THE NATIONAL FINANCES.
AN EMPTY TREASURY--BORROWING MONEY AT TWELVE PER CENT.--SALMON P.
CHASE MADE SECRETARY OF THE TREASURY--THE DIRECT-TAX BILL--ISSUE OF
DEMAND NOTES--CHASE'S COURAGE--THE BANKS FORM SYNDICATE--ISSUE OF
BONDS--AMOUNT OF COIN IN CIRCULATION--SUSPENSION OF SPECIE
PAYMENTS--PAY OF SOLDIERS--GREENBACKS--CHASE'S PLAN FOR A NATIONAL
BANKING SYSTEM--THE FRACTIONAL CURRENCY--FLUCTUATIONS OF GOLD--THE
COST OF THE WAR.
When President Lincoln came into office he found the treasury empty,
and the public debt somewhat over seventy-six million dollars. In the
last days of President Buchanan's administration the Government had
been borrowing money at twelve per cent. per annum. In December, 1860,
Congress passed a bill for the issue of ten million dollars in
one-year treasury notes. Half of this amount was advertised, and
offers were received for a small portion, at rates of discount varying
from twelve to thirty-six per cent. The twelve per cent. offers were
accepted, and subsequently a syndicate of bankers took the remainder
of the five millions at that figure. The other five millions were
taken a month later at eleven per cent. discount. In February, 1861,
Congress authorized a loan of twenty-five millions, to bear interest
at six per cent., and to be paid in not less than ten nor more than
twenty years. The Secretary succeeded in negotiating one-third of the
amount at rates from ninety to ninety-six.
In Mr. Lincoln's cabinet, Salmon P. Chase (formerly governor of Ohio,
and then United States senator) was made Secretary of the Treasury.
Under the existing acts he borrowed eight millions in March at
ninety-four and upward--rejecting all offers under ninety-four--and
early in April issued at par nearly five millions in two-year treasury
notes, receivable for public dues and also convertible into
six-per-cent. stocks. On the 12th of {416} that month the war was
begun by the firing on Fort Sumter. In May seven millions more of the
six-per-cent. loan were issued at rates from eighty-five to
ninety-three, and two and a half millions in treasury notes at par.
These transactions were looked upon as remarkably successful, for many
considered it questionable whether the Government would survive the
blow that was aimed at its life, and be able to redeem any of its
securities. The existing tariff, which was low, produced an annual
income of not more than thirty millions.
Congress met, at the call of the President, on the 4th of July, 1861,
and on the 17th passed a bill (with but five dissenting votes in the
House of Representatives) for the issue of bonds and treasury notes to
the amount of two hundred and fifty millions. It also increased the
duties on many articles, passed an act for the confiscation of the
property of rebels, and levied a direct tax of twenty millions,
apportioned among the States and Territories. The States that were in
rebellion of course did not pay. All the others paid except Delaware,
Colorado, Utah, Oregon, and the District of Columbia. The law provided
for collection by United States officers in such States as should not
formally assume and pay the tax themselves. In some of the seceding
States, lands worth about seven hundred thousand dollars were seized
and sold for non-payment.
In August the first demand notes were issued as currency, being paid
to clerks in the departments for their salaries. Though these were
convertible into gold, there was at first great reluctance to receive
them, but after a little time they became popular, and in five months
about thirty-three millions were issued.
In August also Mr. Chase held a conference with the principal bankers
of New York, Boston, and Philadelphia, to negotiate a national loan on
the basis of the recent acts of Congress. Most of them expressed their
desire to sustain the Government, but they made some objections to the
terms and rates of interest. When it looked as if the negotiation
might fail, the Secretary assured the bankers that if they were not
able to take the loan on his terms, he would return to Washington and
issue notes for circulation, "for it is certain that the war must go
on until the rebellion is put down, if we have to put out paper until
it takes a thousand dollars to buy a breakfast." The banks agreed to
form a syndicate to lend the Government fifty million dollars in coin,
to pay which the Secretary was to issue three-year notes bearing seven
and three-tenths per cent. interest, convertible into six-per-cent.
twenty-year bonds. These were popularly known as "seven-thirties." The
peculiar rate of interest was made both as a special inducement and
for ease of calculation, the interest being two cents a day on each
hundred dollars. They were issued in denominations as low as fifty
dollars, so that people of limited means could take them, and were
very popular. The coupon and registered bonds that were to run not
less than five years nor more than twenty were popularly known as
"five-twenties." Subscription-books were opened in every city, and the
people responded so promptly that the Government was soon enabled to
repay the banks and make another loan on similar terms. But a third
loan was refused, and Secretary Chase then issued fifty millions in
"five-twenties," bearing interest at six per cent., but sold at such a
discount as to make a seven-per-cent. investment. Of all the agents
employed to dispose of these bonds, Jay Cooke, of Philadelphia, was
the most successful. They were paid one-fifth of one per cent. for the
first hundred thousand dollars, and one-eighth of one per cent. for
all in excess of that sum.
The amount of coin in circulation in the United States at this time
was estimated at about two hundred and ten million dollars. Before the
war had been in progress one year, the operations of the Government
had become so vast that this did not furnish a sufficient volume of
currency for the transactions. On December 30, 1861, the banks
suspended specie payments, and the Government was then obliged to do
likewise. There were now over half a million men in the field, and the
navy had been increased from forty-two vessels to two hundred and
sixty-four. The pay of a private soldier was thirteen dollars a month,
with food and clothing. The total cost to the Government for each
soldier maintained in the field was about a thousand dollars a
year--two and a half times the cost of a British soldier, and twelve
times the cost of a French soldier.
Early in 1862 even the smallest coins disappeared from circulation,
and some kinds of business were almost paralyzed for want of change.
Tokens and fractional notes were issued by private firms, and various
expedients were resorted to, a favorite one being the enclosure of
specified amounts of postage-stamps in small envelopes properly
labelled. Thaddeus Stevens, member of Congress from Pennsylvania,
proposed that the Government should issue notes for circulation, to
any amount that might be required, and make them legal tender for all
debts, public and private. Secretary Chase opposed this, and proposed
instead a national banking system, which should embrace an issue of
notes bearing a common impression and a common authority, the
redemption of these notes by the institutions to which the Government
should deliver them for issue, and a pledge of United States stocks as
security for such redemption. This scheme was opposed by the State
banks, and Mr. Chase gave a reluctant consent to the legal-tender
measure, which was then carried through Congress, and the "greenbacks"
became payable for everything except duties on imports. Subsequently
Mr. Chase's plan for a national banking system was also adopted,
substantially as we have it now. In the loyal States the greenbacks
were popular from the first, and the large amount in circulation led
to general extravagance in expenditures. In the insurrectionary States
they were at first refused with scorn. But when the secessionists
found that these notes had a purchasing power vastly superior to those
of their own Government, they soon became reconciled to them. When
soldiers of the National army were made prisoners of war, they were
almost immediately requested by their captors to exchange any
greenbacks they might have for Confederate money, and some show of
fairness was made by the allowance of a heavy discount, seldom less
than seven for one. The Confederate currency was redeemable "six
months after the ratification of a treaty of peace with the United
States." The Government supplemented the greenbacks with fractional
paper currency in denominations of fifty, twenty-five, ten, and five
cents; and in this money the war bills were paid and all business
transacted, except at the custom-houses.
The daily quotations of gold were looked to as an indication of the
prospects of the war. Gold itself did not materially change in value,
but the premium on it represented the depreciation of the greenbacks
with which it was purchased. At the beginning of 1862 there was a
premium of about two per cent. on gold. This fluctuated from day to
day, but the general tendency was upward, till at the end of that year
the premium was thirty-three. By the end of 1863 gold had risen to one
hundred and fifty-one; and on June 21, 1864, just after the Army of
the Potomac crossed the James, it touched two hundred. In other {417}
words, the United States paper dollar was then worth half a dollar. On
the 11th of July, 1864, gold reached its highest point, two hundred
and eighty-five. Confederate paper money had been at par until
November, 1861; but from that time its value diminished steadily and
rapidly, until, at the close of 1864, five hundred paper dollars were
worth but one dollar in gold, and three months later six hundred.
Most of the funded debt of the United States was represented by
five-twenty bonds. An act was passed authorizing the issue of
ten-forties, but they were not popular, and comparatively few were
taken. The total assessed value of all the property in the United
States, real and personal, by the census of 1860, was somewhat over
sixteen thousand million dollars. The cost of the war to the
Government has been nearly, if not quite, half that amount--or about
equal to the value in 1860 of all the real estate in the loyal States.
The amount of the Confederate debt is unknown. If that and the
incidental losses could be ascertained, the cost of the war would
probably make a grand total almost equivalent to a wiping out of all
values in the country as they were estimated in the year of its
beginning. The fourteenth amendment to the Constitution--proposed in
1866, and declared in force in 1868--provides, on the one hand, that
the validity of the public debt shall not be questioned, and, on the
other, that neither the United States nor any State shall ever pay any
debt or obligation that has been incurred in aid of insurrection
against the United States.
[Illustration: FAC-SIMILE OF A CONFEDERATE BOND.]
{418} [Illustration: BRIGADIER-GENERAL W. E. STRONG, GENERAL
McPHERSON'S INSPECTOR-GENERAL, ORDERING A COLONEL TO PLACE HIS COMMAND
IN ACTION.]
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