Though the defeat of the Democrats at the polls in 1863 and the now
definitely friendly attitude of England had done much to secure the
stability of the Lincoln Government, this success was due in part to
a figure which now comes to the front and deserves attentive
consideration. Indeed the work of Salmon Portland Chase, Secretary of
the Treasury, forms a bridge, as one might say, between the first and
second phases of Lincoln's administration.
The interesting Englishman who is the latest biographer of Lincoln says
of Chase: "Unfortunately, this imposing person was a sneak." But is
Lord Charnwood justified in that surprising characterization? He finds
support in the testimony of Secretary Welles, who calls Chase, "artful
dodger, unstable, and unreliable." And yet there is another side, for
it is the conventional thing in America to call him our greatest finance
minister since Hamilton, and even a conspicuous enemy said of him, at a
crucial moment, that his course established his character "as an honest
and frank man."
Taking these contradictory estimates as hints of a contradiction in the
man, we are forced to the conclusion that Chase was a professional
in politics and an amateur in finance. Perhaps herein is the whole
explanation of the two characteristics of his financial policy--his
reluctance to lay taxes, and his faith in loans. His two eyes did not
see things alike. One was really trying to make out the orthodox path
of finance; the other was peering along the more devious road of popular
caprice.
The opening of the war caught the Treasury, as it caught all branches of
the Government, utterly unprepared. Between April and July, 1861, Chase
had to borrow what he could. When Congress met in July, his real career
as director of financial policy began--or, as his enemies think, failed
to begin. At least, he failed to urge upon Congress the need of new
taxes and appeared satisfied with himself asking for an issue of
$240,000,000 in bonds bearing not less than seven per cent interest.
Congress voted to give him $250,000,000 of which $50,000,000 might be
interest-bearing treasury notes; made slight increases in duties; and
Prepared for excise and direct taxation the following year. Later in
the year Congress laid a three per cent tax on all incomes in excess of
$800.
When Congress reassembled in December, 1861, expenditures were racing
ahead of receipts, and there was a deficit of $143,000,000. It must not
be forgotten that this month was a time of intense excitability and of
nervous reaction. Fremont had lately been removed, and the attack on
Cameron had begun. At this crucial moment the situation was made still
more alarming by the action of the New York banks, followed by all other
banks, in suspending specie payments. They laid the responsibility upon
Chase. A syndicate of banks in New York, Boston, and Philadelphia had
come to the aid of the Government, but when they took up government
bonds, Chase had required them to pay the full value cash down, though
they had asked permission to hold the money on deposit and to pay it as
needed on requisition by the Government. Furthermore, in spite of their
protest, Chase issued treasury notes, which the banks had to receive
from their depositors, who nevertheless continued to demand specie.
On January 1, 1862, the banks owed $459,000,000 and had in specie only
$87,000,000. Chase defended his course by saying that the financial
crisis was not due to his policy--or lack of policy, as it would now
seem--but to a general loss of faith in the outcome of the war.
There now arose a moral crisis for this "imposing person" who was
Secretary of the Treasury--a crisis with regard to which there are
still differences of opinion. While he faced his problem silently, the
Committee on Ways and Means in the House took the matter in hand: Its
solution was an old one which all sound theorists on finance unite in
condemning--the issue of irredeemable paper money. And what did the
Secretary of the Treasury do? Previously, as Governor of Ohio, he had
denounced paper money as, in effect, a fraud upon society. Long after,
when the tide of fortune had landed him in the high place of Supreme
Justice, he returned to this view and condemned as unconstitutional the
law of 1862 establishing a system of paper money. But at the time
when that law was passed Chase, though he went through the form of
protesting, soon acquiesced. Before long he was asking Congress to allow
a further issue of what he had previously called "fraudulent" money.
The answer to the question whether Chase should have stuck to his
principles and resigned rather than acquiesce in the paper money
legislation turns on that other question--how were the politician and
the financier related in his make-up?
Before Congress and the Secretary had finished, $450,000,000 were
issued. Prices naturally rose, and there was speculation in gold. Even
before the first issue of paper money, the treasury notes had been
slightly below par. In January, 1863, a hundred dollars in paper would
bring, in New York, only $69.00 in gold; a year later, after falling,
rising, and falling again, the value was $64.00; in July and August,
1864, it was at its lowest, $39.00; when the war closed, it had risen to
$67.00. There was powerful protest against the legislation responsible
for such a condition of affairs. Justin Morrill, the author of the
Morrill tariff, said, "I would as soon provide Chinese wooden guns
for the army as paper money alone for the army. It will be a breach of
public faith. It will injure creditors; it will increase prices; it will
increase many fold the cost of the war." Recent students agree, in the
main, that his prophecies were fulfilled; and a common estimate of the
probable increase in the cost of the war through the use of paper money
and the consequent inflation of prices is $600,000,000.
There was much more financial legislation in 1862; but Chase continued
to stand aside and allow Congress the lead in establishing an excise
law, an increase in the income tax, and a higher tariff--the last of
which was necessitated by the excise law which has been described as a
bill "that taxed everything." To enable American manufacturers to bear
the excise duties levied upon their business, protection was evoked
to secure them the possession of their field by excluding foreign
competition. All these taxes, however, produced but a fraction of the
Government's revenue. Borrowing, the favorite method of the Secretary,
was accepted by Congress as the main resource. It is computed that
by means of taxation there was raised in the course of the war
$667,163,247.00, while during the same period the Government borrowed
$2,621,916,786.00.
Whatever else he may think of Chase, no one denies that in 1862 he had
other interests besides finance. Lincoln's Cabinet in those days was
far from an harmonious body. All through its history there was a Chase
faction and a Seward faction. The former had behind them the Radical
Republicans, while the latter relied upon the support of the moderates.
This division in the Republican party runs deep through the politics
of the time. There seems to be good reason to think that Chase was not
taken by surprise when his radical allies in Congress, in December,
1862, demanded of Lincoln the removal of Seward. It will be remembered
that the elections of the autumn of 1862 had gone against Lincoln. At
this moment of dismay, the friends of Chase struck their blow. Seward
instantly offered his resignation. But Lincoln skillfully temporized.
Thereupon, Chase also resigned. Judging from the scanty evidence we have
of his intention, we may conclude that he thought he had Lincoln in
a corner and that he expected either to become first minister or the
avowed chief of an irresistible opposition. But he seems to have gone
too fast for his followers. Lincoln had met them, together with his
Cabinet, in a conference in December, 1862, and frankly discussed the
situation, with the result that some of them wavered. When Lincoln
informed both Seward and Chase that he declined to accept their
resignations, both returned--Seward with alacrity, Chase with
reluctance. One of the clues to Lincoln's cabinet policy was his
determination to keep both these factions committed to the Government,
without allowing himself to be under the thumb of either.
During the six months following the cabinet crisis Chase appears at
his best. A stupendous difficulty lay before him and he attacked it
manfully. The Government's deficit was $276,900,000. Of the loans
authorized in 1862--the "five-twenties" as they were called, bringing
six per cent and to run from five to twenty years at the Government's
pleasure---the sales had brought in, to December, 1862, only
$23,750,000, though five hundred million had been expected. The banks in
declining to handle these bonds laid the blame on the Secretary, who had
insisted that all purchasers should take them at par.
It is not feasible, in a work of this character, to enter into the
complexities of the financial situation of 1863, or to determine just
what influences caused a revolution in the market for government bonds.
But two factors must be mentioned. Chase was induced to change his
attitude and to sell to banks large numbers of bonds at a rate below
par, thus enabling the banks to dispose of them at a profit. He also
called to his aid Jay Cooke, an experienced banker, who was allowed a
commission of one-half per cent on all bonds sold up to $10,000,000 and
three-eighths of one per cent after that. Cooke organized a countrywide
agency system, with twenty-five hundred subagents through whom he
offered directly to the people bonds in small denominations. By all
manner of devices, patriotism and the purchase of bonds were made to
appear the same thing, and before the end of the year $400,000,000
in five-twenty bonds had been sold. This campaign to dispose of the
five-twenties was the turning-point in war finance, and later borrowings
encountered no such difficulties as those of 1862 and 1863.
Better known today than this precarious legislation is the famous Act
of 1863, which was amended in the next year and which forms the basis
of our present system of national banks. To Chase himself the credit for
this seems to be due. Even in 1861 he advised Congress to establish
a system of national banks, and he repeated the advice before it was
finally taken. The central feature of this system which he advocated is
one with which we are still familiar: permission to the banks accepting
government supervision to deposit government bonds in the Treasury and
to acquire in return the right to issue bank-notes to the amount of
ninety per cent of the value of the bonds.
There can be no doubt that Chase himself rated very highly his own
services to his country. Nor is there any doubt that, alone among
Lincoln's close associates, he continued until the end to believe
himself a better man than the President. He and his radical following
made no change in their attitude to Lincoln, though Chase pursued
a course of confidential criticism which has since inspired the
characterization of him as a "sneak," while his followers were more
outspoken. In the summer of 1863 Chase was seriously talked of as the
next President, and before the end of the year Chase clubs were being
organized in all the large cities to promote his candidacy. Chase
himself took the adroit position of not believing that any President
should serve a second term.
Early in 1864 the Chase organization sent out a confidential circular
signed by Senator Pomeroy of Kansas setting forth the case against
Lincoln as a candidate and the case in favor of Chase. Unfortunately
for Chase, this circular fell into the hands of a newspaper and was
published. Chase at once wrote to Lincoln denying any knowledge of the
circular but admitting his candidacy and offering his resignation. No
more remarkable letter was written by Lincoln than his reply to Chase,
in which he showed that he had long fully understood the situation, and
which he closed with these words: "Whether you shall remain at the head
of the Treasury Department is a question which I do not allow myself
to consider from any standpoint other than my judgment of the public
service, and, in that view, I do not perceive occasion for change."
The Chase boom rapidly declined. The deathblow was given by a caucus of
the Union members of the legislature of his own State nominating Lincoln
"at the demand of the people and the soldiers of Ohio." The defeat
embittered Chase. For several months, however, he continued in the
Cabinet, and during this time he had the mortification of seeing Lincoln
renominated in the National Union Convention amid a great display of
enthusiasm.
More than once in the past, Chase had offered his resignation. On one
occasion Lincoln had gone to his house and had begged him to reconsider
his decision. Soon after the renomination, Chase again offered his
resignation upon the pretext of a disagreement with the President over
appointments to office. This time, however, Lincoln felt the end had
come and accepted the resignation. Chase's successor in the Treasury was
William Pitt Fessenden, Senator from Maine. During most of the summer
of 1864 Chase stood aside, sullen and envious, watching the progress of
Lincoln toward a second election. So much did his bitterness affect his
judgment that he was capable of writing in his diary his belief that
Lincoln meant to reverse his policy and consent to peace with slavery
reestablished.