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With this flow of money its price in the open market fell and the prices of gold and stocks rose. Very soon the limit of $50,000,000 of deposits was full and the $90,000,000 of new notes exhausted. The Secretary then offered to fund the notes in the new 5-20 stock, but obtained only $2,669,000. The price of gold had now risen to 3} per cent, and the July interest on the public stock, due in July, was to be paid in gold. To obtain the gold be exchanged $6,000,000 of 7% bonds for gold at par. It is to be observed that the banks were the chief owners of the interest to be paid. When they gave the gold for the bonds they got the gold back. The result was the same as taking 3-year bonds, worth 3 per cent premium in the market, for their interest. All these operations left the government debt, at the close of May, as follows, as per official reports :


Dec. 1, 1861. May 29, 1862. Decrease.

Increase. Old debt....

$70,104,955 $70,104,955 Treasury potes..

22,464,761 3,382,161 19,082,600 Three-year bonds... 100,000,000 120,523,450

20,523,450 Twenty-year bonds..

50,000,000 50,000,000 United States notes 24,550,326 145,880,000

121,329,675 Oregon and Texas debt.. 419,992 878,450

458,458 One year certificates ........


47,199,000 Five-twenty-year bonds.....


2,699,400 Deposits ...


50,778,566 Total ......... $267,540,035 $491,448,982 $19,082,600 $242,988,549 Now, it will be observed, that the Secretary's estimate of $213,000,000 to be borrowed in six months, proved to be nearly $243,000,000 in five months, and this was nearly all effected in circulating notes, deposits, borrowed, and 1-year certificates. The deposits are payable on demand, and the 1-year certificates only throw the debt ahead one year, at large interest, making his position still worse. The wants of the department were now again very pressing, and the Secretary came forward with a demand for $150,000,000 more paper money. This authority was granted, as also the right to issue stamps as currency, to be payable for dues to the United States under $5. The issue of the paper money had the usual effect upon all prices-gold rose rapidly to 20 per cent premium for paper, or, in other words, government paper was at a discount of 17 per cent for the constitutional currency. The August interest on the 3-year bonds was now nearly due, and the government was in want of the gold. To get it, the department offered to take gold on deposit, returnable in kind, and allow 4 per cent interest. This at once inaugurated a gold specula. tion, since dealers would draw interests by holding it, and would have the government responsible for its return. The result was a rise of gold to 39 per cent, or a a fall of paper to 28 per cent discount. This state of affairs so alarmed the Secretary, that he sent his assistant to New York to ask the bankers not to lend on gold, and the Board of Bankers not to deal in it. CANUTE ordered the sea not to rise, but Mr. CHASE ordered the people not to believe that it was rising. With the rise in the price of gold, all commodities rose in value, following the natural law of finance. This rise in values was naturally in the operations of trade, represented by larger figures, as thus in April, a bale of cotton was worth $115, in October $276. At the former period a check for 1,000 bales sold, was $115,000 deposited, at the latter period it was $276,000. In March

100 bags of coffee was worth $1,900, in October $3,000, measured in paper. All business indicated a similar change. Hence the bank deposits, which were $93,000,000 in April, were $160,000,000 in October. These figures represented no more business and no more wealth than before; they simply indicated that there was more depreciated paper afloat. The prices of stocks had undergone a similar change, except for United States stocks, and the banks of New York city, which held $40,000,000 in June, held $80,000,000 in September. Under these influences all prices had risen, while incomes and wages remained the same. The expenses of every individual had been increased 30 per cent, while his income was no greater. This fact became manifest to a large portion of the people in an unmistakeable manner. The Irish population has always been in the habit of remitting a portion of their wages to their friends in Ireland, in small sums of £1 and £2. The aggregate has reached $5,000,000 per annum. The usual rate for the small bills was $5 per £. With the flood of paper, the cost rose until it required $14 to remit £2. To remit the usual $5,000,000 would require $7,000,000, a tax of $2,000,000. The tax was palpable and apparent to all remitters. Food, fuel, and raiment all were taxed in a similar ratio, through the influence of the paper money. If the articles consumed by 20,000,000 people reach $50 each per annum, then, in the same ratio, $400,000,000 tax is imposed upon the people by the use of this $300,000,000 of paper, which Mr. Chase boasts is torrowed free of interest.

The soldiers are not exempt from this operation. The pay of the army is $10,000,000 per month. For this sum, the soldiers and their families can now buy no more goods than they could last year for $8,000,000. Thus, at the present rates, $2,000,000 per month has been deducted from the soldiers pay. The contractors evade the loss by demanding extra allowances, but these increase the expenses of the government in a ratio proportioned to the depreciation of paper. Thus, the last official statement of the government expenses, was for the quarter to June 30, 1862, and the sum was $191,000,000. The whole expenditure for the year was $583,885,247. A rise of 30 per cent in the prices of the same articles which the government purchased last year will give, therefore, an increased expense of $175,000,000, arising solely from depreciated paper. If the tax law which passed at the last session, gives the amount estimated from it, it will not cover this increased cost from rise in prices. Take the single case of a foreign minister-say Cassius M. Clay to Russia. His


is $18,000, but exchange is now 35 per cent higher than last year, hence the government must give $24,300 in order that the minister may get bis $18,000, and there is no appropriation by Congress for that outlay. There are, moreover, 500,000 more troops afoot this year than last, the materials required are therefore doubled in quantity, and at paper prices, no system of taxation can overtake the depreciation of the paper, " which makes the meat it feeds on."

It is obvious that the only safe path for the government, when this war broke out, was to throw itself upon the patriotisin of the people that was 80 abundantly manifest, avail itself of the capital then freely offered, and by an honest representation of all the facts, raise public confidence, and come to the people for the amount of taxes required by the exigencies of the case. Such a course would have commanded the confidence of capitalists, and the government would have been able to borrow at the lowest market rates, not only at home but abroad.







The principle above announced was strikingly manifested when the debt of our revolution was consolidated into public stock. The debt was of doubtful value but the stock into which it became consolidated, was equivalent, in its commercial and industrial effect, to a like amount of gold and silver, and every branch of business felt the new capital, and expanded accordingly. A like result attends measurably, every new issue of government stock. The stock requires for its continued vitality, that the gor. ernment shall annually exact from the people, by taxes, the interest which is payable on the stock; and this exaction constitutes the only practical difference between stock and gold; consequently, the annual benefit or injury which a country will sustain by reason of such a stock, will depend on whether the benefit is more or less than the interest abstracted annually from the country in the taxes wbich the stock occasions. In this particular, government stocks are not essentially different from bank notes, for all bank notes represent the promissory notes of some borrower who pays interest on the bank notes and who collects from the public, in the way of profits, the interest which he pays the banks. We know that capital is ordinarily borrowed with avidity, and interest paid thereon as a means of pecuniary gain to the borrower, and hence we may well conclude that the aggregate which the public gain, by means of capital created by government loans, exceeds the annual taxes necessary for the continued vitality of the government debt. But this fundamental fact rests on more than the inference just adduced ; it being seen practically in the increased activity and general prosperity which always attends what is technically termed an inflation of the currency of a country, the inflation being only a consequence of the ability of all men to obtain loans to the extent that good security can be given therefor. No limit, indeed, but the limit of capital obtainable, exists to the industrial operations of any country. As a general rule, every man is active to the extent of the capital he can command, and the activity is induced by its expected pecuniary productiveness to the actor. The only evils attendant on currency inflations are the uncertainty and usual briefness of their continuance; but such evils are not attendant on increased capital by government loans, they being of permanent duration. The commercial vigor of Great Britain is a living exponent of the effect of great capital on the creative energies of a people, and produced, to a given extent in Great Britain, mainly by a national debt, the largest ever created; and which, at every step of its creation, was deemed, by superficial thinkers, a precursor and element of the national ruin. The general benefit resulting to individuals from a national debt, is analogous to the well understood benefits to every

business man,

of residing in a rich city; the fortune to which any man can attain being usually regulated by the wealth of his locality; while the great expense in rent, food and labor, in cities are a tax that every resident willingly pays, for the advantage of residing in the neighborhood of accumulated capital.

TAXES TO SUPPLY THE EXPENSES OF WAR ARE IMPOVERISHING. The taxes requisite to a continued vitality of national loans, are therefore more than repaid by the aggregate lucrativeness of the capital which loans create ; but when taxes are levied to supply funds with which to conduct a war, such taxes constitute a pecuniary evil to the tax payers, with no resulting pecuniary benefit. Nations who conduct wars by taxation, instead of loans, are, of necessity impoverished thereby; and the like may be said of any portion of war expenses liquidated by taxation. Taxes should never be levied for more than the least sum sufficient to pay interest on a public debt; consequently, the lower rate of interest at which money can be borrowed, the less will be subtracted from the benefit of the increased capital produced by any loan. Why, then, tax at all? Why not pay the interest of a public debt, by annually increasing the public debt, and thus enjoy the benefit of the debt, as capital, without any countervailing drawback of taxation ? An answer to those questions is necessary to a correct uuderstanding of the foregoing arguments : Government stocks possess the nature of capital to the extent only of their market price, and the price will be regulated daily by the ordinary principle of the daily supply and demand; hence, as you increase the supply of any stocks, you diminish, ordinarily their price. If, therefore, government habitually provided, by new loans, for the payment of interest on its public debt, the market value of the whole existing public debt might by every such new loan, become diminished to an amount even exceeding the periodical increase; and thus the holders of the old stock would, in effect, receive no interest thereon. Public stocks are always owned, subject to a fluctation in market price, consequent to the creation of new governmental loans, or other causes; but not consequent to & creation of new loans, to pay accrued interest on the existing debt; a tacit understanding to the contrary arising from usage, being always understood.

We may usefully add, here, that, though stocks usually decrease in market price by every additional creation of them, the decrease is not necessarily of long duration, the public accommodating itself ultimately. to any quantity that is brought into existence, of any object of human desire, so that a permanent surplus of any fixed quantity is impossible. Nature is said to abhor a vacuum, and we may add, it abhors a surplus, and struggles against both with equal persistency and success. Still, a continuously increasing production of any commodity, may keep it constantly in advance of the present demand therefor; and the price thereof will diminish, temporarily, at any given time, in proportion to the excess of the supply at the time, over the demand.



The taxes a man pays towards the interest on government loans, he ordinarily is compensated for, by the increase of the national capital which the loans produce, as we have already shown ; but the taxes which he pays VOL. XLVII.—NO. VI.


towards a sinking fund, are injurious, not only in themselves, but in diminishing the national capital. Only one mitigation exists to such injuriousness, and it arises from the increased value that may ensue in the aggregate of the public stocks, that remains upliquidated. We saw an example of this, when President JACKSON voluntarily extinguished, by payment, the 3 per cent. United States stocks of the revolutionary debt. They gradually advanced to par, from being 30 or 40 per cent. below par; but the rise was partly attributable to the known approach of a speedy liquidation of the whole at par. Still, the principle of the rise on that occasion, operates, to some extent generally, and to the extent of its operation, tax payers will be injured, by a sinking fund, to the amount only of their taxes, without any additional injury from a diminution of the national capital.



From the foregoing principles, we may understand the effect of a repudiation of any national debt. Repudiation relieves tax payers from the payment of the tax necessary to the vitality of the repudiated debt, but it deprives them of the capital which a national debt creates, and of its benefits which greatly exceed, to almost every man, the evil of his taxation. When our revolutionary debt was funded, the operation was the opposite of repudiation, by reviving a debt which was practically dead ; and we know that the resuscitated debt invigorated all the productive energies of the country, and occasioned its first great start in almost universal prosperity. The larger a debt, therefore, of any nation, the greater would become the pecuniary evils of its expunction; though no financial fallacy is more prevalent than a belief that the larger a debt, the greater is the pecuniary motive for its repudiation. If all the public creditors of Great Britain would imitate the mistaken patriotism of the large creditor of the Emperor Charles the Fifth, who warned the Emperor's chamber by a fire made of the Emperor's bonds, and thus annulled the public debt represented thereby, the British Empire, from being rich and powerful, would dwindle into comparative poverty and imbecility.


Why war disbursements, liquidated by the creation of a public debt should increase a nation's capital, is not obvious. The government receives from its citizens an amount of specie or other valuables, equal only to the public stock given therefor; hence the national capital seems neither increased nor diminished by the operation; and especially when the government employs the loans to subsidise foreign governments, as Great Britain has frequently practised, or to purchase munitions of war, which perish on the use thereof, as every government practises. In all such exceptional cases, the national capital will truly neither be increased por diminished by the loans; and as the loans will require for their continual vitality an annual tax, the tax will be an evil with no corresponding benefit. The same principle applies, ratably, to the wages in money, food and clothing, paid, by government, to the soldiers which any war employs ; for, had the soldiers remained in peaceful avocations, they would have created as much capital as they receive from government; but here commences a






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