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This was a defective system of government. The result was that the struggle for Independence was protracted. The war was carried on to its consummation by promises to pay, rather than with money. Great efforts were made to borrow from foreigners. The chief business of our representatives abroad was to negotiate loans. The total amount of the loans negotiated by them during the struggle was only a trifle above ten millions. It was stated by Hamilton, in his report submitted to the House of Representatives on Jan. 14, 1790, at $10,070,307. On this the arrears of interest amounted to $1,640,071.62. The domestic debt of the Union, including $13,000,000 of interest overdue, amounted to $40,414,085.94. The debts of the states were assumed to the amount of $21,500,000. Adding to these items the unliquidated part of the domestic debt, which consisted chiefly of Continental bills of credit, estimated in the report at $2,000,000, the total debt on the 31st of December, 1789, was $75,624,464.56. The actual debt a year later was reported at $75,463,476.52.

The paper currency called bills of credit, issued by Congress during the war, and before the adoption of the Constitution, amounted to the sum of nearly two hundred and fifty millions; and the aggregate of the bills issued by the states amounted to $209,524,776. Of the latter issue Virginia was responsible for $128,441,000; North Carolina for $33,325,000, and South Carolina for $33,458,926, thus leaving only $14,299,850 for the other states.

About half of the bills of credit issued by the Congress of the Confederation were redeemed by new bills, at the rate of forty of the old for one of the new issue. These last were assumed to be at par with silver, and were receivable as such by the Congress for the taxes which were apportioned among the states. Mr. Jefferson, who was in France much of the time, was mistaken in saying that "very little of the money [old bills] was brought in." He states that in 1780 the old bills had fallen in value, compared with silver, to seventy-five for one, when they went out of circulation north of the Potomac. In Virginia and North Carolina, these bills continued to circulate a year longer. By that time they had fallen to one thousand to one; "and then," Mr. Jefferson adds, "the paper expired, as it had done in other states, without a single groan. Not a murmur was heard on this occasion among the people. On the contrary," said he, "universal congratulations took place on their seeing this gigantic mass, whose dissolution had threatened convulsions which should shake their infant confederacy to its centre, quietly interred in its grave."

The act of Congress which authorized the exchange of the new for the old bills came near causing a breach with the French government. The Count de Vergennes earnestly protested against it. He authorized the French minister to this government to remonstrate against its application to French subjects who were holders of the old bills. John Adams, then an unrecognized minister, sent over to be at hand, ready to negotiate a peace, and wait

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ing in Paris for the opportune moment to arrive, gave great offence to the Count by defending the justice and necessity of the measure. Dr. Franklin, the resident minister at the French court, professed to concur with Vergennes that the repudiation should not apply to French subjects. But he was too wise not to foresee that if this were to be allowed, the effect of such a discrimination would be that Frenchmen would buy up all the bills. Dr. Franklin communicated to Congress the fact that the course of Mr. Adams, who had published his opinions in a newspaper, had given offence to the French government. Congress censured Mr. Adams for his uncalled for and pertinacious defense of its ordinance; but, nevertheless, the ordinance was adhered to. This incident was the cause of a permanent breach between

Franklin and Adams.

In order to pay off the Revolutionary debt, Hamilton devised a Federal system of internal revenue. It consisted of an excise upon liquors distilled within the United States. From this source, in the course of a dozen years, about seven millions were raised. In 1799 a direct tax was imposed by Congress upon lands and houses. This yielded about two millions of dollars, of which about one million and a half was collected in the three years following. But at this era the great and permanent reliance for a revenue was on customs. During Washington's administration these amounted to nearly six millions per annum. This was yielded from a very low tariff. Before the close of Jefferson's administration the revenue from this source had risen to sixteen millions.

The recuperation from our earlier financial embarrassments was easy and rapid. Under the long sway of the Democratic party, there was a minimum of restraint by taxation, or other measures tending to foster monopolies, which left the people free to avail themselves of the rich resources of the domain that their fathers had won and bequeathed to them as an heritage forever. They waxed great in numbers, and prosperous beyond comparison. Their fame spread abroad among the nations. Immigration poured in upon them its waves of industrious millions to partake of their freedom and to develop the fatness of the land. Peace smiled upon them, and plenty abounded.

When the Southern States appealed to the ultima ratio, the American people had no more conception of the financial exploits they were about to perform than they had of the extent and duration of the military operations that followed. Even their statesmen had no adequate idea of the resources of this country for raising revenue. They had not imagined that the United States excelled every country in the world in capacity to raise revenue from indirect taxes. Wherein is this capacity? The answer is now obvious: Americans consume more of the luxuries of life than any other people. No one would have believed in 1860 that in 1866, after four years of devastating war, the people of this country could pay yearly $176,000,000 in taxes, at

enormously protective rates, on foreign goods imported, and $309,000,000 in taxes on domestic articles consumed; or that a public debt of $2,381,500,000, bearing interest to the amount of $151,000,000, could be paid off at the rate of $100,000,000 per annum; or that under such a debt the rate of interest could be gradually reduced, by refunding, in the course of eighteen years, from five, six, and seven and three-tenths per cent. to three per cent. Yet all this has been accomplished. Our revenue, war debt, and interest reached these figures. In place of paying interest now to the extent of $150,977,697.87 annually, as in 1865, we pay only $47,926,392.50. The latter sum was paid during the fiscal year ended June 30, 1884, upon a debt reduced to $1,226,563,850. This was all that then remained of the interest-bearing

debt!

The total debt, Aug. 31, 1865, less cash in the treasury, was $2,756,431,571.43. But of this sum, $374,901,276.47 consisted of United States notes, fractional currency, and some other non-interest-bearing obligations; so that the interest-bearing debt was at that date $2,381,530,294.96. Of this sum there had been paid off, up to June 30, 1884, $1,154,966,444.96. Probably there will be some slackening in the rate of redemption; but there is little doubt that at the end of the present fiscal year (1885), more than half of the original interest-bearing debt will be canceled.

The non-interest-bearing debt on June 30, 1884, consisted, as stated by the Secretary of the Treasury, of the following items:

Old Demand Notes of 1861 and 1862,

Legal Tender Notes of 1862 and 1863,
Certificates of Deposit, 1872,

Gold Certificates issued under Acts of 1863 and 1882,

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"1878,

Silver
Fractional Currency, 1862, 1863, and 1864,

Aggregate non-interest-bearing debt, .

To this sum must be added

on which interest had ceased;

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$19,656,205 26

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Adding to this the interest-bearing debt of that date,

$615,472,313 98 1,226,563,850 00

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The $346,681,016 in legal-tender notes seems to be circulating as a more

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acceptable currency than gold. These notes may not be called in for years to come, if ever, except for the purpose of replacing such bills as are worn

out.

There were many curious and interesting developments attending the vast expansion of American financial operations since the beginning of the Civil War. Among these may be mentioned the greatly increased facility of borrowing, and the readiness of foreigners as well as Americans to lend their money to this government at rates of interest far below those of the ante-bellum days, when the public debt was scarcely a twentieth of the amount it has been of late years. It is not necessary, in order to find a reason for this confidence, to go back to an early date, when the country was sparsely peopled and poor, and when the republican form of government was regarded as a doubtful experiment. It is sufficient to refer to some of the events which preceded the late war, when the United States had already assumed their acknowledged and exalted place among the nations of the world.

The financial collapse of 1837 caused a considerable falling off of imports. The sales of the public lands also decreased far below those for the two preceding years. These sales and the customs were then almost the only sources of revenue. The decrease embarrassed the government. It became necessary to resort to the issue of ten millions in treasury notes, bearing six per cent. interest. The act authorizing that issue was passed Oct. 12, 1837. In May, following, it became necessary to authorize a reissue of the notes. These temporary loans were renewed from year to year, until July, 1841. Then a permanent six per cent. loan was authorized for the purpose of funding the treasury notes, which ran for only one and two years. In 1842 additional six per cent. temporary notes were authorized; and in 1843 provision was made for their reissue and funding at the same rate of interest. The Mexican War debt followed; but, as already shown, all liabilities were easily liquidated.

Then came the financial crash of 1857. Like its predecessor of twenty years before, it caused a falling off in imports and revenue. On December 3, of that year, Congress authorized the issue of twenty millions in treasury notes at six per cent. These were reissued from year to year, until July 1, 1860. On June 14, 1858, a twenty million loan at six per cent. was authorized; and the act of June 22, 1860, authorizing a six per cent. loan of twentyone millions is traceable to that crash. It had no reference to the then approaching war. It was not preparatory for that calamity, which, while feared by many, could be known to no one. Neither was the probability of war so menacing as to affect the public credit. The offer of six per cent. was only a conformity to usage in such transactions. The loss in 1858 and 1859 of revenue from customs and sales of public lands was very considerable, while the scale of expenditure, owing to several causes, had increased.

Hence the recourse to loans. The ten millions of six per cent. treasury notes authorized by the act of Dec. 17, 1860, were called for by the same circum

stances.

Three days after the passage of the last mentioned act, the State of South Carolina passed the secession ordinance. She was soon followed by the Gulf States. Feb. 8, 1861, another loan was authorized, not to exceed twentyfive millions, in order to meet the exigencies of the public service, and for the redemption of the treasury notes then outstanding. The interest was, as usual, restricted to six per cent. March 2, following, another act was passed authorizing a ten-million loan, at the same rate of interest.

The first great financial measure of the war that ensued, was the act of July 17, 1861. It was passed at the first session of the Thirty-seventh Congress, with only five dissenting votes in the House. It authorized the Secretary of the Treasury-not the President, according to the usual form - to borrow, on the credit of the United States, within twelve months, a sum not exceeding two hundred and fifty millions of dollars, or so much thereof as he might deem necessary for the public service. He was authorized to issue coupon bonds, registered bonds, or treasury notes, in such proportions of each as he might deem advisable. The bonds were to bear interest at a rate not exceeding seven per cent., payable semi-annually. They were not redeemable for twenty years. After that period they were redeemable at the pleasure of the United States. The treasury notes were authorized to be of any denomination fixed by the Secretary of the Treasury, not less than fifty dollars. They were to be payable three years after date of issue, with interest at the rate of seven and three-tenths per centum per annum, payable semi-annually. The secretary was also authorized to issue treasury notes of less denominations than fifty dollars, bearing interest at the rate of three and sixty-five hundredths per centum. These were payable one year after date, to be exchanged for coin, or paid out for salaries and other public dues. This act conferred upon the Secretary of the Treasury the whole direction of the proceedings necessary to carry out its purpose. It conferred discretionary power in many cases, including that of assigning the amount of compensation to be paid to persons employed in receiving the subscriptions. This act was prepared and forced through the House, with only one hour allowed for debate, by Mr. Stevens, of Pennsylvania, the chairman of the Committee of Ways and Means. The act of August 5, of the same year, authorized the issue of six per cent. twenty-year bonds. These were to be exchangeable for the seven-thirty treasury notes. There was also a provision for issuing six per cent. twentyyear bonds, instead of the seven per cent.'s authorized by the former act. The act of August 5 originated in the Senate and was supplementary to that of July 17. When it came to the House, Mr. Stevens moved certain amendments, some of which were adopted. One of them proposed the issue of treasury notes at nine per cent. This was modified so as to fix the rate of interest at seven and three-tenths.

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