CHAPTER III

SOUND MONEY IN NATIONAL POLITICS

OUR laws with reference to paper currency have been largely influenced by the distribution of governmental authority peculiar to the United States, and entirely separate and distinct interests have thereby been brought into antagonism and have militated against the adoption of the most desirable currency system.

From the Declaration of Independence until the close of the Civil War in 1865, the United States as a nation was in a formative period. The thirteen colonies had organized a confederacy to resist oppression from abroad, but with insufficient and illdefined powers, and as soon as they had fought to a successful issue and been recognized as an independent nation, they began to be jealous and distrustful of the powers which must necessarily be given to the general government in order to form a permanent nation. Oppressive debt, disorganized business and depreciated currency presented grave economic problems for solution, at a time when the greater and graver problem of creating a government based upon the consent of the governed, evidenced by popular suffrage, must first be solved, in order that it might in turn bring order, credit and prosperity out of existing chaos. The colonies were held together by the cohesive force of selfpreservation in the presence of the arms of a powerful and aggressive foe. When this pressure was once removed, the tendency toward separate action and assertion of antagonistic interests on the part of the colonies became pronounced.

Tenacious of their liberties, the people were greatly impressed

with possible danger from an arbitrary exercise of power on the part of a central government, and in framing the Constitution the powers of the several states were subordinated to the national government with halting jealousy and only where deemed indispensable. The nation was thus started with a dual sovereignty. The citizens owed allegiance to the states in which they lived, as well as to the nation, and the respects in which each was paramount were as to many questions left in the realm of debate. Seven of the original thirteen states accompanied their ratification of the Constitution with proposed amendments, and many states seemed to regard its obligations lightly. Withdrawal from the Union was freely discussed as an alternative and by no means impossible remedy for unsatisfactory treatment.

In 1798, Kentucky, roused by its opposition to the alien and sedition laws passed by Congress, adopted resolutions reciting, among other things, that the national government was created by a compact among the states and "was not made the exclusive or final judge of the extent of the powers delegated to itself, but that, as in all other cases of compact among powers having no common judge, each party has an equal right to judge for itself as well of infraction as of the mode and measure of redress." Virginia passed nearly identical resolutions in 1799. In other states similar doctrines were at times proclaimed, notably at a later period by the abolitionists of the North, who advocated withdrawal from the Union to escape the partnership in the toleration of slavery.

If the House of Representatives, the Senate and the President concur as to an act of legislation, it becomes a law. If any question as to its constitutionality arises, the theory of the Constitution is that such question is to be determined by the Supreme Court, there being thus four separate parties whose concurrence is necessary before a law becomes final and binding beyond question. The Kentucky resolutions sought to introduce a fifth party and to assert that each state as a party to the compact of

federation might determine for itself the limitation of power which the general government possesses.

This doctrine, in all its refinement, culminated in the nullification ordinance adopted by South Carolina in November, 1832, which declared the United States tariff law "null and void, and no law, nor binding on this state, its officers or citizens," and no duties were to be paid in that state and no appeal to the Supreme Court of the United States was to be permitted. The energetic determination of President Jackson to enforce the law, coupled with the "Clay Compromise," a modification of some of the law's most objectionable provisions, deferred but did not settle the constitutional issues involved.

The status of slavery in the Constitution was the occasion of prolonged controversy; and by its terms as finally settled, the importation of slaves could not be prohibited for twenty years, and three-fifths of the slave population was to be counted in determining the basis of representation of the several states in Congress and in the Electoral College. Each state was allotted two senators, and representatives were apportioned according to population. The number of votes to which each state became entitled in the Electoral College, which chooses the President and Vice-president, was and still is equal to its congressional representation, that is, its senators and representatives combined. Allowing three-fifths of the slave population, while not enjoying the suffrage, to be counted in determining the representative population, gave to the white population of the slaveholding states a preponderating influence in national affairs, which was bound to provoke controversy. In laying the foundation of the nation, the framers of the Constitution also laid the foundation of an "irrepressible conflict," and the opposition to slavery which found expression in the constitutional debates was continued with growing intensity, although usually as a moral rather than political question. Its abolition in the northern states, owing very largely to climatic conditions, as well as for ethical reasons, made the question of slavery a sectional one.

The first pronounced conflict arose over the admission of Missouri as a state in 1818-1819. It was admitted in 1821 as a slave state, after the "Missouri Compromise" (Act of March 2, 1820) had provided that slavery should forever be excluded from all national territory west of Missouri and north of 36° 30' (the southern boundary of the state). In 1846 the "Wilmot Proviso," an amendment to an act appropriating money with which to purchase territory from the government of Mexico, proposed to exclude slavery and involuntary servitude forever from all territory so acquired. It was adopted by the House, but later reconsidered and defeated. This episode marked the formation of a political party, whose avowed and direct purpose was to prevent the extension of slavery in the territories of the United States. Their propaganda was followed by a powerful and continuous onslaught upon the institution of slavery on moral and religious grounds, and created a strong sentiment in favor of its abolition, which ultimately became effective.

Slavery, involving enormous property interests, depended for protection and championship upon the several state governments, and this fact throughout this period gave to the doctrine of state rights and "state sovereignty" its principal element of strength. Largely inspired by this influence, the power given to the general government under the Constitution was rigidly construed, circumscribed within the narrowest limits, and any attempt at liberal construction or enlargement with reference to any subject was tenaciously fought by the champions of state rights. All efforts by the general government to regulate banking and currency encountered the opposition of the strict constructionists in all its virulence as well as that of the state bank interests. The power of Congress to appropriate money for national highways was questioned, and no relaxation or liberalization of constitutional provisions was permitted, lest it should form a precedent that might militate against the slaveholding interests.

The preservation of the Union is traceable to the fact that the National or Federal party controlled the councils of the government during its earlier years. In this connection too much praise cannot be bestowed upon the genius and statesmanship of Hamilton, the judicial wisdom and statesmanship of Marshall. It will appear in the following history that whenever national sentiment and national influence have moulded legislation and controlled the general government, enhanced prosperity has ensued, as during the periods of the first and second United States banks and that of the national banking system. Whenever the disintegrating influence involved in the doctrine of state sovereignty has been paramount, adverse conditions have prevailed, as during the period following the expiration of the charter of the first United States Bank (1811) until the second bank was well under way, and the period between the expiration of the charter of the second bank (1836) and the creation of the national banking system (1863).

The right of secession, and the doctrine of state sovereignty as it had been proclaimed, as well as slavery itself, were buried, and the permanency of the Union and the paramountcy of the general government settled, by the verdict of the Civil War (1861-1865).

The government had been in the habit of borrowing money in the form of notes; for instance, under the administration of President Buchanan, December 23, 1857, it authorized the issue of $20,000,000 of notes, running for a period of one year and bearing interest at a rate to be fixed by the Secretary of the Treasury, not exceeding 6 per cent. These notes were receivable for "all debts of the United States of any character whatever." Another issue, not exceeding $10,000,000, was authorized December 17, 1860, to run for a period of one year and bear interest. They were sold at auction to the responsible party who would bid par and the lowest rate of interest. The acts of July 17 and August 5, 1861, and February 12, 1862, authorized an issue of $60,000,000