But the supporters of the bill argued that the pending situation could not be met by taxation, for the needs of the treasury were too pressing to wait until new taxes could be assessed and collected.

To this the rejoinder was made: If it will take too long to wait for the proceeds of taxes, let the government supply its immediate wants by selling bonds at their market value, and in the meantime frame a permanent system of taxation that will yield an adequate revenue. This plan was the same that the delegation of bankers had urged upon the secretary and the committee of Congress, and it encountered the same opposition. Senator Howe was unwilling, as Mr. Spaulding had been, that government bonds should be sold below par. "The experience of half a century," said he, "has demonstrated that the use of money is not worth more than 6 per cent; that sum the Government ought to pay." Senator Fessenden replied: "Money in the market is always worth what it will sell for. It is an article of merchandise like anything else, and the Government has no reason to suppose, unless it can offer much better security, that it should get money at a better rate than anybody else."

Of course it was not possible without offering a loan to determine precisely at what rates the government could sell its bonds; but the opponents of the bill believed that Mr. Stevens and Mr. Spaulding exaggerated when they predicted that the price realized would range between 50 and 80. Should a plan of finance based upon taxation heavy enough to inspire confidence in the management of the treasury be adopted, they were convinced that the government could secure loans without serious sacrifice. And further, their fiscal argument showed that an increase in the cost of the war would not be avoided by the rival plan of issuing an inconvertible paper currency.

Still a third alternative was proposed by the opposition—the issue of treasury notes without the legal-tender quality. This suggestion was embodied in the three rival plans introduced into the House as substitutes for the bill. The discussion of their merits naturally elicited debate upon the efficacy of the legal-tender clause. The supporters of the bill were ready enough with assertions of the importance of the clause to the success of the measure; but they found it difficult to explain precisely what its value was. One said, “By making these notes a legal tender we prevent the money sharks from robbing our soldiers of their hard earnings." Another argued that unless the United States notes were made a legal tender, the banks would seek to depreciate them in order to retain the field of circulation

for their own issues. A third declared, "If we make the government
issues a legal tender, the demand for specie will be so limited that
they will maintain their value." Finally, Senator Sherman argued
that the banks would not receive the government notes unless com-
pelled to do so by the legal-tender clause. In response Senator
Fessenden pointed to the clause authorizing the subtreasuries to
receive the notes on deposit at 5 per cent interest. This clause
would make discrimination against the notes impracticable, he argued;
for should the banks refuse to receive notes as deposits they would
lose business, because the holders would prefer to deposit with the sub-
treasuries, which would pay 5 per cent interest, instead of with banks.

'From Wesley C. Mitchell, A History of the Greenbacks, p. 277. (The Uni

versity of Chicago Press, 1903.)

I02.

GREENBACKS AND THE COST OF THE CIVIL WAR'
BY WESLEY C. MITCHELL

I. THE GREENBACKS AND EXPENDITURES

It is a familiar remark of writers on public finance that all things required by government fall into one of two categories-commodities and services. This elementary distinction regarding the objects of government expenditure is of very great importance for the present problem. For since prices advanced in much greater ratio than wages, it is clear that the greenback issues must have increased the sums paid for commodities more than the sums paid for labor. Indeed, this difference between increase in cost of commodities and of labor seems to have been much wider in the case of the government than in the case of private persons. Clearly then the first step in any estimate of the effect of the legal-tender act upon the expenditures of the government during the war should be a careful separation of expenditures for commodities from expenditures for services.

ESTIMATED INCREASE IN THE ORDINARY EXPENDITURES OF THE FEDERAL GOVERNMENT CAUSED BY THE GREENBACKS (In millions of dollars)

There are many difficulties in the construction of an accurate table showing the effect of the greenbacks upon the expenditures for

Adapted from A History of the Greenbacks, pp. 406-19. (The University of Chicago Press, 1903.)

various classes of commodities and services; but the table on p. 169 is the best representation of the situation that can be given. The total increase for the whole period is roughly $791,000,000.

II. THE GREENBACKS AND RECEIPTS

Of the government receipts during the war some sources were unaffected, while with others the depreciated currency gave rise to an increase of revenue for the government. Under the provisions of the first legal-tender act customs duties were paid in gold, and the ad valorem duties were assessed on the foreign specie valuation of goods. The receipts from this source therefore remained on substantially the same footing as if specie payments had been maintained. The receipts from direct taxes were all collected under one law passed six months before suspension. This law fixed the total amount of the tax at $20,000,000 and determined the precise amount to be raised by each state. Accordingly the legal-tender acts had no effect upon this item-except that the states were ESTIMATED INCREASE IN THE ORDINARY RECEIPTS OF THE FEDERAL GOVERNMENT CAUSED BY THE GREENBACKS (In millions of dollars)

enabled to pay their quotas in greenbacks instead of in gold. The revenue derived from miscellaneous sources includes a considerable number of small items. Of these, some were doubtless increased by depreciation, e.g., proceeds of sales of captured and abandoned property. Other items were unaffected, e.g., receipts of fees by American consuls abroad. Premiums on sales of gold coin may be set down from the present point of view as clear gain.

The internal-revenue system of taxation was inaugurated by an elaborate law passed July 1, 1862, which imposed certain duties, partly ad valorem, partly specific, upon a great variety of manufactured articles. Two years later another act raised the rates of taxation and increased the number of articles made to pay duties.

At the time the first law was passed the depreciation of the currency was not great, and probably the rates of taxation imposed do not differ much from what they would have been upon a specie basis. But without any modification of the terms of the law, the progressive rise of prices must have caused an increase of the revenue from ad valorem duties, and from taxes on gross receipts and upon incomes. Receipts from specific duties, licenses, etc., however, probably did not increase except as changes were made in the law or in its administration.

The table shows the increase of receipts to be roughly $174,000,000.

III. THE GREENBACKS AND INDIRECT COSTS

It is probable that not a little of the lavishness with which public funds were appropriated by Congress during the war can be traced to the paper-money policy. At least such was the opinion of a man so well placed to observe the operations of the treasury as Hugh McCulloch. In his report of 1867 he said: "As long as notes could be issued and bonds could be sold at a premium or at par, for what the statute made money, there was a constant temptation to liberal, if not unnecessary, expenditures. Had the specie standard been maintained and bonds been sold at a discount for real money, there would have been an economy in all branches of the public service which unfortunately was not witnessed."

If the paper currency tempted the government to reckless expenditures, it also predisposed the people to submit more willingly to heavy taxation. The advance of money wages and of money prices made most people feel wealthier, and, feeling wealthier, they were less inclined to grumble over the taxes. But while the feeling of prosperity may have been instrumental in procuring a cheerful acceptance of war taxes, it is very doubtful whether the net effect of the paper-money system was favorable to revenue.

IV. THE GREENBACKS AND THE PUBLIC DEBT

The resort to a legal-tender paper currency, one may argue, is a confession of acute financial distress and as such must depress the market