The Legal-tender Bill.--National Finances at the Opening of the
Year 1862.--A Threefold Contest.--The Country thrown upon its own
Resources.--A Good Currency demanded.--Government takes Control of
the Question.--Authorizes the Issue of $150,000,000 of Legal-tender
Notes.--Mr. Spaulding the Author of the Measure.--His Speech.--
Opposed by Mr. Pendleton.--Position of Secretary Chase.--Urges the
Measure upon Congress.--Speeches by Thaddeus Stevens, Mr. Vallandigham,
Mr. V. B. Horton, Mr. Lovejoy, Mr. Conkling, Mr. Hooper, Mr. Morrill,
Mr. Bingham, Mr. Shellabarger, Mr. Pike and Others.--Spirited and
Able Debate.--Bill passes the House.--Its Consideration by the
Senate.--Speeches by Mr. Fessenden, Mr. Sherman, Mr. Sumner, Mr.
Bayard, Mr. Collamer and Others.--Bill passes the Senate.--Its
Weighty Provisions.--Secretary Chase on State Banks.--Policy of
the Legal-tender Bill.--Its Effect upon the Business and Prosperity
of the Country.--Internal Revenue Act.--Necessity of Large Sums
from Taxation.--Public Credit dependent on it.--Constitutional
Provisions.--Financial Policy of Alexander Hamilton.--Excises
Unpopular.--Whiskey Insurrection.--Resistance by Law.--Supreme
Court Decision.--Case of Hylton.--Provisions of New Act.--Searching
Character.--Great Revenue desired.--Credit due to Secretary Chase.
At the opening of the year 1862, from causes narrated in the
preceding chapter, the government finances were in an embarrassed
and critical situation. In Europe the general opinion--founded in
many influential quarters on the wish--was that the Union would be
dissolved; that with the success of the South, there would be still
further division between the East and the West; and that the only
compact power would be the Confederacy founded on slavery, with
the world's great staples as the basis of its wealth and its assured
development. We had but recently and narrowly escaped war with
England on account of the Trent affair, and in the crafty and
adventurous Emperor of France we had a secret enemy who saw in our
downfall the possible extension of his power and the strengthening
of his throne. Confederate bonds were more popular in England that
the bonds of the United States. The world's treasures were closed
against us. The bankers of Europe, with the Rothschilds in the
lead, would not touch our securities. Their united clientage
included the investors of Great Britain and the Continent, and a
popular loan could not be effected without their aid and co-operation.
We were engaged therefore in a threefold contest,--a military one
with the Confederacy, and diplomatic and moral one with the
governments of England and France, a financial one with the money
power of Europe.
These causes threw us upon our own resources. The problem to be
solved was the utilization of our wealth without the aid which
comes from the power to borrow foreign money. Congress had obviously
failed at the extra session of July to use the taxing power to the
extent which financial wisdom demanded, and though it was now
willing to correct the error, there was not enough time to wait
the slow process of enactment, assessment, and collection. Our
need was instant and pressing. The banks of the country, many of
them in reckless, speculative hands, were freed by the suspension
of specie payment from their just responsibility, and might flood
the country with worthless paper which would entail great distress
upon the people. The Treasury notes not being paid in coin on
demand, as promised on their face, became discredited to such a
degree that the banks of the leading commercial cities would receive
them only as a special deposit, and not as money of account. So
entirely were these notes distrusted in the opening month of 1862
that in more than one instance State banks exchanged their own
bills for them as an act of patriotism, in order that the bounty
due to soldiers just recruited might be paid before they left their
State rendezvous to join the armies in the field. Troops already
in the service had seen more than one pay-day go by without sight
of the paymaster, and tens of millions were overdue to them.
Discontent in all the camps was the natural result.
With no power to exchange our bonds for coin except at such rates
as would destroy national credit, with only a hundred millions of
coin in all our banks when the war began, and a hundred and fifty
millions hoarded among the people, with the lavish products of our
mines transferred to Europe to pay for articles which it would have
been wiser to manufacture at home, our situation was not merely
one of anxiety but of peril. Never in the history of national
progress through trials and crises, were wise statesmanship and
financial sagacity more imperatively demanded. The Rebels might
fight without money, for they had no national credit to protect;
but to the Union, bankruptcy meant final and hopeless ruin.
LEGAL-TENDER CURRENCY PROPOSED.
The first thing to be secured was a currency. That was demanded
to pay the debt of honor due to the soldiers; to remove stagnation
in business; to put the people in heart and hope. It had been
demonstrated that Treasury notes, without punctual and regular
redemption, would not circulate. When A paid them to B in satisfaction
of a debt, B had no assurance that he might in turn cancel an
obligation by paying them to C. It would perhaps occur to C, that
for a lawful debt he had the right to demand gold or silver; for
the law told him in explicit terms that nothing else constituted
a legal-tender. It was obviously impossible to conduct the business
of the country and to carry on the war, in coin payments, with the
small amount of coin at command. Few would insist upon coin, but
as the power to insist upon it was a legal right, it was a continuing
menace to the confidence of trade.
In the opinion of the majority, the one imperative duty was that
the government should take control of the currency, issue its own
paper as a circulating medium, and make it equal and alike to all,
by declaring it to be a legal-tender in the payment of debts. It
was the most momentous financial step ever taken by Congress,--as
it is the one concerning which the most pronounced and even
exasperating difference of opinion was manifested at the time, has
since continued, and will probably never entirely subside so long
as the government keeps one legal-tender note in circulation. It
was admitted to be a doubtful if not dangerous exercise of power;
but the law of necessity overrides all other laws, and asserts its
right to govern. All doubts were decided in favor of the nation,
in the belief that dangers which were remote and contingent could
be more easily dealt with than those which were certain and
imminent.
Relief came promptly. On the 22d of January, 1862, Mr. E. G.
Spaulding of New York reported the legal-tender bill to the House.
It had been maturely considered by the Committee of Ways and Means,
--a committee made up of very able men. Mr. Spaulding is entitled
to rank as the author of the measure. It is difficult to assign
absolute originality in any case where so many minds are at work
in the same field of investigation, and where, with an approximate
identity of date, there is a general similarity of conclusion.
But the formal proposition and the public advocacy belong to Mr.
Spaulding. He had been all his life engaged in financial affairs,
was a banker of recognized ability in the city of Buffalo, and
enjoyed a high reputation throughout the State of New York for
intelligence and probity. He had not waited for advice or even
for consultation, but on the thirtieth day of December, 1861,--the
day on which the banks of New York suspended specie payment,--he
introduced the original legal-tender bill in the House of
Representatives.
The first provision of the bill now reported, was for the issue of
$150,000,000 of Treasury notes, differing from those previously
authorized by being declared a legal-tender for all obligations,
public and private, except duties on imports and interest on the
public debt. The notes were also to be exchangeable into six per
cent. bonds, redeemable at the pleasure of the United States after
five years. In reporting the bill, Mr. Spaulding called it "a war
measure, a measure of necessity not of choice, to meet the most
pressing demands upon the Treasury, to sustain the army and navy
until they can make a vigorous advance upon the traitors and crush
out the Rebellion." He argued, "These notes will find their way
into all the channels of trade among the people; and as they
accumulate in the hands of capitalists, they will exchange them
for the six per cent. twenty years' bonds:" the notes will "be
equally as good, and in many cases better, than the present
irredeemable circulation issued by the banks." Mr. Spaulding argued
that the Constitution justified such legislation in the emergency,
and he declared that by this plan "the government will be able to
get along with its immediate and pressing necessities without being
obliged to force its bonds on the market at ruinous rates of
discount: the people under heavy taxation will be shielded against
high rates of interest, and capitalists will be afforded fair
compensation for the use of their money during the pending struggle
for national existence."
Mr. Spaulding admitted that "a suspension of specie payment is
greatly to be deplored," but he contended that "it is not a fatal
step in an exigency like the present. The British Government and
the Bank of England remained under suspension from 1797 to 1821-
22, a period of twenty-five years. During this time England
successfully resisted the power of the Emperor Napoleon, and
preserved her own imperiled existence. As a measure of necessity,
she made the Bank of England notes virtually a legal-tender by
suspending the specie restriction. Throughout this period the
people of Great Britain advanced in wealth, population, and
resources." Mr. Spaulding maintained that "gold is not as valuable
as the production of the farmer and the mechanic, for it is not as
indispensable as are food and raiment. Our army and navy must have
what is far more valuable to them than gold or silver. They must
have food, clothing, and the material of war. Treasury notes,
issued by the government on the faith of the whole people, will
purchase these indispensable articles."
MR. CHASE FAVORS LEGAL-TENDER.
When the bill was taken up for consideration on the 29th of January,
the objections which had been raised in the public press were elaborated
in the Committee of the Whole. Mr. Pendleton of Ohio was the first
in opposition. In beginning a long argument, he insisted that "the
feature of this bill which first strikes every thinking man, even
in these days of novelties, is the proposition that these notes
shall be made a legal-tender in discharge of all pecuniary obligations,
as well those which have accrued in virtue of contracts already
made as those which are yet to accrue in pursuance of contracts
which shall hereafter be made. Do gentlemen appreciate the full
import and meaning of that clause? Do they realize the full extent
to which it will carry them? Every contract for the purchase of
money is in legal contemplation a contract for the payment of gold
and silver coin. Every promissory note, every bill of exchange,
every lease reserving rent, every loan of money reserving interest,
every bond issued by this government, is a contract to which the
faith of the obligor is pledged, that the amount, whether rent,
interest, or principal, shall be paid in the gold and silver coin
of the country." Mr. Pendleton deemed it a very serious matter
that "the provisions of this bill contemplate impairing the obligation
of every contract of that kind, and disturbing the basis upon which
every judgment and decree and verdict have been entered." He
concluded by referring to the depreciated paper of the French
Revolution, to the long suspension of specie currency in England,
and the throes attending return to it in 1822. Quoting Daniel
Webster's words that "gold and silver currency is the law of the
land at home, the law of the world abroad: there can, in the present
condition of the world, be no other currency," Mr. Pendleton made
an earnest appeal to the House "to heed this lesson of wisdom."
Repeated declarations were made during the debate that the Secretary
of the Treasury had not given his approval of the pending measure.
This impression was seriously impeding the progress of the bill,
and, if it had been confirmed, would probably have defeated it.
A belief was prevalent that Mr. Chase would be glad to have the
advantage of the measure in the management of the Treasury without
assuming the responsibility of its recommendation. But it was soon
evident that he could not remain in a passive and receptive position
without defeating the bill. Its real opponents took advantage of
the rumors; and its supporters, annoyed if not angered, by the
suggestion of hostility on the part of the Treasury, were determined
that Secretary Chase should take open ground. The embarrassment
was relieved by a letter from the Secretary to the Committee of
Ways and Means, dated Jan. 29, and read in the House on the 4th of
February by Mr. Spaulding. The letter had great influence on
Congress. Without it, the measure would probably have been
defeated.
Mr. Chase, assuming that "the provision making United-States notes
a legal-tender has doubtless been well considered by the committee,"
deemed it his duty to say that "in respect to the provision his
reflections had conducted him to the same conclusions the committee
had reached." He did not wish to conceal that he felt "a great
aversion to making any thing but coin a legal-tender in payment of
debts." He had been anxious "to avoid the necessity of such
legislation." He found it however "impossible, in consequence of
the large expenditures entailed by the war and the suspension of
the banks, to procure sufficient coin for disbursements." He
declared therefore that it "had become indispensably necessary that
we should resort to the issue of United-States notes. Making them
a legal-tender might however still be avoided, if the willingness
manifested by the people generally, by railroad companies, and by
many of the banking institutions, to receive and pay them as money
in all transactions were absolutely or practically universal; but
unfortunately there are some persons and some institutions that
refuse to receive and pay them, and their action tends, not merely
to the unnecessary depreciation of the notes, but to establish
discriminations in business against those, who, in this matter,
give a cordial support to the government, and in favor of those
who do not. Such discrimination should if possible be prevented;
and the provision making the notes a legal-tender, in a great
measure at least, prevents it by putting all citizens in this
respect on the same level, both of rights and duties." In addition
to this official communication, Mr. Spaulding felt justified in
reading a personal note from Mr. Chase, in which he said that he
"came with reluctance to the conclusion that the legal-tender clause
is a necessity," but that he "came to it decidedly and supported
it earnestly."
THADDEUS STEVENS IN THE DEBATE.
Thaddeus Stevens threw the whole weight of his influence in favor
of the measure. To alternative propositions which had been submitted,
he made strenuous objection. Certain bankers of New York had
suggested that the immediate wants of the government might be
supplied by pledging seven and three-tenths per cent. bonds with
a liberal margin, payable in one year, to the banks, which would
advance a portion in gold and the rest in currency. Mr. Stevens
argued that "the effect of this would be that the government would
pay out to its creditors the depreciated notes of non-specie-paying
banks. And as there is no possibility that the pledges would be
redeemed when due, they would be thrown into the market and sold
for whatever the banks might choose to pay for them. The folly of
this scheme needs no illustration." Another proposition, pressed
very earnestly, was to strike out the legal-tender clause, and make
the notes receivable for all taxes and public dues, but not to make
any provision for redeeming them in coin on demand. Mr. Stevens
did not "believe that such notes would circulate anywhere except
at a ruinous discount. Notes not redeemable on demand, and not
made a legal-tender, have never been kept at par." Even those who
could use them for taxes and duties would, in Mr. Stevens's opinion,
"discredit them that they might get them low." He was convinced
that "if soldiers, mechanics, contractors, and farmers were compelled
to take them from the government, they must submit to a heavy shave
before they could use them. The knowledge that they were provided
for by taxation, and would surely be paid twenty years hence, would
not sustain them."
To two prominent amendments which had been submitted, Mr. Stevens
manifested earnest opposition. He said "the one moved by the
gentleman from Ohio (Mr. Vallandigham) proposes the same issue of
notes, but objects to legal-tender, and does not provide for their
redemption in coin. He fears our notes would depreciate. Let him
who is sharp enough, instruct the House how notes that every man
must take can be less valuable than the same notes that no man need
take and few would, since they are irredeemable on demand." As to
the constitutionality of the bill, he thought that whoever "admits
our power to emit bills of credit, nowhere expressly authorized by
the Constitution, is an unreasonable doubter when he denies the
power to make them a legal-tender." "The proposition of the
gentleman from New York" (Mr. Roscoe Conkling), continued Mr.
Stevens, "authorizes the issuing of seven per cent. bonds, payable
in thirty-one years, to be sold ($250,000,000 of it) or exchanged
for the currency of the banks of Boston, New York, and Philadelphia.
This suggestion seems to lack every element of wise legislation.
Make a loan payable in irredeemable currency, and pay that in its
depreciated condition to our contractors, soldiers, and creditors
generally! The banks would issue unlimited amounts of what would
become trash, and buy good hard-money bonds of the nation. Was
there ever such a temptation to swindle? The gentleman from New
York further proposes to issue $200,000,000 United-States notes,
redeemable in coin in one year. Does he not know that such notes
must be dishonored, and the plighted faith of the government be
broken? If we are to use suspended notes to pay our expenses, why
not use our own?"
The minority of the Ways and Means Committee, through Mr. V. B.
Horton of Ohio, had submitted a plan, as Mr. Stevens characterized
it, "to issue United-States notes, not a legal-tender, bearing an
interest of three and sixty-five hundredths per cent., and fundable
in seven and three-tenths per cent. bonds, not payable on demand,
but at the pleasure of the United States. This gives one and three-
tenths per cent. higher interest than our loan, and, not being
redeemable on demand, would share the fate of all non specie-paying
notes not a legal-tender." Mr. Stevens believed that the government
was reduced to a narrow choice. It must either throw bonds at six
or seven per cent. on the market within a few months in amount
sufficient to raise at least $600,000,000 in money,--$557,000,000
being already appropriated,--or it must issue United-States notes,
not redeemable in coin, but fundable in specie-paying bonds at
twenty years; such notes either to be made a legal-tender, or to
take their chance of circulation by the voluntary act of the people.
The sturdy chairman of Ways and Means maintained that "the highest
rate at which we could sell our bonds would be seventy-five per
cent., payable in currency, itself at a discount, entailing a loss
which no nation or individual doing a large business could stand
for a single year." He contended that "such issue, without being
made legal-tender, must immediately depreciate, and would go on
from bad to worse. If made a legal-tender, and not issued in excess
of the legitimate demand, the notes will remain at par, and pass
in all transactions, great and small, at the full value of their
face; we shall have one currency for all sections of the country,
and for every class of people, the poor as well as the rich."
MR. LOVEJOY AND MR. CONKLING.
Mr. Owen Lovejoy of Illinois on the other hand marked out a very
different plan. He advocated as the first step, "adequate taxation,
if need be to the extent of $200,000,000." In the next place, he
would so legislate as to "compel all banking institutions to do
business on a specie basis. Every piece of paper that claimed to
be money but was not, he would chase back to the man or corporation
that forged it, and visit upon the criminal the penalties of the
law. He would not allow a bank note to circulate that was not
constantly, conveniently, and certainly convertible into specie."
In the third place, he would issue interest-paying bonds of the
United States, and "go into the market and borrow money and pay
the obligations of the government. This would be honest, business-
like, and in the end economical. This could be done. Other channels
of investment are blocked up, and capital would seek the bonds as
an investment." As contrasted with the measure proposed by the
Ways and Means Committee, Mr. Lovejoy intimated that his represented
"the health and vigor of the athlete;" the other, "the bloated
flesh of the beer-guzzler."
Mr. Roscoe Conkling of New York expressed hearty agreement with
Mr. Lovejoy. He agreed "with some other gentleman who said that
his bill was a legislative declaration of national bankruptcy."
He agreed "with still another gentleman who said that we were
following at an humble and disgraceful distance the Confederate
Government, as it is called, which has set up the example of making
paper a legal-tender, and punishing with death those who deny the
propriety of the proposition." Mr. Conkling declared that "insolvency
is ruin and dissolution;" and he believed that "in passing this
bill, as was said by the gentleman from Massachusetts [Mr. Thomas],
we are to realize the French proposition about virtue,--that it is
the first step that costs. Another and another and another
$100,000,000 of this issue will follow. We are plunging into an
abyss from which there are to be no resuscitation and no resurrection."
Mr. Conkling thought "it right to learn of an enemy," and already
"the _London Times_ hails this $150,000,000 legal-tender bill as
the dawn of American bankruptcy, the downfall of American credit."
The public debt by the first of the ensuing July, within less than
a year from the first battle of the war, was already estimated at
$806,000,000. "Who can credit these figures," said Mr. Conkling,
"when he remembers that the world's greatest tragedian closed his
bloody drama at St. Helena leaving the public debt of France less
than seventy million of pounds?" He believed that "all the money
needed can be provided by means of unquestionable legality and
safety." He believed the substitute he had offered would effect
that result.
Mr. Hooper of Massachusetts, a man of large experience in financial
and commercial affairs, spoke ably in support of the legal-tender
clause. "No one," said he, "supposes for one moment that government
notes will be sold for coined money, or that coined money will be
borrowed on them. It is fair to suppose that the opponents of the
administration well understand that this would be the effect of
accepting the amendment to strike out the legal-tender clause from
the bill; and that their object, while they talk about coined money
to deceive some of our friends, is to oblige the government to give
up the sub-treasury, and to use for its payment the depreciated
bills of the suspended banks; thereby flooding the whole country
with these irredeemable notes, and producing, in time, a state of
financial confusion and distress that would ruin any administration.
The proposed issue of government notes guards against this effect
of inflating the currency by the provision to convert them into
government bonds, the principal and interest of which, as before
stated, are payable in specie."
Mr. Morrill of Vermont supported the bill proposed by the minority
of the Ways and Means Committee. He described the legal-tender
features as "not blessed by one sound precedent, but damned by
all." As a war measure he thought "it was not waged against the
enemy, but might well make him grin with delight." He would as
soon provide "Chinese wooden guns for the army as paper money alone
for the Treasury." Mr. Morrill declared that there never was a
greater fallacy than to pretend that as "the whole United States
are holden for the redemption of these notes, they will, if made
a legal-tender, pass at par." He contended that, as currency, "no
more of them can be used than enough to fill the demands of commerce."
He directed attention to the fact that of the Treasury notes already
issued, payable in specie on demand, "the government succeeded in
circulating but $27,000,000 of the $50,000,000 authorized, and of
these the banks had held $7,000,000." The sanguine feeling in
regard to the length of the war was disclosed by Mr. Morrill.
Speaking on the 4th of February, 1862, he ridiculed the suggestion
that "the war would be prolonged until July 1, 1863." He declared
that "we could close the war by the thirtieth day of July next, as
well as in thirty years.' This opinion was the one commonly accepted
at the time in Congressional circles, though discountenanced by
the wisest among those holding important commands in the army.
Mr. Bingham of Ohio spoke earnestly in favor of the bill. He could
not "keep silent" when he saw "efforts made to lay the power of
the American people to control their currency, a power essential
to their interest, at the feet of brokers and of city bankers who
have not a tittle of authority save by the assent of forbearance
of the people to deal in their paper issues as money." Mr. Bingham
argued that as there "is not a line or word or syllable in the
Constitution which makes any thing a legal-tender,--gold or silver
or any thing else,--it follows that Congress, having 'the power to
regulate commerce,' may determine what shall be a lawful tender in
the discharge of obligations payable in money only." The "limitation
of the power to impair the obligation of contracts," as Mr. Bingham
pointed out, was "a limitation upon the States only, and did not
restrain the action of Congress."
Mr. Sheffield of Rhode Island argued earnestly against the bill,
and predicted the same fate for it, if enacted, that overcame a
similar attempt in his State during the Revolutionary war "to make
paper a legal-tender." The people would not submit to it, and "the
courts set it aside as an unlawful exercise of legislative power."
ABLE SPEECH BY MR. PIKE.
Mr. Frederick A. Pike of Maine made one of the clearest and ablest
speeches delivered in the House in favor of the bill. He regarded
it as an experiment forced upon the country by necessity. "We
issue $150,000,000," said Mr. Pike, "on a venture." We measure it
"with population and wealth and existing currency. We compare it
with the action of the past." The issue of Continental notes had
reached $20,000,000 by the month of April, 1777, besides a large
amount of currency by the States. "And yet," said Mr. Pike, "no
marked signs of depreciation had appeared." The whole property of
the country did not at that time in his judgment "exceed five
hundred millions." From these facts he deduced our ability to
stand the proposed issue of paper. Mr. Pike had little faith in
the infallibility of any one's judgment as to the ultimate result
of financial experiments. He recalled the circumstance that Sir
Robert Peel's famous bank bill was introduced in Parliament in 1844
with the confident declaration by Her Majesty's Government that
"inquiry had been exhausted." But in the "first mercantile pinch"
the measure which was "the embodiment of financial wisdom" did not
work favorably, and "the government was compelled to interpose on
behalf of the bank and of the business community." "Tax, fight,
and emancipate," Mr. Pike declared to be "the Trinity of our
situation."
Mr. Valentine B. Horton of Ohio was opposed to giving the legal-
tender quality to government paper. He said "the country was never
so wealthy as to-day; never was so little due to foreign countries;
never were the people so free from embarrassment. The one drawback
is that the Treasury wants money to an immense amount." He believed
that an appeal to the capitalists would call forth "gold in the
utmost abundance." To pass the legal-tender bill would, in his
judgment, be "a legislative declaration that the administration is
not equal to the occasion for which it was elected." He thought
"the time for oracular utterances about a great movement," by which
bankers had been inspired with undue hope, had passed by, and that
something practical and actual would soon be accomplished.
Mr. John B. Alley supported the bill by arguments which came from
his own wide experience in business. The choice, he said, was
between notes of the government and "an irredeemable bank currency,
a great deal of which will be found, as it was after the war of
1812, utterly worthless."
Mr. Charles W. Walton of Maine spoke briefly but ably on the
constitutional power of Congress to pass the bill. He contended
that the authority to declare a legal-tender "was an implied and
not a direct power;" that, admitting it to belong to the Government,
it exists "without limitation." The question before the House,
therefore, is "one of expediency only," and on that ground he
earnestly supported the measure.
Mr. Shellabarger of Ohio answered the "charges of bad faith and
injustice" which had been brought against the bill by its opponents.
The cry of ruin to the country he compared with similar fears for
England on the part of her economists, and showed how, in every
case, they had been disproved by the rising power and growing wealth
of that kingdom. He said the legal-tender notes would be "borne
up by all the faith and all the property of the people, and they
will have all the value which that faith untarnished and that
property inestimable can given them."
Mr. John Hickman of Pennsylvania, having no doubt as to the power
of Congress to pass the bill, supported it as a governmental
necessity.
MR. FESSENDEN OPPOSES LEGAL-TENDER.
The debate in the House was able and spirited throughout. Judging
by the tone and number of the Republicans who spoke against the
bill, a serious party division seemed to be impending. The measure
came to a vote on the 6th of February, the interest in the discussion
continuing to the last. Mr. Owen Lovejoy sought occasion to give
the measure a parting malediction, declared that "there is no
precipice, no chasm, no yawning bottomless gulf before this nation,
so terrible, so appalling, so ruinous, as the bill before the
House," and Mr. Roscoe Conkling sought the floor to say that he
concurred "in every word" Mr. Lovejoy had spoken. Mr. Conkling
said the debate had been allowed to close "without pretext of solid
argument by any member in favor of the constitutionality of the
one feature of the bill."
The essential difference between the plan of the minority and that
of the committee had reference to the legal-tender clause. In fact
the other details of the Loan Bill could have been agreed upon in
a single day's discussion, and the delay was occasioned solely by
the one feature of legal-tender. On substituting the measure of
the minority the vote was 55 yeas to 95 nays. The bill was then
passed by a vote of 93 to 59. The yeas were all Republican. Among
the nays--principally Democrats--were found some of the ablest and
most influential members of the Republican party. Valentine B.
Horton of Ohio, Justin S. Morrill of Vermont, Roscoe Conkling, F.
A. Conkling, and Theodore M. Pomeroy of New York, Albert G. Porter
of Indiana, Owen Lovejoy of Illinois, William H. Wadsworth of
Kentucky, Benjamin F. Thomas of Massachusetts, and Edward H. Rollins
of New Hampshire, were conspicuous for their hostility to the legal-
tender clause.
The Senate received the bill on the next day, and on the 10th it
was reported from the Finance Committee for immediate action. Mr.
Fessenden explained the amendments which the committee had embodied
in the House Bill. In the first section they provided that the
interest on the national debt should be paid in coin. Upon this
point Mr. Fessenden considered that the public credit, in large
degree, depended. As to the legal-tender feature of the notes, he
could not make up his mind to support it. "Will your legal-tender
clause," he inquired, "make your notes any better? Do you imagine
that because you force people to take these notes they are to be
worth the money, and that no injury is to follow? What is the
consequence? Does not property rise? You say you are injuring
the soldier if you compel him to take a note without its being a
legal-tender; but will not the sutler put as much more on his goods?
And if the soldier sends the notes to his wife to be passed at a
country store for necessaries for his family, what will be the
result? The goods that are sold are purchased in New York; the
price is put on in New York; a profit is added in the country; and
thus the soldier loses just as much. You are not saving any thing
for any body."
Mr. Fessenden then inquired, "What do we offer without the legal-
tender clause? We are offering notes, with the interest secured
beyond a question if the amendments proposed by the Committee on
Finance of the Senate are adopted, based on the national faith,
and with the power to deposit and receive five per cent. interest
in any sub-treasury, and the power of the government to sell the
stock at any price, to meet whatever it may be necessary to meet.
Will notes of this kind stand better when going out, if you put
the confession upon their face, that they are discarded by you,
and that you know they ought not to be received, and would not be,
unless their reception is compelled by legal enactment?"
The argument against this view, according to Mr. Fessenden, "is
simply that the banks will not take the notes unless they are made
a legal-tender, and therefore they will be discredited. It was
thus reduced to a contest between the government and the banks;
and the question is whether the banks have the will and the power
to discredit the notes of the United-States Treasury." With all
his objections to the legal-tender feature,--and they were very
grave,--Mr. Fessenden intimated his willingness to vote for it if
it were demonstrated to be a necessity. On the constitutional
question involved he did not touch. He preferred, he said, "to
have his own mind uninstructed" upon that aspect of the case.
In illustration of the doubt and diversity of opinion prevailing,
Mr. Fessenden stated that on a certain day he was advised very
strongly by a leading financial man that he must at all events
oppose the legal-tender clause, which he described as utterly
destructive. On the same day he received a note from another
friend, assuring him that the legal-tender bill was an absolute
necessity to the government and the people. The next day the first
gentleman telegraphed that he had changed his mind, and now thought
the legal-tender bill peremptorily demanded by public exigency.
On the ensuing day the second gentleman wrote that he had changed
his mind, and now saw clearly that the legal-tender bill would ruin
the country. There can be no harm in stating that the authors of
these grotesque contradictions were Mr. James Gallatin and Mr. Morris
Ketchum of New York.
MR. COLLAMER AND MR. SHERMAN.
Mr. Collamer of Vermont followed Mr. Fessenden in an exhaustive
argument against the bill as a violation of the Constitution. He
believed "in the power of the government to sustain itself in the
strife physically and pecuniarily." He was not willing to say to
a man," Here is my note: if I do not pay it, you must steal the
amount from the first man you come to, and give him this note in
payment." He would not be governed in this matter, as Mr. Fessenden
intimated he might be, "by necessity." He had taken an oath to
support the Constitution, and he believed this bill violated it.
He "would not overthrow the Constitution in the Senate Chamber
while the rebels are endeavoring to overthrow it by war."
Senator Wilson looked upon the contest as one "between the men who
speculate in stocks, and the productive, toiling men of the country."
He believed "the sentiment of the nation approaches unanimity in
favor of this legal-tender clause." He had received letters from
large commercial houses in Massachusetts, representing millions of
capital, and "they declare that they do not know a merchant in the
city of Boston engaged in active business who is not for the legal-
tender bill."
Senator Sherman of Ohio urged the adoption of the measure, because
"all the organs of financial opinion in this country agree that
there is a majority" for it; and he cited the New-York Chamber of
Commerce, the Committee on Public Safety in New York, and the
Chambers of Commerce of Boston and Philadelphia, as taking that
ground. He proceeded "to show the necessity of it from reason."
He stated that the government must "raise and pay out of the Treasury
of the United States before the first day of July next, according
to the estimate of the Committee of Ways and Means, the sum of
$343,235,000. Of this sum $100,000,000 is now due and payable to
soldiers, contractors, to the men who have furnished provisions
and clothing for the army; to officers, judges, and civil magistrates."
Mr. Sherman argued that "a question of hard necessity presses upon
the government. This money cannot be obtained from the banks.
With a patriotic feeling not usually attributed to money corporations,
the banks have already exhausted their means. The aggregate capital
of the banks of the three principal cities of the United States is
but $105,000,000, and they have taken more than their capital in
bonds of the United States." It was, therefore, idle to look to
the banks for relief. "They have," continued the senator, "already
tied up their whole capital in the public securities. They ask
this currency to enable them to assist further in carrying on the
government. Among others, the cashier of the Bank of Commerce,
the largest bank corporation in the United States and one that has
done much to sustain the government, appeared before the Committee
on Finance, and stated explicitly that his bank, as well as other
banks of New York, could not further aid the government, unless
its currency was stamped by, and invested with, the legal form and
authority of lawful money, which they could pay to others as well
as receive themselves."
Senator James A. Bayard of Delaware argued that the proposed measure
violated the Constitution. "No one," said he, "can deny the fact
that in the contracts between man and man, and in government
contracts to pay money, the obligation is to pay intrinsic value.
If you violate that by this bill, which you certainly do, how can
you expect that the faith of the community will be given to the
law which you now pass, in which you say that you will pay hereafter
the interest on your debt in coin? Why should they give credit to
that declaration? If you can violate the Constitution of the United
States, in the face of your oaths, in the face of its palpable
provision, what security do you offer to the lender of money?"
Senator Sumner did not join his colleague in enthusiastic support
of the bill. He was indeed much troubled by its provisions. "Is
it necessary," he inquired, "to incur all the unquestionable evils
of inconvertible paper, forced into circulation by Act of Congress,
to suffer the stain upon our national faith, to bear the stigma of
a seeming repudiation, to lose for the present that credit which
in itself is a treasury, and to teach debtors everywhere that
contracts may be varied at the will of the stronger? Surely there
is much in these inquiries which may make us pause. If our country
were poor or feeble, without population and without resources; if
it were already drained by a long war; if the enemy had succeeded
in depriving us of the means of livelihood,--then we should not
even pause. But our country is rich and powerful, with a numerous
population, busy, honest, and determined, and with unparalleled
resources of all kinds, agricultural, mineral, industrial, and
commercial. It is yet undrained by the war in which we are engaged,
nor has the enemy succeeded in depriving us of any of the means of
livelihood." But he concluded, "whatever may be the national
resources, they are not now within reach except by summary process."
He consented "reluctantly, painfully, that the process should
issue." He could not however "give such a vote without warning
the government against the danger of such an experiment. The
medicine of the Constitution must not become its daily bread."
SENATE VOTES ON LEGAL-TENDER.
The bill came to a vote in the Senate on the 13th of February.
The government exigency was so pressing that the Senate discussion
was limited to four days. On the motion of Mr. Collamer to strike
out the legal-tender clause, the vote stood 17 yeas to 23 nays.
Anthony of Rhode Island, Collamer and Foot of Vermont, Fessenden
of Maine, King of New York, Cowan of Pennsylvania, Foster of
Connecticut, and Willey of Virginia, among the Republicans, voted
to strike out. The vote to retain the legal-tender feature was
Republican, with the exception of Garrett Davis of Kentucky,
McDougall of California, Rice of Minnesota, and Wilson of Missouri.
This question being settled, the bill, with the legal-tender clause
embodied, passed by a vote fo 30 to 7. Mr. Anthony of Rhode Island
stated that, having voted against the legal-tender provision, he
"could not take the responsibility of voting against the only
measure which is proposed by the government, and which has already
passed the House of Representatives." Three Republicans, Collamer,
Cowan, and King, and four Democrats, Kennedy, Pearce, Powell, and
Saulsbury, were the senators who voted against the bill on its
final passage.
The bill was returned to the House of Representatives the next day.
The Senate amendments were taken up on the 19th. Mr. Spaulding
objected to them generally, and especially to the provisions for
selling the bonds at the market price and for paying the interest
in coin. Mr. Pomeroy of New York advocated concurrence in the
amendments of the Senate, as did Mr. Morrill of Vermont. Upon the
amendment to pay interest in coin, the House divided, with 88 ayes
to 56 noes. Upon the clause allowing the secretary to sell bonds
at the market value, there were 72 ayes to 66 noes. A conference
on the points of difference between the two Houses was managed by
Senators Fessenden, Sherman, and Carlile, and Representatives
Stevens, Horton, and Sedgwick. The report of the Conferees was
agreed to in both Houses, and the Act was approved and became a
law on the 25th of February. Its leading provisions were for the
issue of legal-tender notes, on which the debate chiefly turned,
and of coupon or registered bonds not to exceed $500,000,000 in
the aggregate, bearing six per cent. interest, redeemable at the
pleasure of the United States after five years, and payable twenty
years after date. The bonds were to be sold at their market value
for coin or Treasury notes, and the notes to be exchangeable into
them in sums of fifty dollars, or any multiple of fifty. These
securities became widely known and popular as the five-twenties of
1862. The fourth section allowed deposits of United-States notes
with designated depositories to draw interest at five per cent.,
and to be paid after ten days' notice, but the total of such deposits
was not to exceed $25,000,000 at any time. By the fifth section,
duties on imported goods were required to be paid in coin, and the
proceeds were pledged, first, to the payment in coin of the interest
on the bonds of the United States; and second, to a sinking-fund
of one per cent. of the entire debt for its ultimate payment.
Certificates of indebtedness were authorized by Act of Congress
passed without debate and approved on the first day of March.
These could be granted to any creditor whose claim had been audited,
and they drew six per cent. interest, payable at first in coin,
but by Act of March 3, 1863, lawful money was substituted for
interest. By Act of March 17, 1862, these certificates could be
given in discharge of checks drawn by disbursing officers, if the
holders of the latter chose to accept them. The secretary was
clothed with power by the Act of March 17, 1862, to buy coin with
any bonds or notes on such terms as he might deem advantageous.
The same Act gave legal-tender value to the demand notes previously
authorized. The limitation upon temporary deposits was also raised
to $50,000,000.
Mr. Chase, by a communication of June 7 (1862), asked for a further
issue of legal-tender notes to the amount of $150,000,000, and he
urged that the limit of five dollars be removed, and denominations
as low as a single dollar be permitted. He declared that it was
impossible to obtain coin necessary to pay the soldiers, and that
the plan proposed would remove from disbursing officers the temptation
to exchange coin for small bank notes. A reserve of one-third of
the temporary deposits would take $34,000,000, and the replacement
of the demand notes $56,500,000 more, so that for immediate use
the Treasury would get only $59,500,000 of the sum asked for. Mr.
Spaulding of New York on the 17th of June presented the measure as
reported from the Ways and Means Committee. He argued that this
form of loan was "so popular with the people and so advantageous
to the government, that it should be extended so far as it could
be done safely." Objections such as were offered to the original
policy were presented to the additional notes. It was already
suggested to authorize notes for fractions of a dollar, but the
majority decided against it. The bill passed the House of
Representatives on the 24th of June. In the Senate, Mr. Sherman
of Ohio attempted to add a clause for the taxation of the circulation
of banks, but it was not received with favor. With certain amendments
the bill passed the Senate on the 2d of July. On a disagreement
which ensued, the conferees were Senators Fessenden, Sherman, and
Wright, and Representatives Stevens, Spaulding, and Phelps of
Missouri. By their action the volume of notes of denominations
less than five dollars was restricted to $35,000,000, and the
reserve for meeting deposits was fixed at $75,000,000. While
exchangeable into six per cent. bonds, the notes might also be paid
in coin under the direction of the Secretary of the Treasury. The
report was accepted by the Senate on the 7th of July, and by the
House on the 8th. It became a law by the President's approval on
the 11th of July.
SECRETARY CHASE ON THE BANKS.
On the 14th of July, Secretary Chase called the attention of Congress
to the great evils arising from the issue by non specie-paying
banks and unauthorized persons of depreciated currency, and the
consequent disappearance of small coin. As a remedy an Act was
passed, and approved July 17, for the use of postage and other
stamps in payment of fractional parts of a dollar. These stamps
were made exchangeable by assistant treasurers for United-States
notes in sums not less than five dollars. Banks and persons were
forbidden, from the first day of the ensuing August, to make or
issue any note or token for a less sum than one dollar, intended
to be used as money, under the penalty of a fine not exceeding
$500, or imprisonment not exceeding six months, or both. "Shinplasters"
had become almost like the frogs of Egypt for multitude. They were
in every man's hand and were of all degrees of value. They were
sometimes issued for purposes of fraud. Silver had become lost to
view, and business houses resorted to the use of their own notes
as a convenience. The government stamps were not well adapted to
circulate as currency, and they soon gave way to notes of handsome
design which came into universal use as the "small change" of the
country.
The proper order of the leading measures of finance has always been
a subject of contention. Grave differences of opinion exist, even
to this day, concerning the necessity and expediency of the legal-
tender provision. The judgment of many whose financial sagacity
is entitled to respect is, that if the internal tax had been first
levied, and the policy adopted of drawing directly upon the banks
from the Treasury for the amounts of any loans in their hands, the
resort by the government to irredeemable paper might at least have
been postponed and possibly prevented. The premium on gold became
the measure of the depreciation of the government credit, and
practically such premiums were the charge made for every loan
negotiated. In his report of December, 1862, Secretary Chase
justified the legal-tender policy. He explained that by the
suspension of specie payments the banks had rendered their currency
undesirable for government operations, and consequently no course
other than that adopted was open. Mr. Chase declared that the
measures of general legislation had worked well. "For the fiscal
year ending with June," he said, "every audited and settled claim
on the government and every quartermaster's check for supplies
furnished, which had reached the Treasury, had been met." For the
subsequent months, the secretary "was enabled to provide, if not
fully, yet almost fully, for the constantly increasing disbursements."
The political effects of the legal-tender bill were of large
consequence to the Administration and to the successful conduct of
the war. If it had been practicable to adhere rigidly to the specie
standard, the national expenditure might have been materially
reduced; but the exactions of the war would have been all the time
grating on the nerves of the people and oppressing them with
remorseless taxation. Added to the discouragement caused by our
military reverses, a heavy financial burden might have proved
disastrous. The Administration narrowly escaped a damaging defeat
in 1862, and but for the relief to business which came from the
circulation of legal-tender notes, the political struggle might
have been hopeless. But as trade revived under the stimulus of an
expanding circulation, as the market for every species of product
was constantly enlarging and prices were steadily rising, the
support of the war policy became a far more cheerful duty to the
mass of our people.
This condition of affairs doubtless carried with it many elements
of demoralization, but the engagement of the people in schemes of
money-making proved a great support to the war policy of the
government. We saw the reproduction among us of the same causes
and the same effects which prevailed in England during her prolonged
contest with Napoleon. Money was superabundant, speculation was
rife, the government was a lavish buyer, a prodigal consumer.
Every man who could work was employed at high wages; every man who
had commodities to sell was sure of high prices. The whole community
came to regard the prevalent prosperity as the outgrowth of the
war. The ranks of the army could be filled by paying extravagant
bounty after the ardor of volunteering was past, and the hardship
of the struggle was thus in large measure concealed if not abated.
Considerate men knew that a day of reckoning would come, but they
believed it would be postponed until after the war was ended and
the Union victorious.
The policy of the legal-tender measure cannot therefore be properly
determined if we exclude from view that which may well be termed
its political and moral influence upon the mass of our people. It
was this which subsequently gave to that form of currency a strong
hold upon the minds of many who fancied that its stimulating effect
upon business and trade could be reproduced under utterly different
circumstances. Argument and experience have demonstrated the
fallacy of this conception, and averted the evils which might have
flowed from it. But in the judgment of a large and intelligent
majority of those who were contemporary with the war and gave
careful study to its progress, the legal-tender bill was a most
effective and powerful auxiliary in its successful prosecution.
THE INTERNAL-REVENUE SYSTEM.
Grateful as was the relief to the people from legal-tender notes,
it was apparent to Congress that a government cannot, any more than
an individual, maintain a state of solvency by the continuous
issuing of irredeemable paper. Money must not merely be promised,
it must be paid. The Government therefore required a strong,
efficient system of taxation--one that would promptly return large
sums to the Treasury. From customs, an increasing revenue was
already enriching the Government vaults, but the amount derivable
from that source was limited by the ability of the people to consume
foreign goods, and wise economists did not desire an enlarged
revenue the collection of which was at war with so many domestic
interests. The country therefore turned by common instinct to a
system of internal duties,--to incomes, to excise, to stamps. In
the extra session of the preceding year, Congress had, by the Act
of August 5, 1861, laid the foundation for a system of internal
revenue by providing for a direct tax of twenty millions of dollars
on the real estate of the country, and for an income tax of three
per cent. on all incomes in excess of eight hundred dollars per
annum. But the appointment of assessors and collectors under the
bill had been postponed "until after the second Tuesday of February,
1862," which was practically remanding the whole subject to the
further consideration of Congress before any man should be asked
to pay a dollar of tax under the law. The intervening months had
not decreased but had on the contrary largely developed the
necessities of the National Treasury, and enhanced the necessity
of a stable revenue system. The exigency had become so great that
Congress was compelled for the first time in our history, to resort
to the issue of government notes as a legal-tender currency.
Promptness and decision were essential to the preservation of the
National credit. The sources, the extent, the limitations of the
taxing power were closely examined by Secretary Chase in his report
and the subject was remanded to Congress for determination.
The Constitution gives to Congress to power to levy imposts, and
prohibits it to the States. It gives also to Congress the power
to levy internal taxes and excises, leaving to the States the right
to do the same. It is one of the traditions of the Convention
which met in Philadelphia in 1787 to frame the Federal Constitution,
that Mr. Hamilton remarked in a conference of its leading members
that if the power to levy impost and excise should be given to the
new government, it would prove strong and successful. If the power
were not to be given he did not desire to waste his time in repeating
the failure of the old Confederation, and should return at once to
New York. It was undoubtedly his influence which secured the wide
and absolute field of taxation to the General Government. He well
knew that direct taxes are onerous, and as the majority insisted
on levying them in proportion to population, as in the old
Confederation, their use as a resource to the General Government
was practically nullified. Such a system involved the absurdity
that men taken _per capita_ average the same in respect to wealth,
and that one hundred thousand people in New York should pay no more
tax than the same number in Arkansas. Statesmen and financiers
saw from the first that the direct tax clause in the Constitution
would be valuable only in forcing the use of the excise. But for
the dread of this, the States would not have yielded all the sources
of indirect taxation to the National Government.
When appointed Secretary of the Treasury, Mr. Hamilton insisted
upon the prompt levy of excises. He induced the first Congress to
lay a tax on all distilled spirits. If made from molasses or sugar
or other foreign substance, the tax should be from eleven to thirty
cents per gallon according to the percentage above or below proof.
If made from domestic products, the tax should be from nine to
twenty-five cents per gallon. The first was practically a tax on
rum, the second on whiskey. This excise was followed in subsequent
years by duties on carriages, on snuff, on property sold at auction,
on refined sugar, and by the sale of stamps. Other articles were
in after years added to the list, and to aid the Treasury during
the period of the second war with Great Britain, a heavy imposition
of internal duties was resorted to as the most prompt and efficient
mode of replenishing the hard pressed Treasury.
THE INTERNAL-REVENUE SYSTEM.
The excise was from the first unpopular. The men who insisted that
"black quart-bottles" should be admitted free of duty when the
first tariff bill was passed, did not relish the levying of a heavy
tax on the whiskey that was to fill them. The exciseman was to
their view precisely what Dr. Johnson had defined him in his
dictionary: "an odious wretch, employed to collect an unjust tax."
Revolutionary proceedings had been inaugurated by resistance to a
tax on tea. But tea at that day was looked upon as a luxury in
which only a few could indulge, while whiskey was regarded as a
necessity, of universal consumption. Resistance went so far as to
organize an insurrection in Western Pennsylvania against the official
authority which attempted to collect the tax. The outbreak was
promptly suppressed by the power of the General Government but the
result of the agitation was a deep-seated prejudice against the
Federal party. Pennsylvania sympathized with the more liberal
views of Jefferson, and in the Presidential election of 1796 gave
him fourteen of her fifteen electoral votes. John Adams received
the other vote, and as he was chosen by a majority of one, his
Pennsylvania support, small as it was, proved timely and valuable.
Resistance to internal duties was tried by legal methods. A heavy
duty had been laid on carriages--two dollars per year for those of
simplest form and fifteen dollars for the most costly. The tax
applied to all carriages for the conveyance of persons, whether
kept for private use or for public hire. One Daniel Lawrence Hylton
of Virginia resisted the payment of the tax and the case was
ultimately heard before the Supreme Court in the February term of
1796. Mr. Hamilton who had resigned from the Treasury Department
the preceding year, argued the case for the Government in conjunction
with the Attorney-General, Charles Lee. Mr. Campbell, Attorney
for the Virginia District and Mr. Ingersoll, the Attorney-General
of Pennsylvania, appeared for the plaintiff. The case turned wholly
upon the point whether the tax, on carriages kept for private use,
was a direct tax. If not a direct tax, it was admitted to be
properly levied according to that clause in the Constitution which
declares that "all duties, imposts, and excises shall be uniform
throughout the United States." If a direct tax it was wrongfully
levied because the Constitution declares that "no capitation or
other direct tax shall be laid unless in proportion to the census
or enumeration of the inhabitants of the United States."
The well-known decision of the court, delivered by Judge Samuel
Chase, pronounced the tax to be constitutional. Justice James
Wilson who concurred in the decision had taken a very prominent
part as a delegate from Pennsylvania in the convention which framed
the Constitution, and ranked at that time as one of the ablest
lawyers in the Union. The opinion of the judges seemed to be,
though no formal decision was rendered to that effect, that a tax
on land, and a capitation or poll tax, are the only levies which
within the terms of the Constitution are to be considered _direct_
taxes. The decision was one of extraordinary interest to the
Government, as, had it been the other way, one great resource for
the raising of money, indeed the greatest resource, would have been
taken from the Federal Government. The appearance of Mr. Hamilton
was an indication of the dignity and importance which were attached
to the case by Washington's Administration.
A singular feature of the proceedings was the allegation by Mr.
Hylton that he "owned, possessed, and kept one hundred and twenty-
five chariots for the conveyance of persons--exclusively for his
own separate use and not to let out to hire, or for the conveyance
of persons for hire." What particular necessity a Virginia gentleman
of the last century had for that number of chariots "for his own
separate use" is nowhere explained. It may have been the mere
filling of the blanks in a legal declaration in which the declarant
was permitted a free use of figures, but as it stands in the reports
of Supreme Court decisions, it seems to be one of the odd incidents
that make up the humor of the Law.
The system of internal duties and excises continued in various
forms for thirty years, practically disappearing at last in 1821.
But for the financial demands precipitated by the war of 1812 and
the period of depression which ensued, the system would have been
abolished at an earlier date. During the period of their existence,
from 1790 to 1820, the internal taxes had yielded to the Government
the gross sum of $22,000,000, an average of a little more than
$700,000 per annum. It thus proved a very valuable resource to
the Republic in the period of its early financial troubles.
COMPREHENSIVE SYSTEM OF TAXES.
Congress now determined under the recommendation of Secretary Chase
to use this great source of revenue to the fullest practicable
extent. Immediately after the passage of the Legal-tender Act the
subject of internal revenue was taken up, elaborately investigated
by committees, exhaustively discussed in both Senate and House.
The final result was the enactment of a bill "to provide internal
revenue to support the Government and to pay interest on the public
debt," which received the President's approval on the first day of
July (1862). It was one of the most searching, thorough, comprehensive
systems of taxation ever devised by any Government. Spiritous and
malt liquors and tobacco were relied upon for a very large share
of revenue; a considerable sum was expected from stamps; and three
per cent. was exacted from all annual incomes over six hundred
dollars and less than ten thousand, and five per cent.--afterwards
increased to ten per cent.--on all incomes exceeding ten thousand
dollars. Manufactures of cotton, wool, flax, hemp, iron, steel,
wood, stone, earth, and every other material were taxed three per
cent. Banks, insurance and railroad companies, telegraph companies,
and all other corporations were made to pay tribute. The butcher
paid thirty cents for every beef slaughtered, ten cents for every
hog, five cents for every sheep. Carriages, billiard-tables,
yachts, gold and silver place, and all other articles of luxury
were levied on heavily. Every profession and every calling, except
the ministry of religion, was included within the far-reaching
provisions of the law and subjected to tax for license. Bankers
and pawnbrokers, lawyers and horse-dealers, physicians and
confectioners, commercial brokers and peddlers, proprietors of
theatres and jugglers on the street, were indiscriminately summoned
to aid the National Treasury. The law was so extended and so minute
that it required thirty printed pages of royal octavo and more than
twenty thousand words to express its provisions.
Sydney Smith's striking summary of English taxation was originally
included in a warning to the United States after the war of 1812
against indulging a marital spirit or being inflamed with a desire
for naval renown. "Taxes," said the witty essayist in the _Edinburgh
Review_, "are the inevitable consequences of being too fond of
glory." He bade us beware of Essex, Porter, and Stephen Decatur.
Even in the second year of the civil war in which we were struggling
for life rather than for glory, we had come to realize every exaction
ascribed to the British system. We were levying "taxes upon every
article which enters into the mouth or covers the back or is placed
under the foot; taxes on every thing which it is pleasant to see,
hear, feel, smell, or taste; taxes upon warmth, light, and locomotion;
taxes on every thing on earth and the waters under the earth; taxes
on every thing that comes from abroad or is grown at home; on the
sauce which pampers man's appetite and on the drug that restores
him to health; on the ermine which decorates the judge and the rope
which hangs the criminal; on the poor man's salt and the rich man's
spice; on the brass nails of the coffin and the ribbons of the
bride."
The system of internal revenue of which the foregoing is no
exaggeration proved in all respects effective. Congress rendered
the taxes more palatable and less oppressive to the producers by
largely increasing the duties on imports by the Tariff Act of July
14, 1862, thus shutting out still more conclusively all competition
from foreign fabrics. The increased cost was charged to the
consumer, and taxes of fabulous amount were paid promptly and with
apparent cheerfulness by the people. The internal revenue was
bounteous from the first, and in a short period increased to a
million of dollars per day for every secular day of the year. The
amount paid on incomes for a single year reached seventy-three
millions of dollars, the leading merchant of New York paying in
one check a tax of four hundred thousand dollars on an income of
four millions. Mr. Webster said that "Hamilton smote the rock of
the National resources and abundant streams of revenue gushed
forth." But Hamilton's Funding Bill was not more powerful in
establishing the credit of the young Republic after the Revolution
than was the Internal-revenue Act in imparting strength to the
finances of the matured Nation in the throes and agonies of civil
war. It was the crowning glory of Secretary Chase's policy, and
its scope and boldness entitle him to rank with the great financiers
of the world.