress had been called for July 4, 1861, and on that day, amid events like these, Secretary Chase transmitted his first report to Congress, which recommended measures to provide the means for continuing a civil war which proved in magnitude to be unequaled in the history of nations. Specie payments were suspended on Dec. 28, 1861. The war was carried on chiefly by the use of treasury notes as a circulating medium. The purchasing power of these notes rapidly declined. Prices of all kinds advanced rapidly, and particularly the prices of articles most needed for the supply of the army. The expenditures of the government during the four years of the war were vastly increased beyond the amount which would have been necessary if the war could have been conducted upon the gold standard instead of upon the fluctuating standard of the legal tender paper dollar.
—Never was a great national debt contracted so rapidly. In 1835, as has been seen, the country was entirely out of debt, and on Jan. 1, 1861, the whole debt of the Union amounted to but 166 millions. Gen. Lee surrendered at Appomattox, on April 9, 1865; which date was four years, lacking five days, after Fort Sumter had surrendered to the enemy. On the first day of July, 1861, the debt was 90 millions; at the close of that fiscal year it had reached 524 millions; at the end of the succeeding year, it was considerably more than twice that amount, being on July 1, 1863, $1,119,772,138. During the following year it increased nearly 700 millions. For the next nine months, to the close of the war, it increased at the rate of about sixty millions a month. An immense amount of obligations against the government were presented, after the close of the war; and, for the five months thereafter, the ascertained debt increased at the rate of three millions a day. The cost of conducting the war, after it was once fully inaugurated, was scarcely at any time less than thirty millions a month. At many times it far exceeded that amount; sometimes it was not less than ninety millions a month, and the average expenses of the war, from the date of its inception to its conclusion, may be said to be not less than two millions each day. The public debt reached its maximum on Aug. 31, 1865, at which day it amounted to $2,845,907,626.56. Of this amount, $1,109,568,191 was in funded debt; $1,503,020 was debt which had matured; and $2,111,000 was in suspended requisitions. The remainder was as follows:
There were more than 684 millions of these obligations, which were a legal tender, of which 207 millions were bearing compound interest at the rate of 6 per cent. 830 millions were in treasury notes, bearing interest at the rate of 7 3/10; per cent. per annum. There were $1,540,483,701 of treasury notes, either payable on demand or bearing interest. If the temporary loans, which were payable in thirty days from the time of deposit, after notice of ten days, and the certificates of indebtedness, which bore interest at 6 per cent., payable one year after date, or earlier, at the option of the government, are included with the treasury notes, the whole would amount to considerably more than three-fifths of the whole public debt of the country.
—Secretary Chase, in his report, estimated the whole sum required for the fiscal year to be not less than 318 millions, of which 215 millions would be required for the war and naval service; more than twelve millions ($12,639,861.64) to pay treasury notes due and to become due; and nine millions to pay interest upon the proposed new debt. He was of the opinion that not less than eighty millions should be provided by taxation, and 240 millions obtained by loans. The principal part of the revenue was to be obtained from the tariff, the remainder by a system of direct taxation or internal duties. Six per cent. bonds, amounting to $18,415,000, had already been sold, at from par to $85.34 for $100, and treasury notes bearing interest at 6 per cent. had been paid to creditors. He considered that "in a contest for national existence and the sovereignty of the people, it is eminently proper that the appeal for the means of prosecuting it with energy to a speedy and successful issue, should be made, in the first instance at least, to the people themselves." Among other recommendations, he proposed a loan of 100 millions, to be issued in the form of treasury notes, or exchequer bills, bearing interest at the rate of 7 3/10 per cent., to be paid semi-annually, and redeemable at pleasure, after three years from date. The interest at this rate was suggested, because it was liberal to the subscribers, convenient for calculation, and, under existing circumstances, a fair rate for the government. The rate would be convenient for calculation; for, the interest being equal to one cent a day on $50, two cents a day on $100, ten cents on $500, twenty cents on $1,000, and one dollar on $5,000, it would be only necessary to consider the number of days since the date of the note, to determine, at the close, the amount due on it. It was proposed to issue these notes in sums of fifty, one hundred, five hundred, one thousand, and five thousand dollars, with the amount of interest for specified periods engraved on the back of each note, and the facility thus secured to the holder of determining the exact amount of interest, it was thought, would enhance its value. "While the rate proposed is thus liberal and convenient, the secretary regards it also as, under existing circumstances, fair and equitable to the government. The bonds of the United States, bearing an interest of 6 per cent., and redeemable twenty years after date, can not be disposed of at current market rates, so that the interest on the amount realized will not exceed 7 3/10 per cent.; nor is there any reason to believe that treasury notes, bearing an interest of 6 per cent., receivable for public dues and convertible into twenty years' 6 per cent. bonds, can be disposed of in any large amounts, so that the interest on the sum realized will fall much, if at all, short of the rate proposed. For the difference of interest, if any, between such notes and those of the proposed national loan, the secretary thinks that the absence of the feature of receivability for public dues in the latter is a sufficient compensation." He also proposed notes of small denominations, ten, twenty and twenty-five dollars, payable one year from date, to an amount not exceeding fifty millions, bearing interest at the rate of 3 55/100 per cent., to be exchanged for the other form of treasury notes, bearing interest at 7 3/10, or, if more convenient, made redeemable in coin, on demand, without interest. "The greatest care," he said, "will, however, be requisite to prevent the degradation of such issues into an irredeemable paper currency, than which no more certainly fatal expedient for impoverishing the masses, and discrediting crediting the government of any country can well be devised."
—Treasury notes authorized by the acts of June 30, 1812, Feb. 24, 1815, and three intervening acts, bore interest, as recommended by Secretary Gallatin, as has been seen, at the rate of 5 2/5 per cent. a year, and were receivable in payment of all duties and taxes laid by the authority of the United States, and for all public lands sold by said authority; and when so received, interest was to be computed at the rate of "one cent and one-half a cent per day" on every one hundred dollars of principal, each month being reckoned as thirty days. It is probable, that the proposition for the issue of the seven-thirty notes was obtained from this act, for a substitute was proposed for the legal tender act, which passed the house of representatives Feb. 6, 1862, which contained a section providing for the issue of transferable certificates bearing interest at the rate of 5 2/5 per cent. per annum. These recommendations of the secretary were embodied in the acts of July 17 and Aug. 5, 1861. The first was passed by nearly the unanimous vote of the house, only five votes (one from Kentucky, two from Missouri, one from Ohio, and one from New York) having been against it. It authorized the secretary to borrow 250 millions, either in twenty-year treasury notes, with interest not exceeding 7 per cent., or in seven-thirty three-year treasury notes, and to issue demand notes, bearing no interest, and receivable for public dues. These latter notes were limited to fifty millions, and to denominations of not less than ten dollars. But the act of August 5 authorized the issue of five dollar notes; also twenty-year 6 per cent. bonds for the amount of the seven-thirty notes issued, which bonds were to be used only in exchange, or for the purpose of funding such notes. Under these acts, nearly 140 millions of seven-thirty notes were issued, and sixty millions of demand notes, without interest; ten millions of these notes having been authorized by the act of Feb. 12, 1862.
—The first demand notes were issued in August, and paid for salaries at Washington. They were received with reluctance, and the merchants and shop-keepers endeavored to discredit them. Railroad corporations refused them in payment of fares and freight; and leading banks in the city of New York refused to receive them except on special deposits. The secretary and other officers of the treasury signed a paper agreeing to accept them in payment of salaries. A circular was issued to the various assistant treasurers, stating that treasury notes of the denominations of five, ten and twenty dollars had been, and will continue to be issued, redeemable in coin on demand in Boston, New York, Philadelphia, St. Louis and Cincinnati. Gen. Scott also issued a circular on Sept. 3, 1861, announcing to the army, "that the treasury department, to meet future payments to the troops, is about to supply, besides coin, treasury notes in five, ten and twenty dollars, as good as gold in all banks and government offices throughout the United States, and most convenient for transmission by mail from the officers and men to their families at home." Of these notes $24,550,325 were issued before the 1st of December, and $33,460,000 were in circulation at the time of the suspension of specie payment on Dec. 28. The whole amount authorized was issued prior to April 1, 1862. Notwithstanding the circular of the secretary, it became necessary to use the available coin in payment of the interest upon the public debt, and there was at times some difficulty in redeeming the notes promptly in gold. At a meeting of the associated banks in the city of New York, in January, 1862, it was resolved, "That before we receive such notes, we must require that such legal provision be made by congress as shall insure their speedy redemption, and that a committee of the association be appointed to consider the subject and report on it at an adjourned meeting." The notes were receivable for duties, and soon obtained good credit. After the suspension of specie payment, efforts were made to retire them as rapidly as possible, for as they were receivable for duties, they embarrassed the government in providing for the gold interest upon the public debt.
—On July 1, 1863, more than fifty six millions had been retired, and a much larger amount of legal-tender notes had been placed in circulation. The demand notes were not, by the terms of the law, made payable in gold, but as they were authorized prior to the suspension of specie payment, and proclaimed as payable in coin by the circular of the secretary, they were considered so payable, and, after the suspension of specie payment, were quoted at times at about the same premium for legal-tender notes as gold. Interest upon the first issue of the seven-thirty notes was also paid in gold. These notes were fundable into twenty-year 6 per cent. bonds of 1881, and but few were presented for payment. The amount redeemed in money to Nov. 1, 1864, was only $63,500, while the whole amount converted into bonds to that date was $125,864,900.*147
—The seven-thirty loan was successfully negotiated through the associated banks of New York, who, jointly with the banks of Boston and Philadelphia, made a contract with the secretary on Aug 15, 1861, for the purchase of government securities to the amount of 150 millions, in three different installments. The total amount taken by the New York banks, was 105 millions. Whenever subscriptions were made, 10 per cent. was paid to the assistant treasurers in New York, Boston and Philadelphia, and the remainder was placed to the credit of the United States on the books of the banks subscribing. The arrangement of the associated banks among themselves was to issue certificates to each subscriber, stating the amount so subscribed, and placed to the credit of the government; and, as such deposits were withdrawn, or paid into the treasury, seven-thirty notes were issued for the same amount to the subscribers respectively. An immediate issue was to be made of seven-thirty treasury notes, dated Aug. 15, 1861, to the extent of fifty millions, bearing interest from that date. The associated banks were to take jointly this amount at par, with the privilege of fifty millions on Oct. 15, and fifty millions on Dec. 15; the banks giving their decision on the first days of these months. It was understood, that, if the whole amount should be taken, no other government stock or treasury notes, except demand notes, should be negotiated or paid out by the treasury until Feb. 1, 1862. The details of this negotiation, which was perhaps the most important one during the war, are given in the Bankers' Magazine for September, 1861, and August, 1862.
—The report of June 12, 1862, of the loan committee of the associated banks of New York, states, that, at the time the negotiation was made, "the credit of the government had become impaired to such a degree that a large loan could not be obtained in any ordinary way, nor even a small temporary loan, except for a very short period at a high rate of interest. Men's hearts failed them: the rebellion was on so large a scale, and had so unexpectedly broken out and raged with such fury, that to subdue it seemed to most persons to be impossible. Then it was, after careful deliberation and consultation with the secretary, that the banks decided it to be wise for them to depart from their usual legitimate business, and sustain the government credit, and stand or fall with it. This act restored the public confidence, and was the highest indorsement of the public credit that could then have been given. * * When the banks agreed to advance this large amount to the government, they did so without hope or expectation of profit from it, and they earnestly sought to obtain from the government the assurance that they should be indemnified from loss. It was not until five months after taking the first loan, and two months after taking the third, in the month of January last, that there was any reason to expect the securities to command in the market a price higher than that at which they had been taken. * * Much doubt was expressed, even by our most experienced bankers and financiers, when the contract was entered into, of the ability of the banks to fulfill it. It has been fulfilled by them to the letter, and has proven of more value to the country than can be estimated. As fortunately as unexpectedly, it has resulted profitably for the associates, and has probably enabled them to employ their means to nearly as much advantage as would have been done but for the political disturbances of the country."
—Secretary Chase, in his report for Dec. 9, 1861, thus refers to this negotiation: "Representatives from the banking institutions of the three cities, responding to his invitation, met him for consultation in New York, and after full conference, agreed to unite as associates in moneyed support to the government, and to subscribe at once a loan of fifty millions of dollars, of which five millions were to be paid immediately to the assistant treasurers, in coin, and the residue, also in coin, as needed for disbursement. The secretary, on his part, agreed to issue three year seven-thirty bonds, or treasury notes, bearing even date with the subscription, and of equal amount; to cause books of subscription to the national loan to be immediately opened; to reimburse the advances of the banks, as far as practicable, from this national subscription; and to deliver to them seven-thirty bonds, or treasury notes, for the amount not thus reimbursed. It was further understood, that the secretary of the treasury should issue a limited amount of United States notes, payable on demand, in aid of the operations of the treasury, and that the associated institutions, when the first advance of fifty millions should be expended, would, if practicable, make another, and, when that should be exhausted, still another advance to the government of the same amount, and on similar terms. * * All these objects were happily accomplished. Fifty millions of dollars were immediately advanced by the banks. The secretary caused books of subscription to be opened throughout the country, and the people subscribed freely to the loan. The amounts thus subscribed were reimbursed to the banks, and the sum reimbursed, though then covering but little more than half the amount, enabled those institutions, when a second loan was required, to make a second advance of $50,000,000. Thus, two loans, of $50,000,000 each, have been negotiated for three-year seven-thirty bonds, at par. The first of these loans was negotiated, and the first issue of bonds bears date, Aug. 19, the second Oct. 1, 1861."
—On Nov. 16, a third loan was negotiated with the associated institutions under the seventh section of the act of Aug. 5, 1861, by agreeing to issue to them fifty millions of dollars in 6 per cent. bonds, at a rate equivalent to par, for the bonds bearing 7 per cent. interest, authorized by the act of July 17, 1861.
—The table on page 978 gives quotations of United States 5 and 6 per cent. bonds, of treasury notes and of gold, at the dates stated, compiled from tables in Hunt's Merchants' Magazine for 1862-3-4.
—About three years after the passage of the act authorizing the first issue of seven-thirty notes, another act was passed, on June 30, 1864, authorizing 200 millions of similar notes, and a subsequent act of March 3, 1865, authorized 600 millions in addition, and under this act the whole amount (including $29,992,500 of reissues) was issued. Of this amount forty-four millions were in denominations of fifty dollars; 137 millions, in one hundreds; 228 millions, in five hundreds; 370 millions, in one thousands; and about fifty millions, in five thousands. They were issued in three series, dated Aug. 15, 1864, June 15, 1865, and July 15, 1865. These notes, like those that preceded them, were fundable into 6 per cent. bonds—the former into eighty-ones, and the latter into five-twenties—and this fact was printed upon the reverse of each note. The 800 millions last issued were payable, principal and interest, in lawful money. More than twenty millions, which were authorized by the act of June 20, 1864, were paid to the soldiers direct. Of the 600 millions, authorized by the act of March 3, 1865, seventy millions were issued during that month, and the whole remainder was taken during the following four months. Secretary McCulloch, in his report for Dec. 4, 1865, thus refers to the negotiations and issue of the remaining 530 millions of these notes: "Upon the capture of Richmond, and the surrender of the confederate armies, it became apparent that there would be an early disbanding of the forces of the United States, and consequently heavy requisitions from the war department for transportation and payment of the army, including bounties. As it was important that these requisitions should be promptly met, and especially important that not a soldier should remain in the service a single day for want of means to pay him, the secretary perceived the necessity of realizing as speedily as possible the amount—$530,000,000—still authorized to be borrowed under this act. The seven and three-tenths notes had proved to be a popular loan, and although a security on longer time and lower interest would have been more advantageous to the government, the secretary considered it advisable, under the circumstances, to continue to offer these notes to the public, and to avail himself, as his immediate predecessors had done, of the services of Jay Cooke, Esq., in the sale of them. The result was in the highest degree satisfactory. By the admirable skill and energy of the agent, and the hearty co-operation of the national banks, these notes were distributed in every part of the northern and some parts of the southern states, and placed within the reach of every person desiring to invest in them. No loan ever offered in the United States, notwithstanding the large amount of government securities previously taken by the people, was so promptly subscribed for is this. Before the first of August the entire amount of $530,000,000 had been taken, and the secretary had the unexpected satisfaction of being able, with the receipts from customs and internal revenue and a small increase of the temporary loan, to meet all the requisitions upon the treasury."
—On the opposite page is the form of the seven-thirty note issued under the act of March 3, 1865, with one coupon attached. The whole half year's interest was payable with the note, and there were five coupons upon the right end of the note. On the reverse were printed these words: "Pay to bearer. At maturity convertible at the option of the holder into bonds redeemable at the pleasure of the government, at any time after five years, and payable twenty years from July 15, 1868, with interest at 6 per cent. per annum, payable semi-annually in coin."
—During the month of July, 1862, gold was at a premium for legal tender notes of from 10 to 15 per cent., and demand notes, which were receivable for customs at a premium of about 8 per cent. The subsidiary silver coinage authorized by the act of Feb. 21, 1852, was about 7 per cent. less in intrinsic value than the silver dollar, and this difference in weight was authorized, so that it might be retained in the country for purposes of change. This silver coin soon began to disappear. Considerable amounts were hoarded in the north and south, and larger amounts were exported to Canada and South America; and a premium of from 10 to 12 per cent. was offered for small amounts by business men who desired it for convenience in making change. Many individuals as well as corporations issued small obligations, such as had been issued in 1812 and 1837. Postage stamps were used to a considerable extent for purposes of change. The postmaster general, in his report of December, 1862, says: "In the first quarter of the current year ending Sept. 20, the number of stamps issued to postmasters was one hundred and four millions; there were calls for about two hundred millions, which would have been nearly sufficient to meet the usual demand for a year. This extraordinary demand arose from the temporary use of these stamps as a currency for the public in lieu of the smaller denominations of specie, and ceased with the introduction of the so-called 'postal currency.' "
—On July 17, 1862, an act was passed which authorized the issue of "postage and other stamps of the United States"; which were receivable in exchange for United States notes, and in payment of all dues to the United States, in sums of not less than five dollars. Under this law, notes of the denominations of 5, 10, 25 and 50 cents were issued, and the denominations of 5 and 25 cents were printed on brown tinted paper, with an engraved head of Jefferson, which was the exact counterpart of that used on the five-cent postage stamp. On the twenty-five-cent note the head of Jefferson was five times repeated. The ten-cent note was printed in green, with the head of Washington, the counterpart of that used on the ten-cent postage stamp. Upon the fifty-cent note this vignette was five times repeated. These notes were issued in the month of August, 1862, and were termed "postage currency," and continued in use until they were replaced by the fractional currency authorized by section four of the act of March 3, 1863. The previous act prohibited private corporations, banking associations and individuals from issuing or circulating notes for fractions of a dollar, and imposed a penalty, upon conviction, of a fine not exceeding five hundred dollars, and imprisonment not exceeding six months. The law did not prohibit the issue of fractional currency by cities, and considerable amounts were placed in circulation by various municipalities notwithstanding the fact that in many of the states laws had been passed in the year 1837, or prior thereto, prohibiting such issues.
—The amount of fractional currency was limited to fifty millions of dollars, and denominations of from three cents to fifty cents were issued, which were exchangeable for United States notes in sums of not less than three dollars. On the days on which this small currency was first issued to the public, the offices of the assistant treasurer in New York and in other cities were thronged with long lines of people anxious to obtain this paper currency to supply the deficiency caused by the withdrawal of silver coin. On account of the scarcity of one and two-dollar notes and of fractional currency, whole sheets of these notes when they were first issued were paid to the army, and subsequently were so cut that four 25-cent notes were used in place of a one-dollar note, and four fifty-cent notes in place of a two-dollar note, and in this form considerable amounts were paid out. These notes were universally used for small change in and out of the army. The total issue of "postage currency," which commenced Aug. 21, 1862, and ceased May 27, 1863, was $20,215,635. $4,282,082 was outstanding on June 1, 1883, of which $1,028,332 was in denominations of five cents; $1,243,974 in ten cents; $1,039,203 in twenty-five cents; and $970,572 in denominations of fifty cents. The total amount of issues and reissues under both acts, was $368,720,074. They were out rapidly and became ragged and filthy, and were frequently returned for redemption.
—The first issues under the act of March 3 commenced on Oct. 10, 1863, and ceased on Feb. 15, 1876; and an act was passed on April 17, of the same year, directing the secretary to replace this circulation by the issue of subsidiary silver coin. The fractional paper currency was issued in five different series. The highest amount outstanding at any one time was less than fifty millions. The amount outstanding on February 1, 1884, was $15,363,184. A considerable amount is still held by banks and bankers, which is grudgingly paid out to those customers who desire it for purposes of remittance by letter. The principal portion of the amount outstanding will probably never be presented for redemption. The proportion of loss to the people from this fractional currency is vastly greater than that of any other kind of circulation ever issued in this country, and this loss, in a large measure, must be attributed to the small value of the notes and the many casualties of the war. The proportion of legal-tender notes and national bank notes of the highest amount outstanding at any one time, not presented for redemption in the course of twenty years, is estimated at about 1½ per cent.
—Authority was given by the second section of the act of March 3, 1863, to issue 400 millions of treasury notes; bearing interest at a rate not exceeding 6 per cent. in lawful money for a term not exceeding three years, payable at periods expressed on their face, and in denominations of not less than ten dollars. These notes were exchangeable, together with the accumulated interest for treasury notes not bearing interest. They were made legal tender for their face value, excluding interest. Power was also given to the secretary to issue 150 millions of additional greenbacks, which were to be issued only in exchange for these interest-bearing notes. Under this act, $44,520,000 notes were issued, redeemable one year from date, and $166,480,000 two years from date bearing interest at 5 per cent. per annum, which were known as "one and two year notes of 1863."
—Authority was given by the act of June 30, 1864, for the issue of 200 millions of treasury notes in denominations of not less than ten dollars, not exceeding three years, and bearing interest not exceeding 7.30 per cent. per annum, interest payable semi-annually, principal and interest to be paid in lawful money. The notes were to be a legal tender for their face value. No seven-thirty notes were issued under this act, but, in lieu thereof, $266,595,440 of compound interest notes were issued. The act did not authorize in terms the issue of compound interest notes, but as the interest at 6 per cent. compounded, would be considerably less than at 7.30 per cent. simple interest, their issue was not in conflict with the terms of the act. The notes were in the form shown on the opposite page. Of these notes, $177,045,770 were issued in redemption of the one and two year 5 per cent. notes, and it is not probable that more than 200 millions of these notes were outstanding at any one time. Secretary Fessenden, in his report for Dec. 6, 1864, thus refers to the issue of these notes: "The whole amount of national circulation, not bearing interest, exclusive of fractional currency, and of notes issued by national banks, is limited to four hundred millions of dollars, subject to slight occasional increase from the fifty millions held in reserve for the payment of temporary deposits. Of 5 per cent. interest-bearing notes there were outstanding, on the first of November last, $120,519,110. To a considerable extent these notes have been, and will continue to be, used as currency. Those with coupons have been found particularly objectionable, as, though withdrawn to a certain extent while the interest is maturing, they are liable to be periodically rushed upon the market. In consideration of this feature, a large amount, viz., about ninety millions of the original issue of one hundred and fifty millions of these coupon notes, have been withdrawn and destroyed, and their place occupied by notes payable in three years, bearing interest at 6 per centum, compounded semi-annually. This is believed to be the best form of interest-bearing legal-tender notes, as being more likely to be withdrawn and held until maturity, as an investment. Of these, fifteen millions in amount were issued under the act of March 3, 1863, and about ninety millions under the act of June 30, 1864. The total amount of interest-bearing notes outstanding on the 22d of November last, was $210,222,870. What proportion of these may be considered as an addition to the circulation I am unable to determine. To that extent, whatever it may be, they contribute to the amount of the currency, and thus in some degree occasion and in still greater degree sustain, an increase of prices, and depress values."
On the reverse of these notes, the following table, showing the rates of interest which would accumulate upon the notes, was printed for the convenience of the holder:
—About two years and eight months after the passage of the last act, authority was given for the issue of temporary loan 3 per cent. certificates, for the purpose of retiring the compound interest notes. When these notes were issued, it was expected that they would, as the interest accumulated, soon pass out of circulation into the hands of bankers and capitalists. These expectations were realized, for the interest was only payable at maturity three years from date. Such notes, with accrued interest, would not be paid out by the holders except in cases of absolute necessity. In order to insure the retirement of these notes, "An act to provide ways and means for the payment of compound interest notes," was passed on March 2, 1867.
—This act authorized the issue of 3 per cent. certificates in denominations of not less than $100, payable on demand. The national banks were authorized to hold these certificates is a part of their reserve, provided that not less than two-fifths of the entire reserve should consist of lawful money of the United States. This privilege did not largely diminish the amount of gold coin and greenbacks which the banks were required continually to keep on hand, as most of the banks held a large amount of cash reserve in addition to the amount required by law. This excess could with great profit be invested in the new certificates, and they could be used to advantage for clearinghouse purposes, and the banks at once availed themselves of this privilege. The amount authorized by this act was fifty millions, which was increased to seventy-five millions by the act of July 25, 1868. These certificates were payable on demand, and redeemable at the pleasure of the government: they were chiefly issued during the fiscal year 1868 and 1869, and for the most part retired in the fiscal years from 1869 to 1873—$12,195,000 being retired during the latter year.
—The act of July 12, 1870, authorized the issue of $54,000,000, additional bank circulation, and section two of that act provided, that at the end of each month after the passage of this act the comptroller of the currency should report the amount of such circulating notes issued, whereupon the secretary of the treasury should redeem and cancel a like amount of 3 per cent. certificates; and in order to retire such certificates he may give notice to the holders of said certificates, designating the number, date and amount, that they shall cease to bear interest from and after a certain day designated, and that the certificates so designated shall cease to be available for any portion of the reserve. Thus it will be seen that the compound interest notes were issued for the purpose of retiring 5 per cent. notes, the 3 per cent. certificates for the retirement of the compounds which were maturing, and the act of July 12, 1870, in turn for the retirement of the 3 per cents, and these different acts had the effect of rapidly accomplishing these results, with but little inconvenience either to the banks or to the public.
—The act of March 3, 1863, authorized the issue of gold certificates, of one and two-year notes, and of compound interest notes; and certificates under the fifth section of that act were used for clearing-house purposes soon after the passage of the national bank act. They were authorized to be issued in sums of not less than $20, corresponding with the denomination of United States notes. The coin and bullion deposited were required to be retained in the treasury for the payment of the same on demand. Certificates representing coin in the treasury were authorized to be issued in payment of interest on the public debt, but it was provided that the amount of certificates issued should not, at any one time, exceed 20 per centum beyond the amount of coin and bullion in the treasury. These certificates were authorized to be received at par in payment of duties. The first issue was made on Nov. 13, 1865. On June 30, 1875, there were outstanding $21,796,300, of which the national banks in New York city held $12,642,180. Their issue was discontinued on Dec. 1, 1878, just previous to the resumption of specie payment, and the amount outstanding had decreased on June 30, 1879, to $15,413,700. The amount outstanding on Oct. 3, 1883, was $4,907,440, of which the national banks held $4,594,300. On Jan. 1, 1883, the amount outstanding was $3,568,840. Most of these certificates were issued for clearing-house purposes, in denominations of $1,000, $5,000 and $10,000.
—On June 8, 1872, an act was passed authorizing the secretary of the treasury to receive United States notes on deposit without interest from national bank associations, in sums not less than $10,000, and issue certificates therefor, of denominations not less than $5,000. These certificates were similar to the 3 per cent. certificates just referred to, except that they bore no interest, and were largely used in place thereof for clearinghouse purposes. The certificates were payable on demand in United States notes at the place of issue, and they were authorized to be held and counted by national banks as part of their legal reserve, and to be used in settlement of clearing-house balances. These certificates were not properly treasury notes, and the highest amount issued was $64,780,000, on Aug. 3, 1875, which amount was rapidly reduced after the resumption of specie payments. On June 30, 1875, there were outstanding $59,045,000, of which the national banks held $47,310,000. On June 30, 1876, the amount outstanding was $33,140,000, of which the banks held $27,955. The amount outstanding on June 1, 1883, was $11,805,000, of which the banks held, on May 1, $8,420,000.
—The act of Feb. 26, 1879, authorized the issue of 4 per cent. certificates, of the denomination of $10, which were convertible at any time, with accrued interest, into the 4 per cent. bonds authorized to be issued July 14, 1870. This act was passed for the purpose of facilitating the refunding of 5 and 6 per cent. bonds then falling due into 4 per cents, but the act was really unnecessary, for about the time the certificates began to be issued, the 4 per cent. bonds were above par in the market. Long lines of people gathered at the different government depositories where the certificates were offered, and the amount was taken as fast as they could be furnished. $40,012,750 were disposed of at par, of which $39,398,110 were issued during the fourth quarter of the fiscal year 1879, and the amount outstanding on June 1, 1883, was $358,000.
—The following table exhibits the amount of treasury notes of the different forms issued during the late civil war, outstanding on June 1, 1883, interest upon all of which has long since ceased:
—"An act to authorize the issue of United States notes, and for the redemption or funding thereof, and for refunding the floating debt of the United States," which was signed by President Lincoln on Feb. 25, 1862, is the first law ever placed upon the statute books making treasury notes, or anything but gold and silver coin, a tender in payment of debts. Indeed, it may be said that neither the congress of the United States nor the continental congress, which preceded it, issued any form of legal tender treasury notes. The continental congress had no power to enact such a law. It did, however, pass a resolution, on Jan. 4, 1777, recommending to the legislatures of the different states to pass laws making the bills of credit issued by congress a lawful tender in payment of public and private debts, and a refusal thereof an extinguishment of such debts; that debts payable in sterling money be discharged in continental dollars at the rate of 43.6 sterling per dollar; and that in the discharge of all other debts and contracts, continental dollars shall pass at the rate fixed by the respective states for the value of Spanish milled dollars. In accordance with the recommendation contained in these resolutions, continental money was made a legal tender in Connecticut, Massachusetts, Rhode Island and New Jersey in 1776, and in Pennsylvania, Delaware, Maryland and Virginia in 1777.
—The legal-tender act was passed during the second session of the 32d congress, which met Dec. 2, 1861. The report of the secretary of the treasury bears date Dec. 9. The third installment of fifty millions, of the loan of 150 millions already referred to, had been negotiated on the 16th of November previous, with the associated banks. The secretary was hopeful that the war would be brought to an auspicious termination before midsummer, but at the same time submitted estimates based upon its continuance. In this event, it was estimated that the public debt, which, on July 1, 1861, was $90,867,828, would be, on July 1, 1862, 517 millions, and on July 1 of the following year, 897 millions. He recommended the issue of circulating notes in place of the existing bank note circulation, which depended "on the laws of thirty-four states, and the character of some sixteen hundred private corporations." Two plans for effecting this object were suggested: the first was the withdrawal of the bank circulation, and the issue of United States notes instead thereof, payable in coin on demand; the second contemplated the delivery to banks of notes prepared for circulation under national direction, and to secure prompt convertibility into coin by the pledge of United States bonds, and other needful regulations. Both of these plans were discussed at considerable length in the report, the preference of the secretary being decidedly in favor of the issue of bank notes. The avails of the large loans made from the banks were not allowed to remain on deposit, to be drawn by checks as the necessities of the government should require, but were, from time to time, paid into the treasury, so that it was quite difficult for some of the banks to meet the last installment. The banks were in danger of suspending specie payment at the time of the meeting of congress. Suspension finally took place on Dec. 28, 1861, and two days later, on the 30th, Mr. Spaulding, of the subcommittee of the committee of ways and means, introduced the legal-tender bill.
—A national bank bill had been prepared previously, and when nearly completed, Mr. Hooper, of Massachusetts, also of the subcommittee, incorporated in it several provisions contained in a recent free banking bill, which had passed the legislature of his own state. Two hundred copies of this bill, which was hastily prepared late in the month of December, were printed for the use of the committee of ways and means, and a copy of this bill, which was the basis of the national bank act which became a law about a year afterward, is in the possession of the writer of this article. It being evident that the bank bill would encounter considerable opposition from the friends of banks organized under state laws, and that great delay would necessarily occur from the consideration of an elaborate bank bill of sixty or more sections, arranged for the organization of banks in the different states of the Union, the bill was laid aside, and the bill authorizing the issue of legal-tender notes was considered. An informal letter was read to the committee from Attorney General Bates, in which he gave it as his opinion that congress had not only the right to issue such bills of credit, but also to make them a legal tender. Discussion of the bill continued for several days, and, upon a vote being taken, it was found that the committee was equally divided, but by the change of a vote it was finally reported to the house on July 7, 1862, and published in the leading New York newspapers, only two of which were favorable to the measure. Delegates from ten of the principal banks in the three leading cities appeared in Washington and opposed the bill. The bill was afterward submitted to the secretary of the Treasury by the committee, and, upon its return with his suggestions, was reported to the house on Jan. 22, 1862, with the title above given, as a substitute for the previous bill. The bill passed the house on Feb. 6, 1862, by a vote of 93 to 59. The vote to strike out the legal-tender clause was lost in the senate by 17 years to 22 nays, and the bill passed by a vote of 30 to 7. The chief amendments in the senate were: requiring payment of interest semi-annually in coin on bonds and seven-thirty notes; conferring on the secretary power to sell 6 per cent. bonds at the market value thereof for coin; making the bonds redeemable in five years and payable in twenty years from date at the option of the government, and authorizing temporary deposits in the treasury at 6 per cent.
—There was considerable debate in both houses upon the question of the right of the government to issue demand notes, and the arguments were not unlike those which have already been given in previous debates in congress. The principal discussion was, however, upon the constitutional right of congress to issue legal-tender notes. On the 20th the amendments were returned to the senate with the concurrence of the house in part of them, and non-concurrence in others, and with some amendments to the senate amendments, after which a conference committee was appointed in the house and senate, which committee had a long consultation extending through two or three days. The report of the conference committee was agreed to on the 24th in the house by yeas 97, nays 22, and in the senate on the 25th without a division, and on the same day the bill was approved by the president. It authorized the issue of 150 millions of United States notes, not bearing interest, payable to bearer at the treasury of the United States, and of denominations of not less than $5, fifty millions of which were to be in lieu of the demand treasury notes which had been previously issued; they were similar in form to those notes, but they were not receivable in payment of duties on imports, and were not payable by the government for interest upon its obligations, which were payable in coin: they were to be a legal tender in payment of all other debts, public and private, within the United States. They differed from the first notes issued also, and in this respect, that all holders of legal-tender notes were authorized to deposit any sum not less than $50, or any multiple of $50, with the treasurer, or either of the assistant treasurers, and receive duplicate certificates, upon which were to be issued to the holder an equal amount of bonds of the United States bearing interest at the rate of 6 per centum per annum, payable semi-annually, and redeemable at the pleasure of the United States after five years, and payable twenty years from the date thereof. The second section of the same act authorizes the issue of 500 millions of five-twenty bonds into which the treasury notes were to be funded, in accordance with the previous section and as stated in the title of the bill. The first notes issued were of the date of March 10, 1862, and there was printed upon the back the following words: "This note is a legal tender for all debts, public and private, except duties on imports and interest on the public debt, and is exchangeable for United States 6 per cent. bonds redeemable at the pleasure of the United States after five years."
—On June 7, 1862, the secretary addressed letters to the chairman of the committee of ways and means of the house and the finance committee of the senate, recommending a further issue of 150 millions of dollars of legal-tender notes. He said that nearly the whole issue of sixty millions in demand notes was held by bankers and by capitalists, and was at a premium of ¾ to 1¼ per cent. on account of its availability for the payment of duties; so that there was really only about ninety millions of United States notes in circulation. He said that the United States notes are maintained at near par in gold by the provision for their conversion into bonds bearing 6 per cent. interest payable in coin, and that resumption would be more easily effected "if the currency—small as well as large—were of United States notes, than if the channels of circulation be left to be filled up by the emissions of non-specie paying corporations, solvent and insolvent." With these letters he transmitted bills for the consideration of these committees. The immediate necessities of the government admitted of but little delay, and the bill, substantially as recommended by the secretary, passed both houses, and was signed by the president on June 11, 1862. The bill authorized the issue of 150 millions of legal-tender notes, thirty-five millions of which were to be in denominations less than $5. The subsequent act of March 3, 1863, authorized the issue of an additional 150 millions, making the aggregate authorized issue of legal-tender notes 450 millions of dollars. This act was similar to the previous legal-tender acts, so far as the issue of treasury notes was concerned, except that it provided "that the holders of United States notes issued under former acts shall present the same for the purpose of exchanging them for bonds as therein provided on or before July 1, 1863, and thereupon the right to exchange the same shall cease and determine."
—After the passage of the act of March 3, 1863, the secretary decided to commence the negotiation of 5 per cent. ten-forty bonds, and gave notice that he should decline to allow the holders of legal tenders to fund such notes in bonds bearing a greater rate of interest than 5 per cent. after July 1, 1863. The negotiation of the 5 per cents was not successful at that time, and that portion of the act of March 3 which repealed the right to fund legal tenders into five-twenties, as printed upon the back of the notes, was not only a violation of the contract with the holder, but also a serious financial mistake. It had the effect to materially reduce the value of the treasury notes in the market, prevented for a time the further funding of treasury notes after July 1, and undoubtedly postponed for many months the date for the resumption of specie payment.
—The highest amount of legal-tender notes outstanding at any time was on Jan. 3, 1864, when the amount reached $449,338,902. The second section of the act of June 30, 1864, provided that "the total amount of United States notes issued or to be issued shall not exceed 400 millions, and such additional sum, not exceeding fifty millions, as may be temporarily required for the redemption of temporary loans." The following table shows by denominations the amount of legal-tender notes outstanding on June 1, 1883:
—Secretary McCulloch, in his report for 1865, expressed the opinion, that the legal-tender acts were war measures, and ought not to remain in force one day longer than should be necessary to enable the people to prepare for a return to the gold standard. The house of representatives during the same month passed a resolution, by a vote of 144 yeas to 6 nays, "cordially concurring in the views of the secretary of the treasury in relation to the necessity of the contraction of the currency with a view to as early a resumption of specie payment as the business interests of the country will permit." In order to carry into effect this resolution, congress, by an act approved March 12, 1866, authorized the retiring and cancellation of not more than ten millions of legal-tender notes within six months from the passage of the act, and thereafter not more than four millions in any one month. Under this act, the amount outstanding was so far reduced, that on Dec. 31, 1867, the amount was 356 millions. On Feb. 4, 1868, the further reduction of the volume of such notes was prohibited, leaving the last-named amount outstanding until Oct. 1, 1872. Between that date and Jan. 15, 1874, under Secretaries Boutwell and Richardson, the amount was increased to $382,979,815, and on June 20, 1874, the maximum amount was fixed at $382,000,000; section six of the act of that date providing that "the amount of United States notes outstanding and to be used as a part of the circulating medium shall not exceed the sum of 382 millions, which said sum shall appear in each monthly statement of the public debt, and no part thereof shall be held or used as a reserve."
—Section three of the act of Jan. 14, 1875, authorized an increase of the circulation of national banks in accordance with existing law, without respect to the limit previously existing, but required the secretary of the treasury to retire legal-tender notes to an amount equal to 80 per cent. of the national bank notes thereafter issued, until the amount of such legal-tender notes outstanding should be 300 millions, and no more. Under the operation of this act $35,318,984 of legal-tender notes were retired, leaving the amount in circulation on May 31, 1878, the date of the repeal of the act, $346,681,016, which is the amount now outstanding.
—The following table exhibits the amount of the various issues of treasury notes outstanding on July 1 of each year from 1862 to 1883; together with the amount of national bank notes and the value of the legal-tender treasury note as compared with coin for the same dates:
—The act of Jan. 14, 1875, required the secretary of the treasury, on and after Jan. 1, 1879, to redeem in coin the legal-tender notes on their presentation at the office of the assistant treasurer in the city of New York, in sums of not less than $50. In order that he might always be prepared to do this, he was authorized "to use any surplus revenue from time to time in the treasury not otherwise appropriated, and to issue, sell and dispose of at not less that par in coin any of the 5, 4½ and 4 per cent. bonds authorized by the act of July 14, 1870. Under this act Secretary Sherman, in 1877, sold at par in coin fifteen millions of 4½ per cents, and twenty-five millions of 4's; and in April, 1878, he sold fifty millions of 4½ per cents at a premium of 1½ per cent. This coin was placed in the treasury for purposes of resumption, and on Jan. 1, 1879, the secretary held 135 millions of gold coin and bullion, and, in addition, over thirty-two millions in silver coin and bullion; the gold coin alone being nearly equal to 40 per cent. of the United States notes then outstanding.
—The assistant treasurer of the United States, at New York, became a member of the clearing house, thus facilitating the business of the banks with the government. The banks in New York strengthened the hands of the government by agreeing to receive United States notes, not only for their ordinary balances, but in payment of the interest upon the public debt, and of other coin obligations of the government. The banks of the country, at the date of resumption, held more than one-third of the outstanding treasury notes, but they had so much confidence in the ability of the secretary to maintain resumption that none were presented by them for redemption. The people preferred the issues of national banks and of the government to coin itself. There was, therefore, no demand for payment of the notes of the government, and the gold coin in the treasury, which amounted to 135 millions on the day of resumption, increased more than thirty-six millions in the next ten months. The amount held on Nov. 1, 1879, exceeded 171 millions, and on Nov. 1, 1883, 209 millions. The resumption act is still in force, and gives the secretary unlimited power, with which to provide for the redemption in coin of the legal-tender notes. He is thus enabled, so long as the credit of the government continues good, to check, by the sale of United States bonds, any exportation of coin which might endanger the redemption of United States legal-tender notes.
—From the date of the passage of the act of April 12, 1866, which authorized a reduction of the amount of legal-tender notes, to the passage of the act of July 12, 1882, enabling national banking associations to extend their corporate existence, a period of more than sixteen years, hundreds of bills of almost every conceivable form to regulate the currency were introduced in congress. Throughout the country the subject was continually discussed, not only during political campaigns and at public conventions, but in the smaller gatherings of the school district and the meetings of individuals by the way side. Speeches and political pamphlets by the thousand, essays, campaign papers innumerable, and caricatures of almost every kind and description, upon the subject of the expansion and contraction of the currency, and its effect upon business, were distributed broadcast in all directions. Perhaps the most plausible argument which was presented over and over again in every portion of the country during these continued discussions, was in reference to the retirement of the national bank notes, and the substitution thereof of treasury notes, in order, as was claimed, to save to the government the interest upon the bonds held by the national banks, as security for their circulating notes. Discussions of this subject in its various forms, and statements of the profits of the circulation of the national banks at different dates, may be found in the reports of the comptroller of the currency during the last nine years.
—The act of Feb. 28, 1878, authorized any holder of silver dollars of the weight of 412½ grains troy of standard silver, to deposit the same with the treasurer, or any assistant treasurer, of the United States, in sums not less than ten dollars, and receive therefor certificates of not less than ten dollars, each corresponding with the denominations of the United States notes. It required that the coin deposited or representing the certificates should be retained in the treasury for the payment of the same on demand, and that said certificates should be receivable for customs, taxes and all public dues, and also authorized their reissue. This act did not authorize their use as clearing house certificates, nor make them available as reserve for the national banks.
—The act of July 12, 1882, authorized and directed the secretary of the treasury to receive deposits of gold coin in denominations of not less than $20 each, corresponding with the denominations of United States notes. The coin deposited for the certificates is required to be retained for the payment of the same on demand, and these certificates, and also silver certificates, are authorized to be counted as part of the lawful reserve of the national banks. The act also provides that no national banking association shall be a member of any clearing house in which such certificates shall not be receivable in the settlement of clearing house balances.
—The preceding table shows the amount of standard silver dollars coined under the act of Feb. 28, 1878, which authorized the same, the amount in the treasury and the amount of silver certificates issued on July 1, from 1878 to 1883 inclusive.
—The amount of gold certificates which had been issued under the act of July 12, 1882, was, on Nov. 1, $21,790,000, and on Jan. 1, 1884, $87,874,500.
—AUTHORITIES. American State Papers; Annals of Congress; Madison Papers; Elliot's Debates; Congressional Globe; National Loans of the United States, by R. A. Bayley; Finance Reports; Annual Cyclopædia; Harper's Magazine; Hunt's Merchants' Magazine, New York; Bankers' Magazine, New York; Schuckers' Life of Chase, Spaulding's History of Legal-Tender Money; New York Newspapers, 1861-2-3.
JOHN JAY KNOX.
Notes for this chapter
Madison papers, vol. iii., p. 1343.
Report of the Secretary of the Treasury, 1815, p. 26.
Finance Report, vol. iv., p. 854.
Page 186, 3d Session, 27th Congress, Appendix. Speech of Woodbury.
Report No. 379, 28th Congress, 1st Session, H. of R.
Report of Secretary Bibb, 1844.
End of Notes
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