which they had contracted to receive. And by thus encouraging the debtor to defraud his creditor, urged Senator Fessenden, the bill would lower the moral standards of the people. To these charges, also, the promoters of the bill had little to say.

Upon the fiscal aspect of the bill the case of the opposition was hardly less clear. First, they declared, the resort to an irredeemable paper currency was a practical confession of bankruptcy, and would therefore injure the credit of the government, and make less favorable the conditions on which it could borrow. "We . . . . go out to the country," said Fessenden, "with the declaration that we are unable to pay or borrow at the present time, and such a confession is not likely to increase our credit." Second, it was pointed out that the depreciation of the currency would cause the prices of everything which the government had to buy to rise, and thus would vastly increase the cost of the war. As Senator Cowan put it, the government "might as well lose 25 per cent on the sale of her bonds, as to be obliged, in avoiding it, to pay 25 per cent more for everything she buys."

This discussion of the legal-tender paper currency produced in Congress the feeling that under ordinary circumstances such a proposal would be indefensible. The vigor with which the opposition had presented the case against the bill made a deep impression. On the other hand, the reasoning by which the supporters of the bill had sought to establish the constitutional power of Congress to make treasury notes a legal tender was felt to be inconclusive. The force of the telling argument from experience had not been broken; the probability of depreciation had not been disproved; no adequate reply had been found to the indictment of the bill on moral grounds; and, finally, it had not been denied that resort to paper issues would injure the credit of the government and increase the cost of the war. So generally was the objectionable character of the measure realized hat Senator Fessenden could say: "All the opinions that I have heard expressed agree in this: that only with extreme reluctance, only with fear and trembling as to the consequences, can we have recourse to a measure like this of making our paper a legal tender in payment of debts."

And yet an argument was found that overcame the "extreme reluctance" of a majority of the members and induced them to vote for the bill. This argument was the plea of absolute necessity. It was to necessity that Mr. Spaulding had appealed in justification of his first draft of the legal-tender bill. In opening the debate in Congress

he repeated the argument with emphasis. "The bill before us,' he said, "is a war measure, a measure of necessity and not of choice, presented . . . . to meet the most pressing demands upon the Treasury." The cry of necessity was taken up by the other supporters of the bill, who relied upon it to meet all the objections urged by the opposition.

That the assertion of necessity might carry the added force of official sanction, Secretary Chase was induced to send a note to the chairman of the Committee on Ways and Means to be read to the House. He wrote: "I have felt, nor do I wish to conceal that I now feel, a great aversion to making anything but coin a legal tender in payment of debts. It has been my anxious wish to avoid the necessity of such legislation. It is, however, at present impossible, in consequence of the large expenditures entailed by the war, and the suspension of the banks, to procure sufficient coin for disbursements, and it has therefore become indispensably necessary that we should resort to the issue of United States notes."

This letter made the bill an "administration measure," and so was an important factor in its success.

In replying to the plea of necessity, the opposition candidly admitted it would be better to issue a forced currency than to stop payment, provided there were no alternative. "If the necessity exists," said Senator Fessenden, "I have no hesitation upon the subject and shall have none. If there is nothing left for us to do but that, and that will effect the object, I am perfectly willing to do that." But that such was the case was emphatically denied. "It has been asserted. . . . with the utmost apparent sincerity," said Mr. Horton, "that this is a measure not of choice, but of necessity. But Mr. Chairman, that assertion is only reiterated, not proved. the proof that this is a matter of necessity? There may be proofs abundant, but they have not been produced."

Where is

Not only did the opposition deny the necessity, but they were ready also with suggestions of other means of securing the needed funds. One suggestion was adequate war taxation. "Not a dollar of tax has been raised," said Mr. Thomas, "and yet we are talking of national bankruptcy, and launching upon a paper currency. I may be very dull, but I cannot see the necessity, or the wisdom, of such a course." It was by this time generally acknowledged that the omission to impose heavy taxes at the extra session of July, 1861, was a serious blunder which Congress should repair as soon as possible.

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 8o. 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 WAR1 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

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