The American Annual Cyclopaedia and Register of Important Events of the Year, 1861-1865, vols. 1-5. New York: Appleton & Co., 1868.

Finances of the United States, 1862

FINANCES OF THE UNITED STATES. 1862 The national finances at the close of 1861 wore in a very unsatisfactory condition. With large and increasing expenditures forced by circumstances upon the Government, the revenue had declined to a nominal amount, and the public credit, as marked by the prices of the stock exchange, was rapidly sinking. Distrust had seized upon the public mind, and the banks suspended specie payments on the last day of the year amid fears cf a foreign war, which would largely increase the expenses of the Government. In this position the Secretary was compelled to come before Congress for loans of a magnitude very much in excess of those required at any former period. The misfortune had been that the war was from its inception regarded as of short duration. It was repeatedly urged at home and abroad that 60 or 90 days would finish it, and although its magnitude constantly increased and greater efforts in men and money were required, both were raised as temporary expedients. The public at first freely loaned its capital, but a very large proportion of what was then advanced was soon wasted while Congress refused to assume any responsibility in voting taxes. The first three months of the war had been conducted on voluntary offers from the people, and in the last six months of the year there were continued efforts to borrow. Congress had authorized loans of $250,000,000. Of this amount $100,000,000 had been borrowed in 3 year bonds at 7 3/10  interest; $50,000,000 in stocks 20 years to run at 6 ½ ; $50,000,000 in notes payable on demand to be used as a currency. From all these loans the Secretary had realized $185,817,803, and there remained for the service of the six months that would close the fiscal year July 30. 1862, $16,000,000 of demand notes. $50,000,000 of 3 year bonds, 7 3/10, interest, and $25,705,871 yet undrawn of the $50,000,000 not taken by the banks. These sums gave $91,000,000 authorized, yet to be raised, to meet expenses estimated Page 453 at $300,166,565.35 for the six months. If the 91 millions authorized should be obtained, there would remain a further sum of over 200 millions to be raised in six months, and the mode of doing this required to be promptly decided on, since the expenditure progressed at the rate of 1 ¼  millions per day, with large arrearages to troops and contractors, which were pressing upon the Treasury with increasing severity. There were evidently but two ways in which the money could properly be raised. These were to borrow of those who had the capital to lend at the market rate, whatever that might be, and to levy promptly such taxes as would place the repayment of the loans beyond all manner of doubt. Unfortunately the Secretary and the committees of Congress entertained the idea that paper promises were capital, and that for the Treasury to borrow, it was first necessary to supply the paper to be borrowed, in the form of money. The Secretary said that he could not borrow in coin at better than 80 per cent., and would be required to pay nearly as much for bank notes, but that he could get better terms if Congress "furnished the currency." This idea, that it is the quantity of paper money afloat which determines how much capital the Government can borrow, seems entirely to have engrossed the mind of the Secretary and the views of the committees. He reproduces it on every occasion and in different forms. Thus—

The Government can resort to borrowing only when the issue of notes has become sufficiently large to warrant a just expectation that loans of the notes can be had from those who hold or can obtain them at rates not less advantageous than those of coin loans before suspension.  

The extension of the United States note circulation, until sufficient in amount to enable the Secretary to obtain it from holders by way of loans, was equally inevitable.  *     *     *     *     *

Wherever the volume of notes roaches a point where a loan can be effected at rates fair to the country and desirable to takers, loans will, of course, be made, and ample opportunities for conversion offered.

This idea seems to have influenced the entire financial scheme of the Secretary. The fact that it is not paper promises that the Government seeks to borrow, but capital, is overlooked. The circulating medium, by the agency of which capital changes hands, is apparently confounded with capital itself. This is to suppose that if a limited amount of surplus capital exists in the country, that capital may be increased by the issues of paper money, and therefore a large issue of paper must proceed the negotiation of a loan. When business and production were interrupted by the war, a large amount of capital thrown out of its usual employments was comparatively idle, and this sought temporary investment with the Government. The amount that could be so applied soon reached its limit. Long loans were not desirable, and for a reason similar to that which induced the Government to make short loans at the beginning of the war, namely, that peace might come in " 60 or 90 days," when the capital would be wanted for the usual occupations of commerce and industry. The Secretary therefore encountered an indisposition to take long loans, while the temporary capital was absorbed. He then supposed that he could increase the available capital by paper issues, and to make those issues float he decided upon a measure of doubtful constitutionality, in making them a legal tender. A bill to this effect encountered great opposition in Congress. The first effect of paper money is doubtless to canso an apparent increase of means; since, as in the present case, the possessors of capital had already parted with it to the Government, and now received pay in paper promises which they wished to employ temporarily. The circulation of the paper soon caused a rise in prices of all commodities, and that in proportion to its abundance, for the reason that all parties wished to avail themselves of the rise that they foresaw. With this rise more paper is required for the transaction of business. Hence, no matter how much may be issued, there will be no greater supply for the wants of the Government. The only capital which can be loaned to the Government, is derived from the profits of industry and commerce. When these profits are absorbed, the power to borrow ceases, no matter how much paper may be floating. Hence the idea that paper money will, when abundant, be readily converted into long stock is a fallacy. If, as measured in paper, a manufacturer pets for 10,000 yards of cloth, double price or $20,000, he receives double the usual amount of money; but as he must pay in the same proportion for wool, labor, and other supplies, he can spare none of it for investment. He may indeed have suffered loss in the transaction. In this manner business absorbs inconvertible paper as fast as it is put out, and the Secretary was surprised to find, after he had issued $250,000,000 of paper money, that the notes were more difficult to borrow than ever.

While the legal tender bill was before Congress, the Secretary had continued to draw from the banks the instalments duo on the $50,000,000 of that taken Dee. 1, and on February 5 the last instalment, $3,500,000, of the loan was paid up in the demand notes. The bank.", having suspended, and gold no longer in circulation, the Government had also suspended on those notes. The 19th of February was at hand, when $1,87Q,000 interest was duo in gold on the $50,000,000 of 1ff notes that had been negotiated August 10.

The Secretary of the Treasury issued the annexed notice:

                TREASURY DEPARTMENT, February 4,1802.

Holders of bonds of the United States, dated August 19,1861, and payable three years from date, are hereby notified that provision is made for the payment of the coupons of semiannual interest, which becomes due on the 19th inst., in coin, agreeable to their tenor, by the Treasurer of the United States at Washington, or by cither of the Assistant Treasurers at New York, Boston, and Philadelphia.

All such coupons, together with schedules, showing the number and amount of each coupon and the aggregate sum of each parcel, must be presented for Page 454 examination and verification at least three full business days before payment.

S. P. CHASE. Secretary of the Treasury.

The bonds were 1 per cent, discount for bank money, which still continued to be the currency, although it was depreciated 2 per cent, as compared with gold. A portion of the last instalment paid in by the banks on the stock was appropriated to the payment of the interest.

The currency was now in a peculiar position. The banks had ceased to pay specie, and the channels of circulation were filled with Government notes that the banks declined to receive on deposit, for the reason that they accumulated with them to an embarrassing Extent. The notes were indeed receivable for customs, but the amounts required for that purpose were small, and if they accumulated with the banks it was the same as a loan to the Government without interest, and as the banks had already $100,000,000 of Government stock it became burdensome. In this position of affairs the following notice was issued by the department:

          OFFICE OF THE ASSISTANT TREASURER OF THE 

            UNITED STATES, NEW YORK, February 8,1862.

The undersigned is authorized by the Secretary of the Treasury to receive on deposit United States notes as a temporary loan, for which interest at the rate of five (5) per cent. per annum will be paid, together with the principal, in like currency, on demand after ten days notice.

            JOHN J. CISCO, Ass't Treas'r U. S.

The following is a copy of the certificate which the Assistant Treasurer issued to depositors:

OFFICE OF THE ASSISTANT TREASURER OF THE

UNITED STATES, NEW YORK, , 186 .

I certify that this day deposited to the credit of the Treasurer of the United States dollars, in United States notes, as a temporary loan, for which interest at the rate of five per cent, per annum will be paid, together with the principal, in like currency, on demand after ten days' notice, for which I have signed duplicated receipts.  Ass't Trea'r.

The effect of this was to induce the banks to receive the notes from the public on deposit, and to place them to a certain extent with the Government for these certificates, which certificates wore subsequently used for the settlement of balances at the bank clearing house. the deposits then made by the banks supplied some of the pressing wants of the Treasury. The money so received on being paid out to the contractors and other creditors, was by them redeposited in bank or used in the discharge of loans previously made. Thus the notes moved in a circle between the Treasury and the banks. The institutions, however, objected to allowing the public to make deposits with the Treasury on the ground that it would cause a withdrawal of deposits from the banks, when they were earning nothing, to the Treasury. This objection was, however, overruled, and deposits were received from the public at 4 per cent. Meanwhile the hesitation of Congress to pass the bill authorizing a new issue of notes, and making them a legal tender, had induced action on the part of public bodies to urge its passage. The Chamber of Commerce, under the influence of the Secretary of Treasury, February 8, passed resolutions, with very few dissentient voices, indorsing the legal tender clause of the currency bill, and urging immediate action. Some action was indeed imperatively necessary. The public creditors were clamorous and in great distress. In addition to creditors for small amounts, who were embarrassed by the exhaustion of the Treasury, one firm claimed two million one hundred thousand dollars for clothing, cloths, &c. Another five hundred thousand dollars for tent duck, and still others to almost an equal extent. There were, nevertheless, great difficulties to contend with. A great number of the members were unprepared to enter upon the perilous course of paper money, which was essentially revolutionary. A resolution to strike out a clause making notes a legal tender was. however, on the 8th of February defeated, 93 to 53. While this bill was pending Congress, on the 12th of February, authorized an additional issue of $10,000,000 of notes similar to the $50,000,000 authorized by the act of August. This amount, with the sums received on deposits, and the 3 year 7 3/10  bonds, which were paid out to creditors, although selling at 1 per cent, discount, enabled the Secretary to meet the most pressing demands upon the Treasury until the 25th of February, when, the currency bill finally passed in the following shape:

An Act to authorize the issue of United States notes and for the redemption or funding thereof', and for funding the floating debt of the United States.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, that the Secretary of the Treasury is hereby authorized to issue on the credit of the United States one hundred and fifty millions of dollars of the United States notes, not bearing interest, payable to bearer, at the Treasury of the United States, and of such denominations as he may deem expedient, not less than five dollars each.

Provided, however, that fifty millions of said notes shall be in lieu of the Demand Treasury Notes authorized to be issued by the act of July 17,1861, which said Demand Notes shall be taken up as rapidly as practicable, and the notes herein provided for substituted for them: and provided further, that the amount of the two thirds of notes together shall at no time exceed the sum of one hundred and fifty million dollars: and such notes herein authorized, shall be receivable in payment of nil taxes, internal duties, excises, debts, except duties on imports, and demands of every kind due to the United States, and of all claims and demands against the United States of every kind whatsoever, except for interest upon bonds and notes, which shall be paid in coin, and shall also be lawful money and a legal tender in payment of all debts, public and private within the United States, except duties on imports and interest as aforesaid; and any holders of said United States Notes depositing any sum not less than fifty dollars, or some multiple of fifty dollars, with the Treasurer of the United States or either of the Assistant Treasurers, shall receive in exchange therefor duplicate certificates of deposit, one of which may be transmitted to the Secretary Page 455 of the Treasury, who shall thereupon issue to the holders an equal amount of bonds of the United States, coupons or registered, as may by said holders be desired, bearing interest at the rate of six per centum per annum, payable semiannually, and redeemable at the pleasure of the United States after five years, and payable twenty years from the date thereof; and such United States Notes shall be received the same as coin at their par value, in payment of any loans that may be hereafter sold or negotiated by the Secretary of the Treasury, and may be reissued from time to time as the exigency of the public interests may require.

SEC. 2. And be it further enacted, That to enable the Secretary of the Treasury to fund the treasury notes and the floating debt of the United States, he is hereby authorized to issue on the credit of the United States, coupon bonds or registered bonds, to an amount not exceeding $500,000,000, and redeemable at the pleasure of the United States after five years, and payable twenty years from date, and bearing interest at the rate of six per centum per annum, payable semiannually. And the bonds herein authorized shall be of such denominations, not less than $50, as may be determined upon by the Secretary of the Treasury. And the Secretary of the Treasury may dispose of such bonds nt any time, at the market value thereof, for (lawful money} the coin of the United States, or for any of the treasury notes that have been, or may hereafter be, issued under any former act of Congress, or for the United States notes that may be issued under the provisions of this act; and all stocks, bonds, and other securities of the United States held by individuals, corporations, or associations within the United States, shall be exempt from taxation by order or under State authority.

SEC. 3. And it further en-acted, That the United States notes and the coupon or registered bonds authorized by this act shall be in such form as the Secretary of the Treasury shall direct, and shall bear the written or engraved signatures of the Treasurer of the United States and the Register of the Treasury, and also, as evidence of lawful issue, the imprint of a copy of the seal of the Treasury Department, which imprint shall be made under the direction of the Secretary, after the said notes or bonds shall be received from the engravers, and before they issue; or the said notes and bonds shall be signed by the Treasurer of the United States, or for the Treasurer by such persons as may be specially appointed by the Secretary of the Treasury for that purpose, and shall be countersigned by the Register of the Treasury, or for the Register, by such persons as the Secretary of the Treasury may specially appoint for that purpose; and all the provisions of the act entitled " An act to authorize the issue of treasury notes," approved the 23d day of Dec, 1857, so far as they can be applied to this act, and not inconsistent therewith, are hereby revived and reenacted; and the Bum of $300,000 is hereby appropriated, out of any money in the Treasury not otherwise appropriated, to enable the Secretary of the Treasury to carry this act into effect.

SEC. 4. And be it further enacted, That the Secretary of the Treasury may receive from any person or persons, or any corporation, United States notes on deposit for not less than thirty days, in sums of not less than one hundred dollars, with any of the assistant treasurers or designated depositaries of the United States authorized by the Secretary of the Treasury to receive them, who shall issue therefor certificates of deposit, made in such form as the Secretary of the Treasury shall prescribe, and said certificates of deposit shall bear interest at the rate of five per centum per annum; and any amount of United States notes so deposited may be withdrawn from deposit at any time after ten days' notice on the return of said certificates: Provided, that the interest on all such deposits shall cease and determine at the pleasure of the Secretary of the Treasury j nod provided further, that the aggregate of such deposits shall at no time exceed the amount of twenty-five million dollars.

SEC. 5. And be it further enacted, That all duties on imported goods which shall be paid in coin, or in notes payable, or in demand notes, heretofore authorized to be received and by law receivable in payment of public dues, and the coin so paid shall be set apart as a special fund, and applied as follows;

First. To the payment in coin of the interest on the bonds and notes of the United States. .

Second. To the purchase or payment of one per centum of the entire debt of the United States, to be made within each fiscal year after the first day of July, 1862, which is to be set apart as a sinking fund; and the interest of which shall in like manner be applied to the purchase or payment of the public debt as the Secretary of the Treasury shall, from time to time, direct.

Third. The residue thereof to be paid into the Treasury of the United States.

This very important law produced an entire change in the currency. It provided for 150 millions of legal tender paper money, which was available for all purposes of currency except custom duties and interest on stock, both of which were to be paid in coin. The outstanding $60,000,000 of demand notes, by the acts of August and February 12th, were receivable for customs. Hence gold could not be realized for duties until those notes should be absorbed. They were by the law endowed with a specific specie value, since they were alone a substitute for specie at the custom house. The new issues of demand notes being a legal tender, at once took the place of gold as a means of redemption for bank notes, and thus relieved the banks from the dilemma in which under the State laws they had been placed by the act of suspension. When compelled to forego specie payments they contracted their obligations, and made efforts to place themselves in a position speedily to resume. The contraction of the currency thus brought about added to the difficulties of the moment. As soon, however, as a flood of Government paper was authorized as a tender in lieu of specie, the banks renewed their expansive movement, and began to increase their circulation. The 60 millions of old notes which they had at first refused to receive at all, and then tolerated when they could be deposited with the Government, now became in active demand.

The banks would no longer deposit them with the Treasury without a stipulation that, they should receive back the same kind of notes, and as some time must necessarily elapse before the new notes could be got ready, this stipulation was agreed to. When the banks suspended and specie rose to a premium, it immediately ceased to circulate, and began to disappear altogether. This fact caused great inconvenience, since, there being no Government notes less than $5, and the banks not disposed to increase their issues, the want of small circulation was urgently felt. As soon, however, as, by the law of February 25th, the banks were allowed to redeem their circulation in the Government notes, they began eagerly to supply small currency.

The wants of the Treasury for the moment continued very pressing, notwithstanding the large supplies granted by the law of February 25th, because some weeks must elapse before adequate Page 456 amounts could be prepared by the engravers. The current expenses were one million two hundred and fifty thousand dollars per day, partly met by the receipts on deposit; but there were also large arrearages, amounting to $50,000,000 and more, due to creditors, who were pressing for pay. These persons had constituted a class of urgent borrowers in the market, and as capitalists hesitated to lend freely on simply approved claims, the public creditors were compelled to submit to heavy loss to realize money. To relievo theso classes, Congress, at the request of the Secretary, passed March 1st the following law:

An Act to authorize certificates of indebtedness to the public creditors.

Be it enacted, &c., That the Secretary of the Treasury be and he is hereby authorized to cause to be issued to any further creditor who may he desirous to receive the same, upon requisition of the head of the proper department, in satisfaction of audited and settled demands against the United States, certificates for the whole amount due, or parts thereof, not less than one thousand dollars, signed by the Treasurer of the United States, and countersigned as may be directed by the Secretary of the Treasury, which certificates shall be payable in one year from date, or earlier, at the option of the Government, and shall bear interest at the rate of six per centum.

This important measure gave the Secretary unlimited authority to borrow on twelve months. This is the first instance where the Secretary of the Treasury was allowed to use the credit of the Government without limit. It operated in fact, as far as the certificates were accepted by the creditors, as an extension of twelve months on the floating debt of the Government, and bridged over the period required for the negotiation of the 6 per cent, bonds authorized by the act. Any creditor of the Government, whoso claim had been approved, could now at once obtain a (1 percent, interest bearing obligation of the Government, which he could sell or use as first-class collateral for loans.

The following rules and regulations were issued by the Secretary of the Treasury:

Congress having authorized the issue of certificates of indebtedness by the Secretary of the Treasury, in payment of audited and settled demands against the Government, as well as in payment of checks, drafts drawn by disbursing officers upon amounts placed to their credit with the Treasurer of the United States, in favor of creditors who have furnished supplies, &c, and who are willing to receive such certificates in satisfaction of their demands, the following regulations are presented, and will be strictly observed in the execution of the act:

The certificates of indebtedness will be payable to the claimant or creditor of the Government, or his order, and in the denominations of $1,000 and $5,000. Certificates of the larger denominations will be issued in all cases where the nature of the claim will admit of it. A book will be opened by the Treasurer of the United States, in which shall be kept a record of each certificate issued under authority of the act; the name of the person to whom issued; the date, number, and amount thereof; on what account; if on Treasury warrant, the number thereof, and if on draft or check of a disbursing officer, the name of the officer by whom drawn, the date and amount of such check or draft, &c. The certificates shall be signed by the Treasurer, and countersigned by the Register of the Treasury, who shall also keep a complete record of said certificates, as required of the Treasurer. If issued upon a warrant, they will bear even date therewith; or if to a disbursing officer, then with the date of the presentation of his deed or draft on the Treasurer of the United States. When the Secretary of War or Navy may desire to leave a credit on the books of the Treasury in favor of a disbursing officer of his Department, he will draw his requisition on the Secretary of the Treasury in the usual form for the amount desired to be placed to the credit of such disbursing officer, and specify the appropriation properly chargeable. Upon such requisition being received at the Treasury Department, a warrant will issue to the Treasurer, and he will accordingly place the amounts to the credit of the disbursing officers named, who will then be authorized to draw checks or drafts thereon, to the amount of such requisition, in favor of such creditors entitled to payment by him as may desire to receive such certificates in satisfaction of their respective demands. The checks or drafts of disbursing officers will be in the following form:

$______                                                                              ____ 1862.

The Treasurer of the United States will pay to or order, on certificates of indebtedness dollars, being amount due for , as will appear by bill and receipt therefor, in my possession, and which will be rendered as a voucher in my accounts for the quarter of this year.

(Signed)

To F. E. Spinner, Treasurer of the United States.

As the certificates of indebtedness arc only to be issued in payment of creditors, and for amounts liquidated and actually due them, the disbursing officer, before drawing his check or draft on the Treasurer, will take the same voucher from the creditor, and will, in all respects, be subject to the same responsibilities as if making payment in coin or United States notes. The requisition in favor of the officer will be charged on the books of the accounting officer as other requisitions, and vouchers will go into the general accounts of the disbursing officer, und be settled with his other accounts.

The issue of these certificates gave great relief by causing capital to circulate more freely, and the department was less dependent on the money received from deposits to meet current expenses, as those deposits were made in demand notes, which were receivable for duties, and which it was important to get up as soon as possible, in order that the Government might be in receipt of gold through the custom house, and thus be enabled to pay the interest on the Government stock without purchasing gold. The department therefore ordered as follows:

OFFICE OF THE ASSISTANT TREASURER OF THE

UNITED STATES, NEW YORK, March 14, l862.

Under instructions from the Secretory of the Treasury, I hereby give notice that all certificates bearing five (5) per cent, interest, hereafter issued for deposits of United States notes, will be payable in whatever notes may have been made a legal tender by act of Congress, and may be, nt the time when repayment shall be called for, paid out usually to public creditors.

                        JOHN J. CISCO, Assistant Treasurer U. S.

The effect of the notice was to check the temporary deposit of demand notes for 5 per cent certificates.

It was now apparent that although the law of February 25th had intended to make the first issue of $00,000,000 a legal tender, like the new

Page 457

one authorized, it had not really done so, and the hanks would not use them as a basis for issues. A new act was therefore necessary, and it was passed March 16th, as follows:

An act supplemental to the Treasury act of March 1, adopted by Congress, and approved by the president on the 16th of March, 1862.

Be it enacted by the Senate and House of Representatives of the United States of America, in Congress assembled. That the Secretary of the Treasury may purchase coin with any of the bonds or notes ot the United States, authorized by law, at such rates and upon such terms as he may deem most advantageous to the public interest; and may issue, under such rules and regulations as he may prescribe, certificates of indebtedness, such as are authorized by an act entitled "An act to authorize the Secretary of the Treasury to issue certificates of indebtedness to public creditors," approved March 1,1862, to such creditors as may desire to receive the same, in discharge of checks drawn by disbursing officers upon sums placed to their credit on the books of the Treasurer, upon requisitions of the proper departments, as well as in discharge of audited and settled accounts, as provided by same act.

SEC. 2. And be it further enacted. That the demand notes authorized by the act of July 17, 1861, and by the act of February 12, 1862, 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 purpose, and to the same extent, as the notes authorized by the act entitled "An act to authorize the issue of United States notes, and for the redemption or funding thereof, and for funding the floating debt of the United States," approved February 25, 1862.

SEC 3. And be it further enacted, That the limitation upon temporary deposits of the United States notes with any Assistant Treasurers or designated depositaries, authorized by the Secretary of the Treasury to receive such deposits, at five per cent, interest, to twenty-five millions of dollars, shall be so far modified as to authorize the Secretary of the Treasury to receive such deposits to an amount not exceeding fifty millions of dollars, and that the rates of interest shall be prescribed by the Secretary of the Treasury, not exceeding the annual rate of five per centum.

SEC. 4. And be it further enacted, That in all cases where the Secretary of the Treasury is authorized by law to reissue notes, he may replace such as are so mutilated or otherwise injured as to be unfit for use, with others of the same character and amount; such mutilated notes, and all others which by law are required to be taken up and not reissued, shall, when so replaced or taken up, be destroyed in such a manner and under such regulations as the Secretary of the Treasury may prescribe.

By this act the Secretary was authorized to purchase coin for the payment of the interest on the public debt. He was also authorized to extend the issue of 1 year certificates to the discharge of checks of disbursing officers, also without limit 83 to amount. The old or "gold notes" as they were called, because they were substitutes for gold at the custom house, were made a legal tender, and the limit of deposits raised to $50,000,000. All these acts placed ample moans apparently at the service of the department. It had 100 millions of notes to issue, an unlimited amount of 1 year certificates; $500,000,000 of 6 per cent, stock; 50,000,000 of deposit certificates, and about 37,000,000 of three year any bonds still on hand to issue. These had indeed been paid out until the price fell to 3 per cent, discount in the market. The certificates of indebtedness were then substituted until they fell to 95 ½ , or 4 1/2  per cent, discount, at which rate they would afford the buyer 10 ½  per cent, interest in gold for money payable in a year. The leading creditors of the Government then declined to take the certificates any longer, and the checks of disbursing officers were sold at 4 ½  per cent, discount. In order to stay this depreciation the Secretary issued a notice that he would pay in cash 20 per cent, of the amount of certificates in the hands of original holders. Thus if a person held $100,000 of certificates, the Secretary would redeem $20,000 in cash. This, by diminishing the amount on the market, caused a little recovery in the price, and they rose to 97 ½ . The 1st of April was now approaching, when the interest, $1,875,000, was due on the $50,000,000 of 3 year bonds issued October 1st. The Government purchased a portion of the requisite specie, concentrated all held at the Government deposits, and effected the payment. On the 24th of March the Treasurer sold $3,000,000 of the 7 3/10 bonds for demand notes at par and interest. The proceeds were sent west for army purposes.

It is now to be observed that in all these movements there had as yet been no expansion of the currency. On the contrary, there had been a contraction. The circulation of the banks of the Northern States had, at the close of 1861, been nearly $140,00,000, and the Government had issued $30,000,000 of demand notes, making $170,000,000 of paper, in addition to the specie in circulation. On the last day of the year the banks suspended specie payments. Gold and silver gradually ceased to circulate, and the banks in the uncertainty which involved the future began to curtail their obligations. This was followed, on the passage of the act authorizing legal tender notes, by the withdrawal of the Government demand notes from circulation. Hence, while the Government was issuing 3 year bonds and 1 year certificates, the circulating medium was greatly contracted, as was proved by the fact that gold, which was 5 per cent, premium January 1st, was 1 ¼  to 1 ½  per cent. April 1st, when the new local tender notes were ready for circulation. the Government finances had at the same time received support from the success of the Western armies, which had apparently broken the strength of the Confederates and given rise to hopes of peace. This circumstance, together with the prospect of the passage of some adequate tax law, had caused a recovery in the prices of some descriptions of stocks. The banks held, when they suspended, at the close of December, over seventy millions of Government securities, mostly 6 per cent, and 3 year 7 3/10  per cent, treasury bonds. They had taken the former at a rate equal to 89.32, and the latter at par. January 1st, the former were at 88, and the latter at 2 to 3 per cent, discount, and gold at 5 per cent, premium. In other words, the stock for which the banks had paid Page 458 89.32 in gold was worth only 86 in gold. Gradually the price rose to 94 for stock and par for the bonds, while gold, after rising to 5 per cent, premium, fell back to 1 ¼  and 1 ½ . Hence the banks could make a profit by selling their stock for gold, and they could discount paper by paying out the 3 year bonds to be sold by the borrower. The securities disposed of by the banks were, to some extent, purchased by the public. The Government which had obtained such large supplies of capital from the public in various shapes, ships, steamboats, clothing, food, munition, &c, was now ready to pay out the paper for them, and the payments took place as fast as the printers could deliver the money. The paper so poured upon the market began at once to inflate the currency. The creditors who received it discharged their debts with it, and it accumulated with the banks, which freely offered to loan it, at lower rates of interest. The Treasury was the reservoir that received it from the public at 5 per cent, interest, and this fact made 5 per cent, the minimum price of money, since no one would take less than he could get from the Government. The legal limit of $50,000,000 was thus rapidly filling up, and on the 2Gth of April the Secretary ordered the rate of interest to be' reduced to 4 per cent., except for banks, which were still allowed C per cent, interest. The limit of $50,000,000 was completed by the close of April, and the Assistant Treasurer determined on paying off all 5 per cent, deposit certificates, and allowing only 4 per cent, for new deposits. He refrained from this, however, and only received deposits at 4 per cent, as the old ones were voluntarily withdrawn.

The issues of these various descriptions of government paper continued, and at the close of May an official report of the public debt was made by the Secretary, showing the following results ns compared with December 1st:

UNITED STATES DEBT.

[…].

Thus in six months the debt had been actually increased $220,628,366.50, and there had in addition been converted $19,082,000 treasury notes into paper payable on demand. The whole amount raised was in demand loans, of which $117,000,000 was in paper money, $47,000,000 in one year certificates, and nearly $51,000,000, in deposits. The appeal of the Secretary for conversion into the 5-20 bonds had been productive of only $2,099,400. It might therefore be said that there were during that period absolutely no loans of capital to the Government. The 3 year bonds had been paid out to creditors, with the exception of the $3,000,000 negotiated at par at the close of March. The Secretary had extended the note circulation by $57,000,000, and the amount outstanding was now equal to the whole circulation of the banks. The whole paper currency had therefore been doubled, but there was no manifestation of any desire on the part of the public to convert notes into stock. "It is true that the old notes making one half the amount of Government notes outstanding were withdrawn from circulation, and held for the use of importers in their payments to the custom house, at continually rising prices, marked by the depreciation of the Government currency, which was now 7 1/9  per cent, discount for gold. The point of " extended circulation" which the Secretary supposed would bring with it "increased facilities to contract loans," was not yet reached. The public did not take the 5-20 stock. The Secretary ascribed the failure of the loan to the terms of the law, which make the bonds convertible at par, and permit the Secretary to sell them at the market value. He objected to the first provision that while the bonds were convertible at par to all the world, the brokers and speculators, who might otherwise "take considerable amounts," could make no profit, since the price could not rise above par, when everybody had a right to take them at par from the Treasury. The provision to sell only at "market value " was objectionable in his view for the same reason, since it gave no advantage to large operators. He therefore desired the repeal of those provisions, and the granting of a "discretionary power" to the Secretary in the making of these loans. Meantime he was again destitute of resources. The deposits and 1 year certificates did not suffice to meet current expenditures, and he again appealed to Congress for an issue of paper money.

The approach of the month of July, when more than $4,000,000 of specie were due the holders of United States stocks for interest, rendered some effort necessary to obtain it without coming into the market as a purchaser, as that would act upon the premium on gold in the market; an exchange was made of 3 year 7 3/10  bonds for the gold, both gold and bonds bearing the same price in the market. This operation was the same as compounding the interest at 7.30 per cent.

A considerable portion of the $50,000,000 deposits on hand, and for which 5 per cent, certificates were outstanding, was payable in the old issue of demand notes, which bore a premium in the market proportionate to that of gold, for which they were substitutes at the custom house. Thus there were two kinds of certificates out: one payable in legal tender notes not receivable for customs, and one payable in the old or " gold notes." On the 5th of May the Sub-Treasurer issued the annexed circular:

UNITED STATES TREASURY, NEW YORK, May 5,1S62.

Under instructions from the Secretary of the Treasury, I hereby (jive notice to all holders of certificates of deposit bearing interest, issued prior to the 14th day of March ultimo, and payable in " United States notes issued under acts prior to February 25, 1862," that they are required to present such certificates within ten days from the date hereof for payment of principal and interest, or for exchange for certificates payable in "lawful money of the United. States." Any such certificates not so presented, will, after said ten days, be payable in such lawful money as the Government may be usually paving out to the public creditors.

JOHN J. CISCO, Assist. Treas. United States.

This had a twofold operation; it cleared the Treasury of the obligation of paying out the gold notes, and it enabled it to take now deposits payable in "lawful currency" at 4 per cent, instead of 5 per cont. The notes wore withdrawn, and by the 22d of May the limit of deposits was again full. A new difficulty now presented itself. On the entry of goods at the custom house the complications of the new tariff had made it requisite that the merchant should deposit an estimate of "gold notes" to cover the duties. When these were accurately adjusted the amount, if any, overpaid, was returned to him. The Secretary directed that these amounts should be returned in new notes, which were less valuable than those which had been deposited. The merchants demurred to this, claiming that they had a right to receive back the same kind of money that they deposited, since that money was not currency but a special medium, which they were obliged to buy at a premium for custom house purposes. In answer to these complaints the Secretary issued the following order:

                  TREASURY DEPARTMENT, May 21,1862.

SIR: I am in receipt of your letter of the 19th instant, inclosing a petition from the prominent importing merchants of the city of New York, asking that your instructions relative to the payment of all dues except interest and duties be so far modified as to permit the payment of all checks drawn by the Collector of Customs for "excess of unascertained duties" in notes of the first issue or coin.

Their request is deemed reasonable and just, and ou are hereby authorized to pay all checks drawn y the Collector which shall contain the words " for excess of deposits for unascertained duties" in such money as is receivable for duties at the custom-house.

                  I am very respectfully,

                       S.P. CHASE, Sec. of the Treasury.

John J. Cisco, Esq., Assistant Treasurer, New York.

The trouble of paper money seemed to multiply at every turn. It was discovered that a very ingenious fraud was perpetrated to a considerable extent on the Government notes. It was found that nine $10 notes might be so mutilated and rejoined that 10 complete notes could be formed to the great profit of the operator. As a consequence of the discovery, all mutilated notes, and they had became very numerous, were refused; but the evil was very great, subjecting innocent holders to loss, and the following circular was issued as a corrective:

TREASURY DEPARTMENT, WASHINGTON, May 18, 1862.

To guard against frauds upon the Government, and to secure the just rights of holders, the following rules, for the redemption of mutilated United States, are hereby established:

RULES.

First. Mutilated notes, which have been torn, no matter how much, but of which it is evident that all the fragments arc returned ; or defaced, no matter how badly, but certainly satisfactorily genuine, will be redeemed at their full face value on presentation.

Second. Fragments of notes will be redeemed in full only when accompanied by an affidavit, stating the cause and manner of the mutilation, and that the missing part of the note is totally destroyed. The good character of the affiant must also be fully vouched by the officer before whom the affidavit is taken.

Third. In the absence of such affidavit, fragments of notes will not be paid in full, but the parts represented will be redeemed in their proportion to the whole note; reckoning, as a general rule, by twentieths.

Fourth. Less than half of a note will not be redeemed, except by payment of the full value of the note under the second rule; or by payment of the proportional value of the missing part, when presented under the fifth rule.

Fifth. Fragments of notes, for which less than the full face value has been paid, will be retained for a year, to the end that the owners, who have received less than the value of a full note, may have opportunity to return the missing part, and receive the amount previously withheld.

Sixth. Until further order, mutilated notes and fragments will be redeemed only at the Treasury of the United States, at Washington; whither they can be sent, addressed to the " Treasurer of the United Suites," by mail, free of postage. A draft on the Assistant Treasurer, nt New York, for the amount allowed, will be returned in the same way, to the address of the person remitting the same.

                                                     S. P. CHASE,

                                             Secretary of the Treasury.

An extraordinary negotiation was now entered into by the Secretary of the Treasury, and one which produced much feeling among capitalists. The limit of demand notes, old and new, that might be issued under the loan was $150,000,000. Of these $60,000,000 were the old' notes, receivable for customs, and which could not be reissued. There remained then authority to issue $90,000,000 of new legal tender notes. As fast, however, as the old notes were paid in for customs, new ones might be issued in their place, and when the old notes should all be paid in the customs would be paid in gold only. These custom house notes were at 1$ per cent, premium, and the 3 year bonds, of which there remained $29,000,000 still to issue, were at 3 per cent premium. Under Page 460 these circumstances the Secretary, June 9th, being pressed for money, exchanged $3,000,000 3 year bonds for $3,000,000 old demand notes at 3 per cent, premium. In other words, he funded the old notes in 7 3/10  3 year bonds. This transaction was a private one, and it was asserted that had it been public the Secretary could have obtained a much better bargain.

While these issues of paper had been pushed to such an extent in the service of the Government, the utmost reluctance existed on the part of Congress to impose necessary taxes, on the ground of such impositions being injurious to the political party making them. The tax law that had been levied, August 5th, 1861, and which was estimated to yield $20,000,000, was repealed July 1st, 1862, in the following terms:

"And be it further enacted, That so much of an act entitled ' an act to provide increased revenue from imports to pay interest on the public debt, and for other purposes,' approved August 5, 1861, as imposes a direct tax of twenty million dollars on the United States, shall be held to authorize the levy and collection of one lax to that amount; and no other tax shall be levied under and by virtue thereof until the 1st day of April, 1805, when the same shall be in full force and effect."

The objections to the tax were, that it would weigh heavily upon the western farmers. It was, however, evident that some tax must be imposed in order to maintain the credit of the Federal Government, and that tax was devised so as to give an apparent revenue to sustain the credit of the Government-, while really it exacted nothing directly from agriculturists. The bill that with this object was introduced into the House, provided for taxes upon the profits of trade and industry, and upon the incomes of individuals. The profits are reached by stamps upon each transaction as expressed in any description of paper used in the transfer, and by a tax of 3 per cent, on all manufactures. The act imposing the taxes was very long and minute in its details. It was carefully reviewed and amended by the House in Committee of the "Whole after it had been reported from the Committee of Ways and Means, and was first passed by that body on Friday, April 4th, 1862. It was then sent to the Senate, where it was referred to the Finance Committee, by whom it was in due time reported, with many amendments. The Senate, after long consideration, passed the act on Friday, June 6th, 1862, after having rejected two substitutes, offered respectively by Senators Simmons and McDougall. The act was then returned to the House for concurrence in the amendments made by the Senate, and referred to a conference committee of both houses. On their report it was finally passed June 23d, and received the signature of the President, July 1st, 1862.

The law by its terms was to go into operation on the 1st of September, but in consequence of the unavoidable delay in preparing stamps, and the details of the inspectors, it did not go fully into operation until toward the close of the year. As a consequence, the penalties in respect to legal and other documents were remitted until after a suitable time. On the 17th of November the Commissioner issued the following notice:

TREASURY DEPARTMENT, OFFICE OF INTERNAL REVENUE,

WASHINGTON, D. C, Nov. 17,1862.

The Commissioner of Internal Revenue is prepared to supply the following stamps in quantities sufficient for the use of the people of the District of Columbia, and of the States east of the Rocky Mountains, viz.: "Playing Cards," "proprietary", "express," "telegraph," "insurance," "life insurance," "fire and marine," "passage tickets," and "protest." The use of the stumps herein specified is hereby required in the District and States above described, on and after the first day of December next; and persons guilty of wilfully neglecting to use said stamps will be subject to the penalty provided in the law. GEO. S. BOUTWELL, Commissioner of Internal Revenue. The following table shows the number and value of revenue stamps sold during the week ending November 21st, by the Commissioner of Internal Revenue:  […].

These of course do not represent the number used in the week, but the supplies purchased for distribution and future use. The Assistant Treasurer of New York reported for the three last months of 1862 the receipts from internal revenues at that port. These were for October $435,101, for November $751,286, for December $1,539,525; together $2,725,912. These payments embraced the taxes, licenses, &e., payable under the law by dealers and professions in New York,

The principle of the law 6cems to be to tax capitalists, traders, and manufacturers, and as far as possible exempt agriculturists. This is, however, fallacious, since all the taxes, no matter by whom paid, fall ultimately fully upon the producers. The heads of taxation under the law arc: stamps upon every species of paper Page 461 used to represent or transfer property; licenses for the practice of professions and commerce; taxes on dividends and profits; on incomes over $600; on manufactures an ad valorem duty of 3 per cent., and a specific duty on others. In the imposition of this duty many exceptions in favor of agriculture are made. Thus cheese is not considered a manufacture; sugar from sorghum is not taxed, while sugar from cane is taxed. Under these various forms many persons are required to pay several taxes. Kaw material, after leaving the hands of the farmer, is taxed at every new form it assumes until it gets back to him manufactured for consumption, charged with all the taxes with which it has been loaded on the way. Thus a cattle broker pays $10 license and a stamp upon the receipt of sales. A calf slaughtered is taxed 5 cents, the skin is taxed 6 cents. The tanner pays 3 per cent, tax, and a stamp upon receipt of payment and upon check paid for skim. The leather dealer pays $50 license, and for stamps upon receipts and checks. The shoemaker pays 3 per cent, tax, and for stamps upon receipts and checks. The wholesale dealer $50 license and for stamps. The retail dealer $10 license and for stamps, and the skins have come back to the farmer in the shape of a pair of boots loaded with 20 taxes besides his own income tax and those of the seven leading persons concerned in transforming the calf skin into boots, and returning it to the producer. All articles produced are loaded in the same way as they pass from hand to hand, and it results that the consumers of all products pay the whole of the tax accumulated upon them. The majority of consumers are agriculturists, and their productions are far in advance of the consumption of the Northern States. As a consequence they cannot charge upon their productions the weight of the taxes. The value of their crops, as a general thing, is governed by the markets abroad. The weight of the taxes has therefore a continued tendency to discourage consumption, and consequently production. This tendency is increased by the mode of levying; for example, some manufacturers are sworn 43 times in a month in relation to this operation. The whole amount of taxes advanced to the Government by employing manufacturers, is so much money directly abstracted from the capital required to prosecute industry. The census for 1860 states that in the Northern States the capital so employed is in round numbers $900,000,000, and that it produces a value of $1,700,000,000 per annum. The three per cent, charged upon this is $51,000,000 per annum; but the stamps, licenses, income tax, &c, it is estimated, will raise the tax to be paid by those employers to 6 per cent., or over 100 million dollars—a sum drawn directly from their cash capital, which in this country has always been inadequate to the demand. The sum so withdrawn from the employment of industry is used by the Government in supporting troops who no longer produce, but waste and destroy. The income tax is imposed for the year ending December 31st, 1862, and is charged upon all profits of business less $600. Many sources of income, such" as insurance, bank, and railroad stocks, bonds, &c, that pay the tax otherwise, are not included in the income charge. The tax is assessed May 1st in each year, ending December 31st previous, and is due and payable June 30th in each year until 1866, that is, for 5 years. This tax, it will be observed, is on profits of business, while the manufacturing tax of 3 per cent, is on gross production, irrespective of profits. The profits are deemed to be the actual net profits of the business, irrespective of individual or family expenses; but it does not necessarily follow that all business is conducted at a profit, and the means of evading this law are numerous. Nevertheless the Secretary estimated that it would yield $150,000,000 per annum, and that with customs the amount would reach a sum equal to the ordinary expenditure, the interest on the debt, and a surplus for a sinking fund. The actual receipts from the taxes, except from corporations, salaries, and stamps, was, to January 3d, 1863, or five months, $9,067,000 from twenty-four States.

The tariff was also deemed capable, notwithstanding the three revisions that it underwent in 1861, of yielding a larger revenue by raising the rates upon some articles; and it underwent such a modification as, it was estimated, would give $100,000,000, which, added to the estimated $150,000,000 to be derived from the internal taxes, would afford a sum sufficient to meet the ordinary expenses of the Government, the interest on the national debt, and afford a sinking fund for the ultimate redemption of the principal. This bill was passed and approved July 11th, 1862.

The expansion of the irredeemable paper currency produced its usual effect in causing coin to disappear altogether from circulation. The rise in the value of gold was followed by that of silver in proportion to its relative value as established by the law of 1852. That law grew out of the effects of the gold discoveries in California, which, at that time, it was apprehended would cause a depreciation of gold as compared with silver, and that as a consequence, in order to preserve the uniformity of values, and retain silver in the country, gold alone should be the legal standard, and the quantity of silver in the coins should be reduced. Accordingly the quantity of pure silver in the half and smaller fractions of the dollar was reduced nearly 10 per cent, below the standard, and silver was made a legal tender only to the extent of $5. Under the operation of tilts law the Spanish fractions, which had formed the small currency since the settlement of the country, disappeared almost altogether, and the American coins became very abundant. Of these there had been coined nearly $50,000,000 worth since 1852, and this amount circulated as well South and in California as North.

Page 462

When the Government paper began to depreciate as compared with gold, silver also deteriorated, but in a lesser degree. The apparent premium on silver caused it to flow into the hands of the brokers, who were the reservoirs whence the exporters drew it to send out of the country. The express companies alone carried to Canada nearly $4,000,000 within the year, and the people of Canada were sorely oppressed with the superabundance of this coin. The banks would not take it on deposit, nor would dealers receive it except at a discount of 2 ½  to 3 per cent. Thus south of the St. Lawrence a dollar bill was 20 per cent, discount for 6ilvcr, and north of it a paper dollar bore 3 per cent, premium for silver. The swelling flood of paper in the States gave an increased impulse to the premium on silver. The profit so produced at once stopped the circulation of the coin. No one that received it paid it away, but hoarded it until a sufficient sum was accumulated to sell for the profit. The inconvenience was very great, and induced numbers of persons to buy change as high as 12 to 16 per cent, to pay out. This for a time retarded the depreciation of paper. Very many persons, however, availed themselves of the opportunity to issue small notes or "shinplasters," as they were popularly called. This custom had been very prevalent during the bank suspension of the years 1837-'8, when the same cause depreciated paper and drove out the specie. The manifold evils that flowed from that custom had caused in New York an enactment of which the following are sections, page 118, Revised Statutes, fourth edition, volume 2:

SEC. 6. No person, association of persons, or body corporate, except such bodies corporate as are expressly authorized by law, shall keep any office for the purpose of issuing any evidences of debt to be loaned or put in circulation as money; nor shall they issue any bills or promissory notes, or other evidences of debt as private bankers, for the purpose of loaning them or putting them in circulation as money, unless thereto specially authorized by law.

SEC. 7. Every person, and every corporation, and every member of a corporation, who shall contravene cither of the provisions in the last section, or directly or indirectly assent to such violation, shall forfeit $1,000.

SECTION 11, on page 119 of the same volume, forbids any person to pay, give, or receive in payment any bank notes issued by any banking company in this State of a less denomination than one dollar; and section 12 provides that the penalty for the violation of this provision shall be the forfeiture of the nominal amount of the note so received or paid.

This law being called to mind stopped the new issues of individual fractional notes, and there was a prospect that silver would be recalled.

In an evil hour, however, it was suggested that postage stamps might be used as a currency. The suggestion was promptly acted upon to the extent of many millions, and silver entirely disappeared. Those who had occasion purchased the stamps of the Post Office department, and paid them out as change. An effort was made to restrain the use of them by selling only limited amounts to each individual. Congress then passed a law, in which stamps were prescribed as a medium of exchange in a great variety of transactions.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Secretary of the Treasury be, and he is hereby directed to furnish to the Assistant Treasurers, and such designated depositories of the United States as may be by him selected, in such sums as he may deem expedient, the postage and other stamps of the United States, to be exchanged by them, on application, for United States notes; and from and after the first day of August next, such stamps shall be receivable in payment of all dues to the United States less than five dollars, and shall be received in exchange for United States notes when presented to any Assistant Treasurer or any designated depository selected as aforesaid, in sums not less than five dollars.

SEC. 2. And be it further enacted, That from and after the first day of August, eighteen hundred and sixty-two, no private corporation, banking association, firm or individual, shall make, issue, circulate, or pay any note, check, memorandum, token, or other obligation, for a less sum than one dollar, intended to circulate as money, or to receive or use in lieu of lawful money of the United States; and every person so offending shall, on conviction thereof in any district or circuit court of the United States, be punished by fine not 'exceeding five hundred dollars, or by imprisonment not exceeding six months, or by both, at the option of the court.

Approved July 17, 1862.

In order to extend the small currency, which was popular for the moment, on the passage of this act, the following notice was issued:

The undersigned respectfully inform the public that after the 1st of August, motives of commercial expediency, as well as of official duty, will compel prompt prosecutions for any issue of paper commonly called "Shinplasters"—should stich an issue exist, after the recent Act of Congress shall have afforded an uniform substitute for "small change." The collection of the State penalties or the Federal fines can be rigidly enforced by due process of arrest.

                                      E. DELAFIELD SMITH,

                                 United States District Attorney.

                                        A. OAKEY HALL,

                        District Attorney City and County of New York.

The Supreme Court of the State of New York, however, in the month of October, pronounced this law of Congress in relation to "shinplasters," unconstitutional.

This act of Congress simply allowed the stamps, both internal tax and those for postage, to be used as a currency, directing the Secretary of the Treasury to furnish them for that purpose, and directing the " Assistant Treasurer," irrespective of the Secretary, to redeem them in sums of $5 when presented, after August 1, 1862. The stamp currency is not a legal tender between individuals, but only for Government-dues, and is convertible into legal tender money. On the 1st of December $3,884,800 of this new currency had been issued. Instead of following the law, the Secretary of the Treasury caused to be prepared a new small currency, in no way like the stamps authorized, and caused them to be issued without any limit as to amount, at the same time directing the Page 463 Assistant Treasurers to disregard the law directing them to redeem the postage stamps used as a currency. This order did not absolve the Assistant Treasurers from obedience to the law which they violated. They not only refused to redeem the stamps, but the Postmaster repudiated them also. This inflicted a grievous wrong upon the people, who hold millions of the worn and dilapidated stamps. The popular will ultimately compelled the Postmaster to issue a notice that they would be redeemed under certain regulations. Under this notice largo amounts were redeemed.

The amount of small currency issued by the Treasury department to December 1st, was $3,884,800, and the Secretary proposed to push it to $40,000,000.

Meanwhile the resources of the Treasury were exhausted, and however fully these tax bills might come up to the estimates, it was evident that they could afford no immediate supply. Hence a new loan hill was matured in Congress. It provided that the limit on the amount of deposits that might be received at the Treasury should be raised from, 50 to 100 millions, and that $150,000,000 more of legal tender notes might be issued. Of these $35,000,000 might be of a denomination less than $5, but not less than $1. Of the whole amount $50,000,000 should be reserved to pay the deposits when demanded. This was inserted in the Senate on the passage of the bill at $75,000,000, but was finally fixed at $50,000,000 by a committee of conference. This singular provision was in effect paying 4 per cent, for money to keep on hand idle. Since the demand notes being created and only applicable to the payment of that amount of deposits held by the Government, the more act of paying them out would not only save $2,000,000 paid for interest on those deposits, but would so increase the supply of money in the market as to promote the general rise of values. The act also permitted the, deposits to be funded in 5-20 year bonds. The following is a synopsis of the act passed July 11th, 1862:

1. That the Secretary may issue, in addition to amounts before authorized, Dotes to the value of $150,000,000.

2. That no notes for a fractional part of a dollar shall be issued, but that of the above named sum %Zo,000,000 shall be of lower dominations than $5.

3. That such notes shall be receivable for all debts due to or from the United States, with the exception of duties on imports and interest on bonds, notes, etc., and shall be a legal tender.

4. That certificates of deposit may be issued, bearing interest at the rate of six per cent. payable semiannually.

5. The Secretary may exchange for such notes, on terms deemed by him most beneficial, United States bonds bearing six per cent, interest, redeemable after five and payable in twenty years; may issue notes so received in exchange; may receive and cancel notes issued under former acts, issuing in lieu thereof an equal amount in notes authorized oy this act, and may purchase, at rates not exceeding that of the current market, and cost of purchase not exceeding one eighth of one per centum, any bonds or certificates of debt of the United States he may deem desirable.

6. That the engraving, &c., may be executed at the Treasury Department.

7. That the limit of receipts of temporary deposits be extended from $50,000,000 to $100,000,000, the interest, as heretofore, not to exceed live per cent.

8. That no less than $50,000,000 of the notes to be issued shall be reserved for payment of such deposits.

9. That certificates of deposit and indebtedness may be received on the same terms as United States notes for bonds redeemable after five and payable in twenty years.

10. That the Secretary may, until otherwise ordered by Congress, borrow such part of the sum of $250,000,000 (which he was authorized to borrow by the " Act to authorize a national loan, and for other purposes") as may not have been borrowed within twelve months of the time of its passage.

Under these various laws the resources of the Secretary were now apparently as follows: additional deposits, 50 millions; notes, 100 millions; 1 year 6 per cent, certificates, unlimited probable issue, 50 millions; small currency, no limit, probable issue, 80 millions; 7 3/10  three year bonds still on hand, 30 millions; 5-20 year 6 per cent, bonds, 500 millions, probable issue 80 millions. These together gave a round sum of $290,000,000, which added to the estimate of the taxes, 210 millions, made $500,000,000 for the resources of the Treasury until Congress should again meet. These resources were voted, however, on the estimate of expenditure, based upon the then state of military affairs, which soon changed in a manner to compel the Government to call out 600,000 new troops at a heavy cost of bounty, equipments, transportation, &c., in addition to the vast supplies lost to the enemy, and which required to be promptly replaced. In other words, the expenses were increased 150 per cent., und the pressure for money to move the troops greater than ever. The time required to print the new notes caused much delay, and the Secretary could servo himself only with deposits, the 1 year certificates and the 7 3/10  bonds, while the pay of the army and contractors went heavily in arrears. He was compelled to economize the legal tender notes as much as possible, since the small balance on hand, and those which came in through deposits, were the only money means at his disposal. He, therefore, paid out 7nt bonds and 1 year certificates to creditors, giving them a proportion in notes. Generally disbursing officers' checks were paid 25 per cent, in notes, and 75 per cent, in 1 year certificates. The latter being put upon the market by those who received them, sank below par. "When they were originally issued the interest was intended to be paid on them at the end of the year. As they fell in price, however, under the amounts put in the market by the Government creditors, it was necessary to do something to sustain them, and notice was issued that the interest would be paid at the end of six months in gold. This for a while supported the price, but the Secretary was compelled soon to cease paying out notes altogether. They became then the only medium for the discharge of claims, and fell in price. Meantime there was some disposition on the port of the public Page 464 to convert notes into 5-20 year bonds. The general idea prevailing that the Government had embarked on a system of paper money, which would lead to its discredit, and be represented by a general rise in every description of property, naturally produced a disposition to purchase and hold property to avail of that inevitable rise. This speculative feeling at first attached to such articles as could most readily be held and disposed of, and such as were not in superabundant supply. Gold, stocks, all metals, and many articles of merchandise, became the objects of speculation, which aided the rise in prices caused by the excess of paper. It was charged on one side that the whole rise was caused by the speculation, and on the other that it was all caused by the depreciation of paper. The fact seems to have been between those opinions. The paper caused the rise, and the knowledge that such would be the inevitable tendency of the Government money, induced speculators to avail of the knowledge and purchase. Their operations caused prices to rise much higher than they otherwise would have done. Gold particularly was a favorite investment. It was very easily purchased, required no handling, was readily loaned upon by the banks, and could be converted at a moment's notice. Moreover, it was known that the foreign demand was equal to 1 millions per week, which was rapidly reducing the quantity at command. The existing laws also required the Government to pay interest in coin, and also required merchants to pay customs in gold. If the customs under the new tariff should reach the estimates of the Secretary, 100 millions per annum, the importers would, after the outstanding old demand notes were absorbed, be required to buy two millions of gold per week. This joint demand would require to supply it at least three millions per week, and the active continued demand would necessarily raise it to an exorbitant price. It was argued that the Government would pay out the gold received from the customs, and, therefore, resupply the market; but a little reflection showed that those who received it would not give it away, but would reserve it for the higher premium that the continued issue of paper on one hand, and the demand for gold on the other would inevitably bring about. The banks found a safe and profitable investment in lending on the gold, but the holders of gold or of other articles could draw no interest on the funds thus employed. They would depend on the rise in price for their profits. At this juncture the Government being in want of gold, which was 20 per cent, premium, to pay the $1,875,000 interest maturing on the SOmillions of 7,^ notes August 19th, came forward and proposed to take gold on deposit, returnable in kind at 10 days' notice, and allow 4 per cent, interest. This at once drove speculation into gold. It was a premium of 4 per cent, interest to hold gold instead of copper or tin, or pork, or other articles for a rise. The price immediately rose, and ran np to 39 premium at the close of October. Inasmuch as gold governs the price of exchange, bills ran up in the same proportion, and sterling bills which are par at 109^ touched 152. The effect of this was to add 40 per cent, to all remittances out of the country. It added 40 per cent, to the cost of importations, which caused them to decline, and with them the customs revenue of the Government, which found 40 per cent, added to all that it had to pay abroad. The salaries of ministers, navy expenses, &c, were all increased 40 per cent. The Secretary, alarmed, sought to stop the speculation in gold, which he deemed to be the cause of the evil, and to that end sent on an agent to New York to solicit the banks not to lend on gold, and the Board of Brokers not to deal in it. Some of the banks complied, and the result was that their depositors drew the money and lent it individually upon gold. They thus lost the business without reaching the end desired. the Board of Brokers had the weakness to do the same thing, and struck gold from the list of articles dealt in. The effect was that gold was dealt in outside the board, and while the amount of transaction was no less, the brokers lost their commissions. They endured this nearly three weeks, and then, November 16th, not only restored gold to the list, but permitted time operations in it. An effort was then made by free sales for future delivery at lower rates, to break the supposed speculation, and reduce the price. The sales so made were freely taken for export nt the expense of the operators for the fall, and prices rose.

Following the rise in gold, the prices of stocks also advanced, and readied very high figures, and theso developed some disposition to convert notes into the 6 per cent. 5-20 stock at par. At that juncture, however, October 27th, the Secretary thought proper to make inquiries in relation to the terms on which he could negotiate that stock in the market. As by the terms of the law the notes may at all times be converted into the stock at par, it follows that the stock would never sell higher than that. Any terms proposed must, therefore, necessarily be below par, and the limit of such an operation at once stopped conversions. Meantime the Secretary had since June 1st paid out about $17,000,000 7 bonds to creditors and others, and there remained on hand $13,420,550. On the 10th of November he issued a notice for proposals to be opened in 6 days for these bonds, the bidder to deposit 10 per cent, of the amount with the Assistant Treasurer—the bonds to date from the day of deposit. This notice appeared Monday, November 10th; on the next day Mr. Chase asked the banks for a temporary loan of 12 millions, at 5 per cent., in anticipation of the proceeds of the loan thus advertised. The money was promptly advanced to him, but to do so money was called in, causing stocks to fall about 2 per cent., and the rate of money to rise 1 per cent. This most  Page 465 extraordinary operation produced the greatest surprise. It will be borne in mind that the Secretary had these notes on hand more than one year, and then suddenly offered them at 6 days' notice, and then not being able to wait even that sis days for his money, borrowed it in a manner to raise the rate of money in the market against his own operation. The loan sold for less than it would have done had not the Secretary thus wantonly disturbed the market. Of the 12 millions asked for 10 were taken in New York, one in Boston, and one in Philadelphia. It now appeared that the Secretary was alarmed; he had borrowed the money of the banks to pay back in 6 days, and he was dependent upon the loan to enable him to keep his contract. If now the parties to the loan took advantage of the position, they might dictate such terms for the loan as they thought proper. To avoid this danger, the Secretary put all the printing presses in his employ to running upon large denominations of demand notes, by which he might be able to manufacture enough to meet the temporary loan if the 7 9/10  should not be taken. The bids were however opened on the 17th of November, and it was found that in all $29,994,350 had boon offered at rates varying from par to 4$ premium. The lowest offers came in from Massachusetts. It resulted that $350,000 were allowed to Boston at 3J to 4 per cent. About $1,000,000 to Philadelphia at 3.10 to 4 per cent.; $1,200,000 to Washington, at 3.05 to 4 per cent., and the remainder to New York, at 3.05 to 4.05 per cent. All bids above 3.05 amounted to $9,505,050, and were accepted, and those who bid 3.05 got 591 per cent, of this offer. The Secretary, in alluding to this transaction in his annual report, stated that the takers of the loan found difficulty in obtaining United States notes to make the payments to the Treasury, and inferred from this that there was not currency enough. The fact seems to have been otherwise. The banks had deposited $35,000,000 of legal tender notes at the sub-Treasury for 5 per cent, certificates. These certificates were at first used to settle balances at the clearing house, but as legal tender notes accumulated in the banks, they preferred to pay balances in those notes rather than in certificates bearing interest. For this purpose some 12 millions were in use, making 45 millions of notes held by the banks. When the Secretary came forward for his 12 millions advance at 24 honrs' notice, a further demand was created, and when the loan was taken on the 6th day, $13,613,340 more of notes were required to be paid in before the 12 millions lent could be returned. The transaction therefore required $25,613,340 to perfect it in addition to 12 millions used for balance, and $35,000,000 on deposit with the department. Thus the banks were called upon for 72 millions of the notes, and at the same time some of he banks that, by reason of their expanded condition, were short in their balances at the clearing house, were borrowers of the other banks. Yet the whole VOL. II.-80 a transaction would have passed off without disturbing the markets, had the Secretary not in effect demanded two loans when only one was wanted. The whole amount of notes outstanding \vas about 200 millions, and the Now York banks manipulated one third of the whole amount. The annual report of the Secretary at the opening of Congress gave the following statement of the revenues and expenditures of the Government for the fiscal year ending June 30th, 1862:

Receipts and Expenditures for the fiscal year ending June 30, 1862.

The total receipts, Including a balance on band July 1, 1861, of $2,257,065 80 were 588,885,247. […].

Total expenditure $570,841,700 25

Balance In treasury, July 1, 1862 18,043,540 81  

Total |583,885,247 06

This represented the actual expenditure of the first year of the war, but did not embrace all the cost, since very largo claims remained unpaid. The money paid out, irrespective of the debt repaid, was $1,300,000 per day average. With the close of that year, however, the number of troops in the field and the operations of the Government assumed greater scope, causing the estimates for 1863 to be more than double the expenditures of 1862, as follows:

Page 466

These estimates for the new year do not embrace contingences that may arise from unforeseen disaster nor any payments on account of the principal of the public debt, of which a large amount falls due and must necessarily be provided for in other loans. The debt of the United States, as expressed in the evidences outstanding at the close of the year as compared with that of the corresponding period of the two previous years, was as follows:

DEBT OF THE UNITED STATES ON JANUARY 1, 1861,1862, AND 1863. […].

The debt at. the close of 1860 expressed the remains of former loans growing out of the Mexican war and the emission of treasury notes caused by the financial revulsion of 1857, which diminished the customs' revenue. The 10 millions of treasury notes issued in December, 1860, were to meet the deficit at that time, and were negotiated at 10-12 per cent, interest. Those notes have been mostly paid off in paper money in order to stop that high rate of interest. The various denominations of issues made during the war are expressed under each head, and the result is an amount of, in round numbers, 750 millions of outstanding paper on January 1st, 1863. This does not express the whole debt, however. There were then many months in arrears of pay for the whole army, and claims of contractors and others were for several large sums. The issues for the year 1862 were nearly altogether paper money and temporary loans. There was paid off January 1st, 1863, the remains of the old 20 years' 6 per cent, stocks of 1862 under peculiar circumstances. The high rate of gold made it probable that the principal would be paid in Government paper, but there were some intimations that it would be paid in gold; the stocks were therefore of a highly speculative value. If paid in paper the amount of the debt paid was $2,838,864.11; if paid in gold at 33 per cent, premium, the holders would realize $3,768,374.26, an apparent profit of $935,010. There was no authority to buy the gold with which to pay the debt. It was, however, obvious that unless the Government that had received gold should pay in gold, its credit would be seriously damaged. To support the Government credit, therefore, certain of the banks agreed to lend to the Treasury at 4 per cent, sufficient gold to pay the debt, the gold to be returned to the banks when the Government should be in receipt of the gold through the customs. By this means the banks obtained 4 per cent, interest on gold otherwise idle, and would receive it back when its value would be much enhanced by the operations of the importers. I

n relation to the loans in his annual report, the Secretary remarked as follows:

It has been the care of the Secretary to reduce the cost of the debt, in the form of interest, to the lowest possible amount, and it is a source of real satisfaction to him that he has been able, thus far, to confine it within very moderate limits. The first loans, being of a magnitude hitherto undreamed of in our market, were necessarily made at an interest which he regarded as high, though lenders strenuously insisted on higher; but large amounts are now obtained at five and four per cent., while the circulation of United

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Page 467 States notes constitutes practically a loan from the people to their Government without interest. The average rate on the whole loan is thus reduced to 4 3/5 per cent.

These statements were very extraordinary under the circumstances since, although the amount to be paid out by the department as interest was small, yet the people paid the most ruinous rates of interest. The first loans contracted by the Secretary were in 6 per cent, stocks at 85, or 7J per cent, nearly. The next loans were in 7 3/10  per cent, bonds, and the interest began to run long before he drew the money, giving an advantage equal.to 10 per cent, to the lenders. The next loan was at 7 per cent, on the same terms, viz.: to pay interest before he received the money. Loans were then no longer possible, but creditors were compelled to take 7r3ff per cent, bonds for their claims, and they sold as low as 96, losing 4 per cent, and the buyer getting 84 per cent, for his money. One year's 6 per cent, certificates were then paid out and sold as low as 95, giving 11 per cent, for the investment in a year. The legal tender currency was then paid out at par and depreciated gradually until it reached at one time nearly 40 per cent. This depreciation represented the tax to which the public is subjected through the use of that paper. The Government itself paid in the enhanced rate of exchange a large sum. The payments abroad for diplomatic salaries and the use of the Navy are nearly $10,000,000 per annum. To make these remittances the Government was at one time compelled to pay 152 per cent., or 42 per cent, above par, which on the remittances amounted to $4,200,000 actually paid out in consequence of the paper depreciation. In like manner the price of all supplies and munitions is enhanced by the depreciation. If of the whole expenditure of the army $120,000,000 is for pay of the troops, being $13 per month for 800,000 men, there remain $630,000,000 for supplies, transportation, &c, the rates of which are enhanced with the price of gold, and at the present rate, 30 per cent., the extra cost to the Government by the use of paper is $180,000,000 per annum, a sum nearly equal to the amount of notes outstanding. So fearful an expense is hardly matter of congratulation that the Secretary borrows " without interest." The pay of the soldiers is diminished in the same proportion, since through the rise in prices, $13 will this year purchase no more than would $10 last year; hence a motion was made in Congress to raise the pay of the troops to $15 per month. The fact was apparent that in the 18 months ending July, 1864, the Government would require $1,000,000,000 in addition to $300,000,000 of existing loans that would fall due, and not taking into account reclamations, damages, and disasters that must arise, and allowing for the extra allowances that must necessarily follow the use of paper money. The $100,000,000 of 3 years' bonds would fall due, as much one year's certificates, or a like sum in deposits, and a sum not less than $1,500,000,000 would be required.

The amount of capital which can be permanently loaned to the Government consists only in a portion of the surplus profits earned each year by the pursuits of industry, and which each man can spare out of the operations of his business. It is only within the last twenty years that surplus capital has very rapidly accumulated, but it has been in active demand for investment in the many enterprises that have been undertaken of a permanent character. Of these railroads are the most conspicuous, and they have absorbed nearly $1,000,000,000 since 1850. The real amount of surplus capital that accumulates each year is difficult to determine, but the late census affords some data on which to approximate a result. It is there stated that the annual productions of industry are in value $1,900,000,000 per annum, or, in round numbers, $2,000,000,000. This sum expresses the labor and capital expended in producing all those articles which enter into commerce and the maintenance of the people. If this value is produced, nearly as much is expended or consumed in the operation—in some years quite as much; as in years of bad harvest there is probably no more capital in existence at the end of the year than when it commenced. Taking one year with another, however, the actual income may be 10 per cent, or $200,000,000; of this a large portion goes to extending business, improving land, constructing houses, &c., and there may remain $100,000,000 which may be invested permanently by the owners to draw interest. These investments -have greatly increased of late years, and may be approximated as follows:

State, city, and county stocks     $250,000,000

Railroad capital…………………800.000,000

Railroad bonds………………… 700,000,000

Bank capital ……………………421,880,000

Insurance, mines, &c, &c ……...230,000,000

savings bank deposits ………….200,000,000

Bonds and mortgages ………….150,000,000

Total Invested capital ………$2,271,880,000

Capital per census employed In Industry.. 1,000,000,000

Total ………………………..$3,271,830,000

The vast undeveloped resources of this country, with the supply of labor by immigration, and the immense wealth in new lands, cause the demand for capital constantly to outrun supply. Hence all active men are borrowers of capital; but if a number of persons engaged in business enterprises were to realize this capital, and invest it in the Government stocks, the productive industry of the country would to the extent of such transactions he stopped, and the source of national wealth be dried up. This is a course of proceeding, which all prudent statesmen carefully avoid. It is to be remarked that the accumulation of capital in this country has heretofore been rapid, for the reason, among others, that the taxes have been very light. There have been no vast sums expended upon military idlers. This is now changed, and under the existing laws it is Page 468 estimated that the taxes will reach $250,000,000 per annum—a sum more than equal to the whole supposed annual surplus profits of the national industry heretofore. This at once checks accumulation. In addition to this 1,000,000 men, before producers, have been taken from productive industry, and have become consumers and destroyers. The effects of these two circumstances are making themselves felt in the diminished profits of investments, or, in other words, falling values. It is apparent that the huge sums demanded by the Secretary cannot be obtained on loans without stopping the industry of the country, on ono hand, or destroying values on the other. To obtain means by the issue of paper money has a still more disastrous effect, since it takes from every man a portion of his earnings and values. The munitions and supplies that the Government obtains in return for paper issues are at continually higher prices. In other words, more paper must be given for the same quantities at each succeeding purchase, and this in the double ratio of greater supplies of paper and diminished production of the commodities. Very speedily the purchasing power of the paper ceases, and although by virtue of its power of legal tender holders of maturing obligations may be ruined, it will no longer command any of the necessaries of life.

The number of those who can spare capital out of their regular business to place at interest is small. The estates of minors and others increase to some extent, and those funds seek investments. If the whole 2,100 millions, exclusive of savings deposited, draw C per cent, interest, the result is 100 millions of interest paid annually by industry. The capital invested in productive industry may pay 10 per cent, or 100 millions more. These two items absorbed nearly all the capital there is*in the country, since no one allows any considerable sum to lie idle or unproductive. The Government now steps forward and for war purposes demands in two years, ending January, 1844, $1,500,000,000, or more than one half of all the capital invested in industry and in securities. This is a serious demand, and it is at once evident that it cannot be complied with except by drawing the amount out of other occupations. If its credit remains unshaken, and the public consider its promise as good as the best security, then it must offer such terms to lenders as will induce them to change their investments. To invest largely in Government they must sell New York or Ohio, or bank stock, or railroad bonds, or such as they hold, in order to make the purchase. But it is obvious that extensive sales cannot be made for want of buyers. If the holders of the above named 2,000 millions of securities all wanted to sell, it is clear there would be no buyers. If a large proportion wished to sell they could find buyers only at low prices, and the general level of prices would be proportioned to the extent of the conversions. Hence it is evident that the Government could obtain its loan only at such rates as would outbid all the borrowers. If all the surplus capital is now equal to 2,000 millions, represented by the amount of stocks at par, then to add 1,700 millions to the quantity of stock, would cause the whole mass of stock to fall to 55 per cent, to represent the same capital, 2,000 millions. This is under the supposition that the Federal credit would remain equal to the other stocks. It is, however, not equal to them, but is now much below that of the individual Northern States. The state of affairs now produced the greatest anxieties in the public. It became evident that to pursue this paper system was to invite bankruptcy and repudiation, and numerous representations were forwarded to Washington to remonstrate against the further issue of paper. On the other hand there were those who equally dreaded the collapse in value which must result from the placing of largo loans upon the market. The Government stocks were nearly at par for paper, but were far below par as measured with specie, which would become the measure of value on abandoning paper. The following table represents the effect of the currency measures of the Government during the year upon stocks, the metals, and trade:

Page 469 109 express company. Then follow in order the prices of sterling exchange, the price of gold in paper, the price of silver, United States notes receivable for duties, and of the Government stock. The year opened with a reaction in respect to the " balance of trade," on the large imports of specie that were made in 1861, as a consequence of the sudden stoppage of importations of goods in that year, and exchange was nearly par at that time; the currency was then nearly on a specie basis. A suspension of specie payments had indeed taken place, but the banks were thus put within the penalties of the law, and had reduced their circulation, in the effort to resume as soon as possible. Specie did not therefore rise in value, and the Government 6 per cent, stocks were at about par for a 7 per cent, stock, and money in the open market was not abundant, and specie did not rise in price. The moderate importations of goods in the previous year had caused a diminution of stocks on hand, and the progress of the armies of the West had encouraged the hope of larger Bales, while there were fears of higher duties to be imposed by Congress, which therefore promoted importations, that became considerable in March, causing au outward flow of specie, which began to rise in premium in April, when the legal tender notes of the Government made their appearance. From that moment the metals, exchange, and old demand notes receivable for customs steadily appreciated, while gold flowed in a broader stream out of the country. The passage of the legal tender bill in Congress had alarmed foreign holders of stocks, and these were sent to New York for realization in considerable quantities, the proceeds to be remitted in specie. The imports of goods that had again become small in June suddenly rose in July, in anticipation of a new tariff, and the hope that the advance in prices under the influence of paper would prove remunerative. For the same reason the exports increased, because the rise in exchange favored the shipping of goods. Those months in which the largest exports took place are those in which the rates of exchange ruled highest. A barrel of flour that sold in Liverpool at 228. M. in January, would at 10 per cent, exchange realize to the shipper $5.50 in exchange. At the same price for flour, when exchange in July rose to 130, the shipper got $6.50 for his bill, and in October, when exchange reached 150, he got $7.50 for his bill. Thus the rise on exchange for the time was equal to an advance abroad for the produce, but this movement soon produced a rise in prices which counteracted the exchange, and shipments fell off rapidly in the last two months. It is to be borne in mind that the import values are the specie invoice prices, and the sum represents the amount to be paid in specie; on the other hand the exports are home values in paper money, and represent a sum larger by the depreciation of the paper than will be actually received. Thus in the month of November gold was at 133 premium, or the paper was depreciated 25 per cent., hence the $14,390,681 of goods exported would realize in specie only $10,713,011 abroad. The aggregate of the exports for the year by no means therefore represents the amount that can be applied to the payment of goods, and the amount exported declined. Toward the close of the year the rise in paper prices hero was to some extent counteracted by the decline in prices of western produce abroad.

The imports on the other had suffered a grievous burden; first in the higher duties, second in the high premium on gold, or gold notes, which were the only medium for the payment of duties, and third, on the rise of bills. An illustration is afforded in comparing the imports of any month, November for instance, with the same month of the previous year, as follows: […].

Thus the average expense of landing goods this year in November was 80 per cent., against 24 per cent, same time last year. This advance was very onerous, and exceeded the rise which took place in the markets of sale, subjecting the importers to loss; as a consequence the importations declined. The mere rise in the cost of importations was not the greatest evil encountered, since none could tell what the cost of landing goods already ordered might be. If the Government continued to emit paper money while it exacted duties in gold, the cost of importation would rapidly rise, and when goods arrived the expenses of entry might be 20 or 30 per cent, higher than when the goods were ordered. This was an evil against which no calculations could guard, and importations became a mere lottery. The time was approaching also when the old demand notes would all be absorbed, and the duties would then be payable in gold, which would involve an active demand for that article on the part of importers to the extent of $3,000,000 per month.

While all these radical changes were taking place in the condition of trade, the table on the preceding page indicates that Government stocks did not rise in any degree proportionate to other articles. Thus in January the 3-year bonds, which bear 7.30 interest, payable in gold, sold at 09 for specie ; in December the price of the same bonds was 101 ½  for paper, 76 ½  for specie—a decline of 22 7/8  per cent. The 20 year bonds Page 470 sold at 88 for specie in January, and for 72$ in December, a decline of 15i per cent., although none of that description Lad been negotiated in that period. The 1 year certificates of the Government had fluctuated from time to time, as the creditors who received them from the Government pressed them upon the market for sale. From par in April for 6pecie currency they fell to 96J for paper at the close of the year. Under the supposition that the certificates had on average 6 months to run, the holder gets in half a year for his outlay of $96J, $100 principal and $3 interest in gold, worth $1 in paper, or $101; making $7.75 equal to 16 per cent, per annum on his investment. With this state of affairs before holders of Government securities, the Secretary announced 1,000 millions more to be borrowed. Yet he complained of " the ignorant fears of foreign investors in national and State bonds and other American securities, and the timid alarms of numerous nervous individuals in our own country, which prompted large sacrifices upon evidences of public and corporate indebtedness in our markets." The "foreign investors" measure the value of stocks not by paper but by the gold standard, and a fall of 23 per cent, in United States 20 year 6 per cent, stock was not an assuring fact. On page 303 of the " Cyclopaedia" of last year is given the amount of specie estimated, from the best official data, to have been in the country at different periods. The whole amount for the Union, North and South, for January, 1862, was $237,510,148. This includes the specie in circulation, in banks and that used in the arts. The quantity used in the arts has been matter of conjecture, since there are no accurate data on which to estimate. The census of 1860 for the first time gave some particulars in relation to the use of the metals.

There are various other branches of manufactures, beside those enumerated above, which consume large quantities of both metals. The following tabular statement is from the preliminary report on the eighth census of the United States, year 1860. It is here shown, that in twelve States and the District of Columbia, there are about twelve or fourteen millions used in manufactures annually. If to these we add Ohio, Missouri, California, and other States, the amount will swell to nearly twenty millions of dollars: […].

The amount of raw material here used is not stated; but it may be placed at one half, or in round numbers at 10 millions. A large portion of this, however, is old material worked over. It is, however, estimated that about one half, or $5,000,000, is new metal, worked into the various objects of the goldsmith's art. In the last ten years of great prosperity the quantity of gold wrought up has much increased at the expense of the metallic currency. The use of plate particularly has become more common. There are many causes of error in an estimate of the metals. Thus much specie is brought in by immigrants, and not reported at the custom house; but as this is mostly foreign coin, it finds its way to the bankers, who sell it to exporters, when it appears in official returns. Much silver comes in overland from Mexico. A good deal of specie also goes out in the hands of travellers, and is not accounted for. Nevertheless the official returns of imports and exports, with that of the product of mines, afford a good approximation. The quantity of metals at the North was as follows during the year:

Page 471

Specie in the Northern banks, January, l862.... $70,000,000

States generally, &c ……………………………60,000,010  

"circulation ……………………………………..85,000,000

Total in Northern States ……………………..$165,000,000

Received from California in 1862.....................824,882,840

Net exported from New York and

Boston………………… 65,000,000— 40,117,154

In the Northern States, Jannary,1863 $125,882,856

In banks ……………..$60,000.000

In States, &c …………60,000,000—$120,000,000

In the course of the year, as the price of specie advanced in New York city, the current of the metals began to flow to the common centre. The opening of trade to some extent in the border States following the progress of the armies, produced an additional demand for gold for the purchase of northern productions, which would be sold only for gold. The drain thus occasioned was such that the brokers of western cities raised the price there to some extent; but the groat demand was in New York, where not only shipments became active, but much was taken on speculation to avoid the inevitable rise that would result from the use of paper. The current of silver also set toward Canada in a swelling volume. The moment that silver bore a small premium it ceased to circulate, becauso every small shopkeeper who received it would lay it aside, and convey it to Wall street to realize of the brokers the premium they offered. In like manner throughout the West dealors, brokers, and bankers collected and sent to New York the coin that fell into their hands, and which they purchased at a premium, to sell at an advance in New York. The current flowed thither in a deepening stream as the premium advanced, and the banks showed a continually increasing quantity on hand, notwithstanding the largo weekly exports. The following table shows the movement of specie:

SPECIE MOVEMENT FOR 1862 AT NEW YORK.

The largest amount of specie received from the interior in any one month was in July, when the rate rose suddenly in Now York to 20 per cent, for gold. The supply so drawn to the city caused a decline, and the receipts in August were small, increasing again in September, when gold recovered. When, however, the highest point was reached in October, the receipts fell off, showing as well an exhaustion of the floating specie, as a disposition on the part of individual holders not to sell at any price. With a price of 33 per cent, in November the receipts fell to a nominal amount as compared with July, and the export drain falling upon the banks they lost nearly $4,000,000. The California supplies are barely more than three fourths those of last year. The metals continued to be the currency in that State, and instead of being quoted at a premium for Government notes, the latter are quoted at a discount for coin. The above table shows that there were collected into the New York banks from circulation 39 millions of specie, mostly sent abroad. In the previous year the reverse was the case: 87 millions were imported and sent into circulation.

This year the fluctuations in the metals induced numbers of small speculators to buy gold when it fell, and on the occasion of a rise, they warned the brokers' offices to resell. Gradually, however, the amount of circulating specie in the country seems to have been absorbed, sinco the very high rates that ruled in October ceased to bring forward enough to supply the export demand. The supply from California was nearly reduced by the great number of shipments direct to England in consequence of the increasing risks of navigation. Toward the close of December the steamer Ariel, on her passage out to Aspinwall, was captured by the Confederate steamship Alabama. The troops on board were paroled, and the ship ransomed in order that she might proceed with her passengers. In consequence she did not, on her return to New York, venture to bring her freight of gold, amounting to $533,119, and the United States gunboat Connecticut was sent out to bring it home. Meantime, however, the Ocean Queen arrived at New York, January 3d, with $1,270,580, including the Ariel's freight. In consequence of this capture the insurance companies raised the rate of insurance from 3 to 5 per cent. Thus giving fresh inducement to turn the golden stream from New York to England direct.

The operations of the New York assay office, under the changed condition of the specie trade, were exceedingly small as compared with the previous year. They were as follows:

Page 472

The deposits of gold declined from nearly C3J millions to 2J millions, and the payments in coin became nearly nominal. Of the silver deposits $22,000 was from the new mines of Washoe, and $7,000 from those of Lake Superior. The operations of the United States mint underwent a corresponding reduction; they were as follows: […]

The manufacture of money has thus declined to a very small amount at the national mint, although the national printing presses have been very prolific substitutes. The use of paper money during the year in its effect upon business has not been adverse to the interests of holders of goods and property. It has indeed checked the movements of importers, since it has caused the cost of importation to rise faster than the market prices of the commodities. This has diminished importations, thereby giving additional effect to the paper in its influence upon the value of goods held. These have generally risen in price under the joint influence of small importations, lessened production, higher duties, and paper money. The rise thus brought about has been a welcome profit to many holders of goods. The following table gives the range of prices of some leading articles at the beginning and close of the year (see Table A).

This list suffices to show the general rise which has affected all branches, some more and some less according to the peculiar circumstances of each article. Some commodities, of which the value depends mostly upon the export demand, and which in the absence of that demand sell's no higher than at the same time Page 473 have fallen to a lesser extent, as in the case of hay, which, nominally 10 per cent, higher, is really for shipping purposes 25 per cent, lower than last year. Nevertheless, relatively to the other articles of the home market, there has been a general and large rise in prices, which has operated beneficially for all who held stocks of goods, and this state of affairs has given activity at par prices to goods which had been deemed "dead stock," but which became salable. As a consequence, a certain degree of prosperity has manifested itself in business circles, and the number of failures has been far less than last year.

The actual number of failures in the Northern States, as compared with last year, with the amount of liabilities, is as follows, per the report of the mercantile agencies: occurred during the first quarter of the year, or before the advance in the value of goods to which we have been alluding:

The failure by months, as exhibited in the following figures, show that the larger portion The failures for previous years are given in the "Cyclopaedia" for 1861. The amount this year has been reduced to a small item comparatively. The beneficial effect of paper money has thus been produced, but the danger commences. The goods if realized on cannot be replaced at their prices, but buyers must meet the rising market, which momentarily becomes more hazardous, because subject to the collapse of the paper money. Stocks have followed the same course of advance under similar influence. The monthly prices for the year 1862, will be seen in Table 13, on the following page.

The average advance in the stocks was 40 per cent; that is, the sum of the quotations for December is 40 per cent, more than the sum of the quotations for January, showing that the rise in prices of stocks has about equalled that of gold and exchange. The average advance of the commodities in the above table of prices is also 38 per cent., thus showing a singular uniformity in the rise of prices.

The list embraces Government, State, and railroad stocks. These latter represent the proprietorship, and the theory of the paper money influence is, that the debts of the companies may be easily discharged in paper money, thus leaving the stock more valuable than before.

The advance which pervades all descriptions of business compels the railroads to demand higher freights and fares. This swells the sums of their revenues, and although their expenses are also more, yet the result is a higher profit. Thus a railroad may have earned in 1861 $7,000,000, paid $1,000,000 interest, and $4,000,000 expenses, and it would have $2,000,000 surplus; on the supposition that its expenses doubled in paper, and that it doubled its charges, it would pay §8,000,000 running expense, $1,000,000 interest, making $9,000,000, which from $14,000,000 revenue would give $5,000,000 surplus. Under this operation the first effects would be to improve second class bonds, which would now get interest in full. Ultimately, as the process progresses, the bonds would be paid oft' in this species of paper, leaving the roads clear to the stockholders. The question of the constitutionality of the legal tender notes must be settled however. Already suits have come before the courts, whore payment of mortgages has been tendered in legal tender and refused, on the ground mainly that the State courts cannot recognize anything but specie as a legal tender: a law of Congress cannot override this proviso of the Constitution. (The American Annual Cyclopaedia and Register of Important Events of the Year 1861, vol. 1. New York: Appleton & Co., 1868, pp. 452-474.)


Source: The American Annual Cyclopaedia and Register of Important Events of the Year, 1861-1865, vols. 1-5. New York: Appleton & Co., 1868.