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of individual cities and States in great profusion; all these raised money easily. The Secretary of the Treasury alone was helpless and inefficient. At the close of June he came again to seek aid in Wall street, when the notes that had been issued in May at par had fallen to 24 per cent discount. He could sell no more; but, as money was very plenty, he procured $5,000,000 for sixty days on pledge of six per cent Treasury notes. This sufficed for the most pressing wants of the Treasury until Congress met. On the 4th of July, 1861, the Secretary sent in his financial statement to Congress-a very confused and unsatisfactory document. The chief point was, that there was required for the service of the year 1862 the sum of $318,579,581. He stated that the customs would give $57,000,000, the lands $3,000,000, and that if $20,000,000 should be raised either by direct or indirect taxes, or both, it would raise the income to $80,000,000, leaving $240,000,000 to be borrowed. He stated that he did not design to depart from the custom of the government in depending upon import duties, which, he said, would be ample as soon as peace was restored. He hinted that confiscation of enemy's property would form a revenue, and that the salaries of the government officers should be reduced 10 per cent. The value of the latter suggestion is apparent when we remember that, on an estimated expenditure of $320,000,000, it would save perhaps $500,000. He proposed, by way of loan, that $100,000,000 of 3-year bonds should be issued as a loan, made popular by fixing the interest at two cents per day, and he apologized for so high a rate, although that rate was lower than he had been enabled bimself to borrow. Congress showed no indisposition to borrow money, but a very great reluctance to taxes. The $250,000,000, too, that the Secretary asked for was promptly voted on the 17th of July, and the law was amended August 5th. The two acts authorized the borrowing of $250,000,000 in any or all of the following modes:

1. Bonds after 20 years.


cent Sell not under par. 2.


Sell in Europe. 20

Sell equal to 7 per cent. 4. within 1


Not over $20,000,000. at 3 6.

at 1 7. Notes, demand, in coin...

Not over $50,000,000. The original bill contained a clause pledging the customs revenue to the interest on the stock. On its passage this clause was deliberately stricken out, a circumstance which destroyed all hope of a foreign loan. While this law was maturing, the Secretary had been depending upon the banks for 60-day loans on pledge of 6 per cent Treasury notes—an operation of questionable legality, since no law existed for the pledging of the government stock. The 6 per cent l-year bonds were authorized to cover such cases. The credit of the government in such hands, while Congress declined any efficient tax law, by no means improved. A direct tax of $30,000,000 had been proposed, but it was reduced to $20,000,000, which would yield $12,000,000 from the loyal States. This was passed under such circumstances as inspired no confidence, and the law was subsequently repealed. An income tax also was passed under circumstances that made its operation doubtful, and the public judgment was confirmed in the ultimate repeal of the law. Under these circumstances, when the loan law was passed the government 6


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per cent stocks were selling at 88}, although the whole debt then outstanding was but $70,524,948. Inasmuch as that the law restricted the sale of the 7 per cent stock to par, and the exact eqivalent of a 20-year 6 per cent stock was 89.32 per cent for a 7 per cent stock at par, or 1 per cent higher than the market price, the authority was of no use to the Secretary. It was in vain for him to ask the public to give 89 for a stock that they could buy for 88. There remained, then, of the whole list only the 73% bonds and the demand notes, which were receivable for customs and payable in coin on demand. The issue of the latter, in the state of the exchanges, would, it was well known, involve an immediate suspension of specie payments of the banks and dishonor of the government. There then remained only the resource of these three-year bonds. It was evident that these could not be sold in the open market at par without great depression of value. The banks were therefore compelled to take them. It was in a manner a forced loan. A consultation of the bank officers of the three cities was held, Mr. Chase being present, and terms were proposed by the banks which he accepted.

The terms were these : The banks of New York, Boston and Philadelphia passed, August 19, to the credit of the government $50,000,000, for which the banks received 3-year bonds, bearing 7.30 per cent from August 19. The money to remain with the banks until wanted for government expenses, and it was drawn at the rate of 10 per cent per week. The government was to make an appeal to the people, and appoint numerous agents to sell these bonds for the banks. If a reasonable amount was sold, the banks would take another $50,000,000 at the expiration of 60 days, on the same terms, and still another on the 1st of December. The appeal was made to the people and the sales proceeded. On the 1st October the banks again passed to the credit of the government another instalment of $50,000,000, which was all to draw interest from the 1st, but to be drawn at the rate of 10 per cent per week. While this money was thus lying idle in the banks, the department paid out $24,000,000 of demand notes to various creditors, and the whole of its money was es. pended January 1. In other words, in the 103 days from August 19 to December 1, the government drew from the banks $100,000,000, and put out $24,550,325 of notes, making $124,550,325, or nearly $1,225,000 per day, leaving at the same time very large arrears due contractors and soldiers. On these advances the banks had earned 10 per cent interest, but they were now loaded with the notes. The fact that the banks had the use of the money half the time raised the value of the transaction to them. Thus, $50,000,000 77, bearing interest from the date of issue, gave an interest for 60 days of $608,000; but the banks had the use of the money 30 days average before it was drawn, which was worth $304,000 more. The Secretary, according to agreement, had made earnest appeals to the people and had appointed numbers of agents, allowing some of them small commissions, to sell these notes. The press united in a universal puff for these investments, and the result was that $50,000,000 only had been sold outside of the banks. Of the sales so made, a large quantity were now coming back upon the market for sale by people who had bought them through patriotic motives, but who could not afford to keep them, and the price had sunk to a discount. The market for 3-year bonds was clearly dead, and the banks would now lend only on the 20-year 6 per cent bonds, which the law permitted to be issued at a rate

Dec. Estimate.


equal to par to 7 per cent, or 89.32 per cent. The price of 6 per cent stock in the market now was 92. The banks therefore agreed to take the 6 per cent stock at 89.32, the money to be drawn gradually, as in the case of the 7.30 bonds. For the $50,000,000 theTreasury realized...

844,661,231 91 Interest from July...

1,134,246 57 Total. ....

$45,795,478 48 The banks paid a portion of this money in 6 per cent Treasury notes on which they had loaned money to the government. Although this loan was taken November 16 by the banks, it was not until February 5 that the last instalment was paid up, and that payment was used for the interest dua on 7.30 bonds taken by the banks, August 19.

The public credit was now fast sinking. The three-year bonds that the banks had taken were at 2}@3 per cent discount, and the new stock showed a declining tendency, while the foreign relations were in a very gloomy condition. Congress was now assembled, and the annual report of the Secretary was looked for with the most intense interest. At last it

appeared, and was received with blank disappointment. The revenue and expenditures, as compared with the July report, were as follows: Joly Estimate.

Expenses, 1862 $318,519,581 $543,406,422 $213,904,427
57,000,000 32,198,602

$24,801,398 Lands. 3,000,000 2,000,000

1,000,000 Thus, in five months these estimates of expense were raised $214,000,000.

The July estimate of $57,000,000 from customs was reduced to $32,198,602. The land revenues were also reduced. Between these increased expenses and diminished revenue, the Secretary asked for more loans, and more taxes, and more paper money. He was not quite certain about the latter—it was very good and was very bad. The advantages were considable and the evils immense. The battle, between the good principle and the bad, seemed to be drawn in the Secretary's view, and there were no results. His suggestions in relation to taxes were equally lucid, and the public gathered from the report only the facts that since July the expenses had been doubled and the revenue halved-that $213,000,000 more was to be borrowed by July, and a further sum of $380,000,000 must be borrowed in 1863, with no plan whatever to effect it. Out of $179,000,000 already borrowed, the banks held $100,000,000, and refused to take any more. From whom the $593,000,000 of additional loans required were to be borrowed the Secretary utterly failed to point out. The effect of such a document upon the public mind is most clearly manifest in the returns of the New York banks, the specie and deposits of which were as follows:

Specie. Weekly Deposits. Weekly Dec. 7.. $159,793,953 $42,318,610

$133,618,787 Dec. 14.. 157,647,702 39,435,478 $2,883,132 129,379,060 $4,239,727 Dec. 21.. 155,784,230 36,813,369 2,622,109 124,897,534 4,481,526 Dec. 28.. 164,756,318 29,367,712 7,455,657 116,471,931 8,425,603 Jan. 4.. 154,321,653 23,983,878 5,373,834 111,789,233 4,682,698

The public drew $18,000,000 in gold from the banks in four weeks, and those institutions closed their specie vaults, in all probability not soon to open them again for the use of the public.





The Secretary, in his report, bad revised his estimates from July, and stated the amount to be borrowed to the close of the year at $213,904,427. This was in addition to the amounts authorized, but not yet emitted, and also to the $20,000,000 that he proposed to get from the direct tax. The Secretary had absolutely no plan to propose for the realization of these loans, except paper money. For this he pointed out two methods. One was for the government to issue the notes directly, and the other to issue them to the banks in exchange for United States stock. His reason for this was, that all the banks in the Union, by issuing $200,000,000 of circulation, borrow so much of the people without interest, and he thought the government should assume the right to do so. The head of the Treasury seems never to have had a glimpse of the truth that the circulation of the banks depended upon its convertibility, which depended, in its turn, upon the soundness of their mode of doing business. It is impossible for the government to issue paper money and keep in convertible, because it has no means of making capital flow into its coffers when needed, such as the banks have in their line of discounts. The moment paper is inconvertible it depreciates and prices rise. This rise in prices forms a fearful tax upon the daily labor of the people, whom the Secretary cajoles with the idea that he is borrowing without interest. Notwithstanding that these were the only plans pointed out by the Secretary to raise money, he stated, however, that the plan was not without serious inconveniences and hazards. “ The temptation, especially great in times of pressure and danger, to issue notes without adequate provision for redemption; the ever-present liability to be called on for redemption beyond means, however carefully provided and managed; the hazard of panics, precipitating demands for coin, concentrated on a few points and a single fund; the risk of a depreciated, depreciating, and finally worthless paper money; the immeasurable evils of dishonored public faith and national bankruptcy; all these are possible consequences of the adoption of a system of government circulation. It may said, and perhaps truly, that they are less deplorable than those of an irredeemable bank'circulation. Without entering into that comparison, the Secretary contents himself with observing that, in bis judgment, these possible disasters so far outweigh the probable benefits of the plan that he feels himself constrained to forbear recommending its adoption." The banks baving failed, the question of currency became a tangled one. Their notes still continued “the currency,” but they were 3 per cent discount for gold, and the new government notes were 3 discount, or discount for bank notes, and all government paper was rapidly depreciating. Congress, therefore, approached the subject of loans with great hesitation. Various bills were before Congress, but it was not until February 12, that a new issue of $10,000,000 demand notes was authorized. At the same time the Secretary assumed the right, February 8, to receive deposits from the public, and allow 5 per cent interest therefor. This was at first not very successful, and the pressure upon Congress from the Treasury wants produced a series of laws passed under pressure. That of February 25, of March 1, and March 15, authorized the issue of $150,000,000 of paper money, or $90,000,000 in addition to the old issues, of denominations not less than $5, to be a legal tender for all dues and payments except customs duties and interest on the public debt, to be fundable into a 6 per cent stock, redeemable at the pleasure of the government, from 5 to 20 years. The amount of this stock authorized was $500,000,000, and the Secretary was author

ized to sell it at market rates. This, equally with all other government paper, to be exempt from State taxation. The Secretary was authorized to receive deposits at 5 per cent to the extent of $25,000,000. All duties to be paid in coin-all interest on the public debt to be paid in coin. By the act of March the Secretary could issue without limit certificates bearing 6 per cent interest, payable in one year, to creditors whose accounts were audited. By the act of March 16, this was extended to the checks of disbursing officers, and the limit to which deposits might be received was extended to $50,000,000, and the $60,000,000 paper money issued by the acts of July 17 and February 12 were made a legal tender. Here, then, the whole paper system was inaugurated. The Treasury had become a bank of deposit and of circulation for irredeemable paper money, and could issue one-year certificates, answering to old United States Bank “post notes,” without stint or limit, and could issue, at any price, $500,000,000 of 6 per cent stock redeemable in 5 to 20 years. The holders of the old stocks, of the $50,000,000 of 6 per cent stock, taken in December, and of the $100,000,000 of 74 bonds, who had taken those securities on the faith of the law which prohibited the sale by the government of 6 per cents at less than 89.32 per cent, now found the Secretary authorized to issue $500,000,000 of 6 per cents at any price. The exercise of the authority on his part would involve a great depreciation of values. There were outstanding Treasury notes and demand notes to the amount of $78,000,000 receivable by law for customs. This amount would absorb all the customs as estimated by the Secretary for two years. Yet he was bound to pay the interest on the public debt in coin! There was no way of getting this but by buying it. The government therefore was a buyer of gold at the rate of $18,000,000 per annum, as the debt then stood. The demand notes had been issued, payable in coin at the national Treasuries, but the first so presented were dishonored and none were ever paid. The new issue was not yet ready, and the Secretary was constrained to pay out the 730 bonds until they fell to 4 per cent discount. This alarmed the banks, who held $100,000,000 of them. The department then paid out the 1-year certificates until they fell to 4 per cent discount. The disbursing officers' checks were then selling at 3} discount. The Secretary then redeemed 20 per cent of the amount in hands of oirginal holders in order to support their value. This issue was then stopped, and the money received on deposits was depended upon until April, when the new demand notes were ready, and they were poured out freely with the following effects ?

Gold, Money Treasury payments. Bank deposits. U. 8. G's.

1-year. prem. April 5, $9,742,133 09 $94,082,625 925 99}

54 a 6 12, 4,613,831 28 93,759,063 93} 100

964 14 19, 12,531,675 65 95,179,340 913 100 97

26, 24,723,223 29 101,897,435 96 1011 991 11 May 3, 22,747,941 89 109,634,535

103 991 23 44 a 5 10, 17,187,322 00 115,559,246 103 104

3} 4 & 5 17, 9,835,736 69 120,003,929

105 1003 31 4 a 5 24, 10,445,006 67 122,602,864 1041 105 100 43 3 a 41 The contractors and other creditors of the government had been borrowers at bank. When they received payment in large Treasury notes they turned them over to the banks, who deposited them with the Treasury at 5 per cent interest. The notes thus went from the government to its creditors, from them to the banks, and from the banks back to the Treasury.



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