CHAPTER VI.

HISTORY OF THE PAPER MONEY ISSUED DURING

THE REBELLION.

MONEY, as has been fully explained, is an important element in the production and distribution of wealth in all its forms. Without it production is slow and laborious, and the distribution of the products of industry difficult and expensive. Hence the necessity of an abundance of money based on sound principles-that is money that is free to obey the natural laws of trade, and not subject to the control of private corporations, as is the case with bank currency— to fill the channels of circulation. With a sound currency in circulation the production and accumulation of wealth would go on gradually and steadily, and commercial crashes and money panics would be unknown. Individuals would succeed or fail, as now, but it would be through natural That a people can carry on commercial operations of great magnitude for centuries, by means of an enlightened system of money, without being visited once by such crises and convulsions as have marked the history of Great Britain and the United States, since the adoption of the specie basis (banks of issue) system of money, is fully demonstrated by the history of the Venetians,* and the experience of other European nations in more recent times. The weakness of the specie basis system has been most signally illustrated, however, in times of war, when great activity in both production and distribution became absolutely imperative. In the war with France, from 1793 to 1815, Great Britain was obliged to abandon a medium of exchange based on

causes.

*See Chapter IV.

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HISTORY OF THE PAPER MONEY

specie altogether. By means of irredeemable paper money she was enabled to carry on successfully one of the most tremendous wars of modern times, and at its close the people of Great Britain were, individually and collectively, prosperous. Ignoring the teachings of experience she waded back through individual bankruptcy and ruin to the old system, and has had her commercial crashes and money panics since with the same regularity as before. If paper money is found to be so invaluable in the production and distribution of the products of industry, under the most disadvantagous circumstances, in time of war, what is to hinder it from being equally invaluable in time of peace, when no uncertainty in regard to its ability to represent value can attend its use? That the use of paper money during war is a matter of compulsion, is the merest sophistry. During the Revolutionary war, when Continental money, which can hardly be said to have been based on anything,. began to grow worthless, Congress declared that those who refused to take it should be regarded as public enemies. The public smiled, and barbers papered their shops with it.* Paper money, however, undoubtedly becomes an acknowl edged necessity during war especially in countries whose medium of exchange belongs to the specie basis system. In Great Britain business affairs in times of peace have to be conducted almost entirely, as we have seen, by means of devices of the credit system, on account of the limited amount of money in circulation, and when an emergency arises, requiring great rapidity of production and distribution, both government and people find themselves without any adequate means to accomplish the ends desired.

When the Rebellion broke out in 1861, the people of the United States were in the enjoyment of unusual prosperity. *Sumner's History of American Currency. †See page 47.

ISSUED DURING THE REBELLION.

163

The crops had been more than ordinarily good, and the country generally was rapidly recovering from the crash of 1857. The cotton crop of 1860 had reached the enormous amount of 5,387,052 bales (of 400 lbs. each.)

The state of the banks and the currency from 1857 to 1863 was as follows:

1861-202,000,000 1862 183,700,000 1863- 238,600,000

393,600,000 648,600,000 101,200,000 Preparations for war were begun by the Federal Government on a scale of great magnitude, with an empty Treasury. The real and personal property of the country, according to the census report of 1860, amounted to $16,159,616,068, or, leaving out the States in rebellion, to $10,957,450,961. The people of the States which sustained the Federal Government possessed ample resources and were inspired by a sincere feeling of patriotism. The only question, therefore, was as to the means by which the resources of the people could be rendered available to the government. It could of course be done only through the instrumentality of a médium of exchange. Taxation was impracticable at the outset, because the government did not possess the ́ machinery for laying and collecting taxes, and funds were required at once; and besides the amount of money in circulation was insignificant as compared with the wants of the government. There was manifestly but one of two courses to pursue. Either to adopt the machinery of the banks and through them exchange the credit of the government for the products of industry, or deal directly with the

*

*Read in this connection page 62, also pages 70, 71, 72 and 73.

people by issuing legal tender Treasury notes, based on and representing the wealth of the country and redeemable in the revenues of the government. Neither course, however, was pursued, or rather the Secretary of the Treasury attempted to use both plans in part, and with the most wretched results.

THE FIRST LOAN ACTS.

During the extra session of Congress in July and August, 1861, two important loan acts were passed, which are deserving of special notice, one approved July 17th and the other August 5th. By the act of July 17th the Secretary of the Treasury was authorized to borrow $250,000,000, for which he was authorized to issue coupon bonds or registered bonds or Treasury notes in such proportions of each as he might deem advisable. The bonds were to bear interest not exceeding seven per cent. per annum, payable semi-annually, and to run for twenty years, when they would be redeemable at the pleasure of the United States; and the Treasury notes were to be issued in denominations of not less than $50, payable three years after date, with interest at 7 3-10 per cent., payable semi-annually, and exchangeable at any time for twenty years six per cent. bonds. Or, at his option, the Secretary of the Treasury might issue $50,000,000 of the above loan in Treasury notes, payable on demand, in denominations of not less than ten dollars each, without interest, and made payable for salaries and other dues from the United States Treasury (afterwards known as old demand notes); or he might issue Treasury notes, payable in one year from date, bearing interest at 3 65-100 per cent. per annum, exchangeable at any time in sums of $100, or upwards, for three year Treasury notes bearing 7 3-10 interest. By the act of August 5th, which was supplementary to the act of July 17th, the Secretary of the Treasury was authorized

to issue bonds bearing interest at six per cent. per annum, payable after twenty years from date, which, in denominations not less than $500, might be exchanged for Treasury notes bearing 7,3-10 per cent. interest. The act of July 17th, fixing the denomination of the Treasury notes without interest (demand notes) at not less than ten dollars was modified so as to fix the limit at not less than five dollars, and these notes (demand notes) were made receivable in payment of public dues. By the sixth section of this act the Sub-Treasury act of 1846 was "suspended so far as to allow the Secretary of the Treasury to deposit any of the moneys obtained on any of the loans now authorized by law, to the credit of the Treasurer of the United States, in such solvent specie paying banks as he may select.' By an act of Congress approved February 12, 1862, the Secretary of the Treasury was authorized to issue $10,000,000 of Treasury notes, payable on demand, not bearing interest, in addition to the $50,000,000 of like notes authorized by acts of July 17th and August 5th, 1861, which should be deemed part of the loan of $250,000,000 authorized by said

acts.

And by the act of March 17, 1862, it was enacted that these demand notes ($60,000,000 in all) shall, in addition to being receivable in payment of duties on imports, be receivable, and shall be lawful money and a legal tender, in like manner and for the same purposes and to the same extent as the notes (greenbacks) authorized by the act approved February 25, 1862. These demand notes were the only notes issued during the war that were made a full legal tender, that is, receivable for all public dues (including duties on imports) and a tender for private debts. After they were made a full legal tender they circulated at par and went up with gold to a premium of $2.85, or in other words it cost $2.85 in greenbacks to buy a dollar in gold or demand notes.