History of the National Loans.
In Book VII of this volume devoted to Tabulated History, we try to give the reader at a glance some idea of the history of our National finances. An attempt to go into details would of itself fill volumes, for no class of legislation has taken so much time or caused such a diversity of opinion. Yet it is shown, by an admirable review of the loans of the United States, by Rafael A. Bayley, of the Treasury Department published in the February (1882) number of the International Review, that the “financial system of the government of the United States has continued the same from its organization to the present time.” Mr. Bayley has completed a history of our National Loans, which will be published in the Census volume on “Public Debts.” From his article in the Review we condense the leading facts bearing on the history of our national loans.
The financial system of the United States, in all its main features, is simple and well defined, and its very simplicity may probably be assigned as the reason why it appears so difficult of comprehension by many people of intelligence and education. It is based upon the principles laid down by Alexander Hamilton, and the practical adoption of the fundamental maxim which he regarded as the true secret for rendering public credit immortal, viz., “that the creation of the debt should always be accompanied with the means of extinguishment.” A faithful adherence to this system by his successors has stood the test of nearly a century, with the nation at peace or at war, in prosperity or adversity; so that, with all the change that progress has entailed upon the people of the age, no valid grounds exist for any change here.
“During the colonial period, and under the confederation, the financial operations of the Government were based on the law of necessity, and depended for success upon the patriotism of the people, the co-operation of the several States, and the assistance of foreign powers friendly to our cause.
“It was the willingness of the people to receive the various kinds of paper money issued under authority of the Continental Congress, and used in payment for services and supplies, together with the issue of similar obligations by the different States, for the redemption of which they assumed the responsibility; aided by the munificent gift of money from Louis XVI. of France, followed by loans for a large amount from both France and Holland, that made victory possible, and laid the foundations for the republic of to-day, with its credit unimpaired, and with securities commanding a ready sale at a high premium in all the principal markets of the world.
“Authorities vary as to the amount of paper money issued and the cost of the war for independence. On the 1st of September, 1779, Congress resolved that it would ‘on no account whatever emit more bills of credit than to make the whole amount of such bills two hundred millions of dollars.’ Mr. Jefferson estimates the value of this sum at the time of its emission at $36,367,719.83 in specie, and says; ‘If we estimate at the same value the like sum of $200,000,000 supposed to have been emitted by the States, and reckon the Federal debt, foreign and domestic, at about $43,000,000, and the State debt at $25,000,000, it will form an amount of $140,000,000, the total sum which the war cost the United States. It continued eight years, from the battle of Lexington to the cessation of hostilities in America. The annual expense was, therefore, equal to about $17,500,000 in specie.’
“The first substantial aid rendered the colonies by any foreign power was a free gift of money and military supplies from Louis XVI. of France, amounting in the aggregate to 10,000,000 livres, equivalent to $1,815,000.
“These supplies were not furnished openly, for the reason that France was not in a position to commence a war with Great Britain. The celebrated Caron de Beaumarchais was employed as a secret agent, between whom and Silas Deane, as the political and commercial agent of the United States, a contract was entered into whereby the former agreed to furnish a large amount of military supplies from the arsenals of France, and to receive American produce in payment therefor.
“Under this arrangement supplies were furnished by the French Government to the amount of 2,000,000 livres. An additional 1,000,000 was contributed by the Government of Spain for the same purpose, and through the same agency. The balance of the French subsidy was paid through Benjamin Franklin. In 1777 a loan of 1,000,000 livres was obtained from the ‘Farmers General of France’ under a contract for its repayment in American tobacco at a stipulated price. From 1778 to 1783, additional loans were obtained from the French King, amounting to 34,000,000 livres. From 1782 to 1789, loans to the amount of 9,000,000 guilders were negotiated in Holland, through the agency of John Adams, then the American Minister to the Hague.
“The indebtedness of the United States at the organization of the present form of government (including interest to December 31, 1790) may be briefly stated, as follows:
| Foreign debt | $11,883,315.96 |
| Domestic debt | 40,256,802.45 |
| Debt due foreign officers | 198,208.10 |
| Arrears outstanding (since discharged) | 450,395.52 |
| Total | $52,788,722.03 |
To this should be added the individual debts of the several States, the precise amount and character of which was then unknown, but estimated by Hamilton at that time to aggregate about $25,000,000.
“The payment of this vast indebtedness was virtually guarantied by the provisions of Article VI. of the Constitution, which says: ‘All debts contracted, and engagements entered into, before the adoption of this Constitution shall be as valid against the United States under this Constitution as under the confederation.’ On the 21st of September, 1789, the House of Representatives adopted the following resolutions:
Resolved, That this House consider an adequate provision for the support of the public credit as a matter of high importance to the national honor and prosperity.
Resolved, That the Secretary of the Treasury be directed to prepare a plan for that purpose, and to report the same to this House at its next meeting.
“In reply thereto Hamilton submitted his report on the 9th of January, 1790, in which he gave many reasons for assuming the debts of the old Government, and of the several States, and furnished a plan for supporting the public credit. His recommendations were adopted, and embodied in the act making provision for the payment of the debt of the United States, approved August 4, 1790.
This act authorized a loan of $12,000,000, to be applied to the payment of the foreign debt, principal and interest; a loan equal to the full amount of the domestic debt, payable in certificates issued for its amount according to their specie value, and computing the interest to December 31, 1791, upon such as bore interest; and a further loan of $21,500,000, payable in the principal and interest of the certificates or notes which, prior to January 1, 1790, were issued by the respective States as evidences of indebtedness incurred by them for the expenses of the late war. ‘In the case of the debt of the United States, interest upon two-thirds of the principal only, at 6 per cent., was immediately paid; interest upon the remaining third was deferred for ten years, and only three per cent. was allowed upon the arrears of interest, making one-third of the whole debt. In the case of the separate debts of the States, interest upon four-ninths only of the entire sum was immediately paid; interest upon two-ninths was deferred for ten years, and only 3 per cent. allowed on three-ninths.’ Under this authority 6 per cent. stock was issued to the amount of $30,060,511, and deferred 6 per cent. stock, bearing interest from January 1, 1800, amounting to $14,635,386. This stock was made subject to redemption by payments not exceeding, in one year, on account both of principal and interest, the proportion of eight dollars upon a hundred of the sum mentioned in the certificates; $19,719,237 was issued in 3 per cent. stock, subject to redemption whenever provision should be made by law for that purpose.
“The money needed for the payment of the principal and interest of the foreign debt was procured by new loans negotiated in Holland and Antwerp to the amount of $9,400,000, and the issue of new stock for the balance of $2,024,900 due on the French debt, this stock bearing a rate of interest one-half of one per cent. in advance of the rate previously paid, and redeemable at the pleasure of the Government. Subsequent legislation provided for the establishment of a sinking fund, under the management of a board of commissioners, consisting of the President of the Senate, Chief Justice of the Supreme Court, Secretary of State, Secretary of the Treasury, and Attorney-General, for the time being, who, or any three of whom, were authorized, under the direction of the President of the United States, to make purchases of stock, and otherwise provide for the gradual liquidation of the entire debt, from funds set apart for this purpose. On assuming the position of Secretary of the Treasury, Hamilton found himself entirely without funds to meet the ordinary expenses of the Government, except by borrowing, until such time as the revenues from duties on imports and tonnage began to come into the Treasury. Under these circumstances, he was forced to make arrangements with the Bank of New York and the Bank of North America for temporary loans, and it was from the moneys received from these banks that he paid the first installment of salary due President Washington, Senators, Representatives and officers of Congress, during the first session under the Constitution, which began at the city of New York, March 4, 1789.
“The first ‘Bank of the United States’ appears to have been proposed by Alexander Hamilton in December, 1790, and it was incorporated by an act of Congress, approved February 25, 1791, with a capital stock of $10,000,000 divided into 25,000 shares at $400 each. The government subscription of $2,000,000, under authority of the act, was paid by giving to the bank bills of exchange on Holland equivalent to gold, and borrowing from the bank a like sum for ten years at 6 per cent. interest. The bank went into operation very soon after its charter was obtained, and declared its first dividend in July, 1792. It was evidently well managed, and was of great benefit to the Government and the people at large, assisting the Government by loans in cases of emergency, and forcing the ‘wildcat’ banks of the country to keep their issues ‘somewhere within reasonable bounds.’ More than $100,000,000 of Government money was received and disbursed by it without the loss of a single dollar. It made semi-annual dividends, averaging about 8½ per cent., and its stock rose to a high price. The stock belonging to the United States was sold out at different times at a profit, 2,220 shares sold in 1802 bringing an advance of 45 per cent. The government subscription, with ten years’ interest amounted to $3,200,600, while there was received in dividends and for stock sold $3,773,580, a profit of nearly 28.7 per cent. In 1796 the credit of the Government was very low, as shown by its utter failure to negotiate a loan for the purpose of paying a debt to the Bank of the United States for moneys borrowed and used, partly to pay the expenses of suppressing the whisky insurrection in Pennsylvania and to buy a treaty with the pirates of Algiers. On a loan authorized for $5,000,000, only $80,000 could be obtained, and this at a discount of 12½ per cent.; and, there being no other immediate resource, United States Bank stock to the amount of $1,304,260 was sold at a premium of 25 per cent.
“Under an act approved June 30, 1798, the President was authorized to accept such vessels as were suitable to be armed for the public service, not exceeding twelve in number, and to issue certificates, or other evidences of the public debt of the United States, in payment. The ships George Washington, Merrimack, Maryland and Patapsco, brig Richmond, and frigates Boston, Philadelphia, John Adams, Essex and New York, were purchased, and 6 per cent. stock, redeemable at the pleasure of Congress, was issued in payment to the amount of $711,700.
“The idea of creating a navy by the purchase of vessels built by private parties and issuing stock in payment therefor, seems to have originated with Hamilton.
“In the years 1797 and 1798 the United States, though nominally at peace with all the world, was actually at war with France—a war not formally declared, but carried on upon the ocean with very great virulence. John Marshall, Elbridge Gerry and Charles C. Pinckney were appointed envoys extraordinary to the French Republic, with power for terminating all differences and restoring harmony, good understanding and commercial and friendly intercourse between the two nations; but their efforts were in vain, and extensive preparations were made to resist a French invasion. It was evident that the ordinary revenues of the country would be inadequate for the increased expenditure, and a loan of $5,000,000 was authorized by an act approved July 16, 1798, redeemable at pleasure after fifteen years. The rate of interest was not specified in the act, and the market rate at the time being 8 per cent. this rate was paid, and it was thought by a committee of Congress that the loan was negotiated ‘upon the best terms that could be procured, and with a laudable eye to the public interest.’ A loan of $3,500,000 was authorized by an act approved May 7, 1800, for the purpose of meeting a large deficit in the revenues of the preceding year, caused by increased expenditures rendered necessary on account of the difficulties with France, and stock bearing 8 per cent. interest, reimbursable after fifteen years, was issued to the amount of $1,481,700, on which a premium was realized of nearly 5¾ per cent. These are the only two instances in which the Government has paid 8 per cent. interest on its bonds.
“The province of Louisiana was ceded to the United States by a treaty with France, April 30, 1803, in payment for which 6 per cent. bonds, payable in fifteen years, were issued to the amount of $11,250,000, and the balance which the Government agreed to pay for the province, amounting to $3,750,000, was devoted to reimbursing American citizens for French depredations on their commerce. These claims were paid in money, and the stock redeemed by purchases made under the direction of the Commissioners of the Sinking Fund within twelve years. Under an act approved February 11, 1807, a portion of the ‘old 6 per cent.’ and ‘deferred stocks’ was refunded into new stock, bearing the same rate of interest, but redeemable at the pleasure of the United States. This was done for the purpose of placing it within the power of the Government to reimburse the amount refunded within a short time, as under the old laws these stocks could only be redeemed at the rate of 2 per cent. annually. Stock was issued amounting to $6,294,051, nearly all of which was redeemed within four years. Under the same act old ‘3 per cent. stock’ to the amount of $2,861,309 was converted into 6 per cents., at sixty-five cents on the dollar, but this was not reimbursable without the assent of the holder until after the whole of certain other stocks named in the act was redeemed. The stock issued under this authority amounted to $1,859,871. It would appear that the great majority of the holders of the “old stock” preferred it to the new. A loan equal to the amount of the principal of the public debt reimbursable during the current year was authorized by an act approved May 1, 1810, and $2,750,000 was borrowed at 6 per cent. interest from the Bank of the United States, for the purpose of meeting any deficiency arising from increased expenditures on account of the military and naval establishments. This was merely a temporary loan, which was repaid the following year.
“The ordinary expenses for the year 1812 were estimated by the Committee of Ways and Means of the House of Representatives at $1,200,000 more than the estimated receipts for the same period, and the impending war with Great Britain made it absolutely necessary that some measures should be adopted to maintain the public credit, and provide the requisite funds for carrying on the Government. Additional taxes were imposed upon the people, but as these could not be made immediately available there was no other resource but new loans and the issue of Treasury notes. This was the first time since the formation of the new Government that the issue of such notes had been proposed, and they were objected to as engrafting on our system of finance a new and untried measure.
“Under various acts of Congress approved between March 4, 1812, and February 24, 1815, 6 per cent. bonds were issued to the amount of $50,792,674. These bonds were negotiated at rates varying from 20 per cent. discount to par, the net cash realized amounting to $44,530,123. A further sum of $4,025,000 was obtained by temporary loans at par, of which sum $225,000 was for the purpose of repairing the public buildings in Washington, damaged by the enemy on the night of August 24, 1814. These ‘war loans’ were all made redeemable at the pleasure of the Government after a specified date, and the faith of the United States was solemnly pledged to provide sufficient revenues for this purpose. The ‘Treasury note system’ was a new feature, and its success was regarded as somewhat doubtful.
“Its subsequent popularity, however, was owing to a variety of causes. The notes were made receivable everywhere for dues and customs, and in payment for public lands. They were to bear interest from the day of issue, at the rate of 5–⅖ per cent. per annum, and their payment was guaranteed by the United States, principal and interest, at maturity. They thus furnished a circulating medium to the country, superior to the paper of the suspended and doubtful State banks. These issues were therefore considered more desirable than the issue of additional stock, which could be realized in cash only by the payment of a ruinous discount. The whole amount of Treasury notes issued during the war period was $36,680,794. The Commissioners of the Sinking Fund were authorized to provide for their redemption by purchase, in the same manner as for other evidences of the public debt, and by authority of law $10,575,738 was redeemed by the issue of certificates of funded stock, bearing interest at from 6 to 7 per cent. per annum, redeemable at any time after 1824.
“During the years 1812–13 the sum of $2,984,747 of the old 6 per cent. and deferred stocks were refunded into new 6 per cent. stock redeemable in twelve years; and by an act approved March 31, 1814, Congress having authorized a settlement of the ‘Yazoo claims’ by an issue of non-interest-bearing stock, payable out of the first receipts from the sale of public lands in the Mississippi territory, $4,282,037 was issued for this purpose. On the 24th of February, 1815, Secretary Dallas reported to Congress that the public debt had been increased, in consequence of the war with Great Britain, $68,783,122, a large portion of which was due and unpaid, while another considerable proportion was fast becoming due. These unpaid or accruing demands were in part for temporary loans, and the balance for Treasury notes either due or maturing daily. To provide for their payment a new loan for the full amount needed was authorized by act of March 3, 1815, and six per cent. stock redeemable in fifteen years, was issued in the sum of $12,288,148. This stock was sold at from 95 per cent. to par, and was nearly all redeemed in 1820 by purchases made by the Commissioners of the Sinking Fund.
“The Government became a stockholder in the second Bank of the United States, to the amount of 70,000 shares, under the act of incorporation, approved April 10, 1816. The capital stock was limited to $35,000,000, divided into 350,000 shares of $100 each. The Government subscription was paid by the issue of 5 per cent. stock to the amount of $7,000,000, redeemable at the pleasure of the Government. This was a profitable investment for the United States, as in addition to $1,500,000 which the bank paid as a bonus for its charter, the net receipts over and above disbursements amounted to $4,993,167. The available funds in the Treasury on the 1st of January, 1820, were less than $250,000, and the estimated deficiency for the year amounted to nearly $4,000,000. This state of affairs was owing partly to the disastrous effects of the commercial crisis of 1819, heavy payments for the redemption of the public debt, continued through a series of years, and large outstanding claims, amounting to over $30,000,000, resulting from the late war with Great Britain. To meet the emergency, a loan was authorized by act of May 15, 1820, and $999,999.13 was borrowed at 5 per cent., redeemable in twelve years, and $2,000,000 at 6 per cent., reimbursable at pleasure, this latter stock realizing a premium of 2 per cent. By act of March 3, 1821, 5 per cent. stock amounting to $4,735,276 was issued at a premium of over 5½ per cent., and the proceeds used in payment of the principal and interest of the public debt falling due within the year.
“An effort was made in 1822 to refund a portion of the 6 per cent. war loans of 1812–14 into 5 per cents., but only $56,705 could be obtained. Two years later the Government was more successful, and, under the act of May 26, 1824, 6 per cent. stock of 1813 to the amount of $4,454,728 was exchanged for new stock bearing 4½ per cent. interest, redeemable in 1833–34. During the same year $5,000,000 was borrowed at 4½ per cent. to provide for the payment of the awards made by the Commissioners under the treaty with Spain of February 22, 1819, and a like amount, at the same rate of interest, to be applied in paying off that part of the 6 per cent. stock of 1812 redeemable the following year. The act of March 3, 1825, authorized a loan of $12,000,000, at 4½ per cent. interest, the money borrowed to be applied in paying off prior loans, but only $1,539,336 was exchanged for an equal amount of 6 per cent. stock of 1813.
“In the year 1836 the United States was, for the first time in the history of the country, practically out of debt. Secretary Woodbury, in his report of December 8, 1836, estimated the amount of public debt still outstanding at about $328,582, and this remained unpaid solely because payment had not been demanded, ample funds to meet it having been deposited in the United States Bank and loan offices. The debt outstanding consisted mainly of unclaimed interest and dividends, of claims for services and supplies during the Revolution, and of old Treasury notes, and it is supposed that payment of these had not been asked for solely because the evidences of the debt had been lost or destroyed. The estimates showed the probability of a surplus of at least $14,000,000 in the Treasury at the close of the year 1836, and this estimate proved to be far below the truth. In this favorable condition of the public finances, Congress adopted the extraordinary resolution of depositing the surplus over $5,000,000 with the several States, and under the act of June 23, 1836, surplus revenue amounting to $28,101,644.91 was so deposited.
“In 1837, however, the state of the country had changed. The ‘flush’ times of 1835 and 1836 had been succeeded by extraordinary depression, which ultimately produced a panic. In May most of the banks suspended specie payments. The sales of public lands, and the duties on the importations of foreign goods, which had helped to swell the balance in the Treasury to over $42,000,000, had fallen off enormously. Even on the goods that were imported it was difficult to collect the duties, for the law compelled them to be paid in specie, and specie was hard to obtain. It had become impossible not only to pay the fourth installment of the surplus at the end of 1836 to the several States, but even to meet the current expenses of the Government from its ordinary revenues. In this emergency the Secretary of the Treasury suggested that contingent authority be given the President to cause the issue of Treasury notes. This measure was generally supported on the ground of absolute necessity, as there was a large deficit already existing, and this was likely to increase from the condition of the country at that time. The measure was opposed, however, by some who thought that greater economy in expenditures would relieve the Treasury, while others denounced it as an attempt “to start a Treasury bank.”
“However, an act was approved October 12, 1837, authorizing an issue of $10,000,000 in Treasury notes in denominations not less than fifty dollars, redeemable in one year from date, with interest at rates fixed by the Secretary, not exceeding 6 per cent. These notes, as usual, were receivable in payment of all duties and taxes levied by the United States, and in payment for public lands. Prior to 1846, the issue of notes of this character amounted to $47,002,900, bearing interest at rates varying from one tenth of one per cent. to 6 per cent. To provide in part for their redemption, authority was granted for the negotiation of several loans, and $21,021,094 was borrowed for this purpose, bonds being issued for a like sum, bearing interest at from 5 to 6 per cent., redeemable at specified dates. These bonds were sold at from 2½ per cent. discount to 3¾ per cent. premium, and redeemed at from par to 19¼ per cent. advance.
“War with Mexico was declared May 13, 1846, and in order to provide against a deficiency a further issue of $10,000,000 in Treasury notes was authorized by act of July 22, 1846, under the same limitations and restrictions as were contained in the act of October, 1837, except that the authority given was to expire at the end of one year from the passage of the act. The sum of $7,687,800 was issued in Treasury notes, and six per cent. bonds having ten years to run were issued under the same act to the amount of $4,999,149. These were sold at a small advance, and redeemed at various rates from par to eighteen and two-thirds per cent. premium.
“The expenses incurred on account of the war with Mexico were much greater than the original estimates, and the failure to provide additional revenues sufficient to meet the increased demands made a new loan necessary, as well as an additional issue of notes, which had now become a popular method of obtaining funds. Under the authority granted by act of January 28, 1847, Treasury notes to the amount of $26,122,100 were issued at par, redeemable one and two years from date, with interest at from 5–⅖ to 6 per cent. More money still being needed, a 6 per cent. loan, having twenty years to run, was placed upon the market, under the authority of the same act, and bonds to the amount of $28,230,350 were sold at various rates, ranging from par to 2 per cent. premium. Of this stock the sum of $18,815,100 was redeemed at an advance of from 1½ to 21¼ per cent., the premium paid (exclusive of commissions) amounting to $3,466,107. Under the act of March 31, 1848, 6 per cent. bonds, running twenty years, were issued to the amount of $16,000,000, and sold at a premium ranging from 3 to 4.05 per cent. This loan was made for the same purpose as the preceding one, and $7,091,658 was redeemed by purchase at an advance ranging from 8 to 22.46 per cent., the premium paid amounting to $1,251,258.
“The widespread depression of trade and commerce which occurred in 1857 was severely felt by the Government, as well as by the people, and so great was the decrease in the revenues from customs that it became absolutely necessary to provide the Treasury with additional means for meeting the demands upon it. Treasury notes were considered as preferable to a new loan, and by the act of December 23, 1857, a new issue was authorized for such an amount as the exigencies of the public service might require, but not to exceed at any one time $20,000,000. These notes were receivable in payment for all debts due the United States, including customs, and were issued at various rates of interest, ranging from 3 to 6 per cent., to the amount of $52,778,900, redeemable one year from date, the interest to cease at the expiration of sixty days’ notice after maturity. In May, 1858, the Secretary of the Treasury informed Congress that, owing to the appropriations having been increased by legislation nearly $10,000,000 over the estimates, while the customs revenue had fallen off to a like amount, it would be necessary to provide some means to meet the deficit. In these circumstances, a new loan was authorized by act of June 14, 1858, and 5 per cent. bonds amounting to $20,000,000, redeemable in fifteen years, were sold at an average premium of over 3½ per cent. Under the act of December 17, 1873, $13,957,000 in bonds of the loan of 1881, and $260,000 in bonds of a loan of 1907, were issued in exchange for a like amount of bonds of this loan.
“The act of June 22, 1860, authorized the President to borrow $21,000,000 on the credit of the United States, the money to be used only in the redemption of Treasury notes, and to replace any amount of such notes in the Treasury which should have been paid in for public dues. Only $7,022,000 was borrowed at 5 per cent. interest, the certificates selling at from par to 1.45 per cent. premium. The failure to realize the whole loan was caused by the political troubles which culminated in the civil war. In September, bids were invited for $10,000,000, and the whole amount offered was speedily taken. It soon became evident, however, that war was inevitable, and a commercial crisis ensued, during which a portion of the bidders forfeited their deposits, and the balance of the loan was withdrawn from the market. Authority was granted by the act of December 17, 1860, for a new issue of Treasury notes, redeemable in one year from date, but not to exceed $10,000,000 at any one time, with interest at such rates as might be offered by the lowest responsible bidders after advertisement. An unsuccessful attempt was made to pledge the receipts from the sale of public lands specifically for their redemption. The whole amount of notes issued under this act was $10,010,900, of which $4,840,000 bore interest at 12 per cent. Additional offers followed, ranging from 15 to 36 per cent., but the Treasury declined to accept them.
“Up to this period of our national existence the obtaining of the money necessary for carrying on the Government and the preservation inviolate of the public credit had been comparatively an easy task. The people of the several States had contributed in proportion to their financial resources; and a strict adherence to the fundamental maxim laid down by Hamilton had been maintained by a judicious system of taxation to an extent amply sufficient to provide for the redemption of all our national securities as they became due. But the time had come when we were no longer a united people, and the means required for defraying the ordinary expenses of the Government were almost immediately curtailed and jeopardized by the attitude of the States which attempted to secede. The confusion which followed the inauguration of the administration of President Lincoln demonstrated the necessity of providing unusual resources without delay. A system of internal revenue taxation was introduced, and the tariff adjusted with a view to increased revenues from customs. As the Government had not only to exist and pay its way, but also to provide for an army and navy constantly increasing in numbers and equipment, new and extraordinary methods were resorted to for the purpose of securing the money which must be had in order to preserve the integrity of the nation. Among these were the issue of its own circulating medium in the form of United States notes[[37]] and circulating notes,[[38]] for the redemption of which the faith of the nation was solemnly pledged. New loans were authorized to an amount never before known in our history, and the success of our armies was assured by the determination manifested by the people themselves to sustain the Government at all hazards. A brief review of the loan transactions during the period covered by the war is all that can be attempted within the limited space afforded this article. The first war loan may be considered as having been negotiated under the authority of an act approved February 8, 1861. The credit of the Government at this time was very low, and a loan of $18,415,000, having twenty years to run, with 6 per cent. interest, could only be negotiated at a discount of $2,019,776.10, or at an average rate of $89.03 per one hundred dollars. From this time to June 30, 1865, Government securities of various descriptions were issued under authority of law to the amount of $3,888,686,575, including the several issues of bonds, Treasury notes, seven-thirties, legal tenders and fractional currency. The whole amount issued under the same authority to June 30, 1880, was $7,137,646,836, divided as follows:
| Six per cent. bonds | $1,130,279,000 |
| Five per cent. bonds | 196,118,300 |
| Temporary loan certificates | 969,992,250 |
| Seven thirty notes | 716,099,247 |
| Treasury notes and certificates of indebtedness | 1,074,713,132 |
| Old demand notes, legal tenders, coin certificates and fractional currency | 3,050,444,907 |
| Total | $7,137,646,836 |
“This increase may be readily accounted for by the continued issue of legal tenders, compound interest notes, fractional currency and coin certificates, together with a large amount of bonds issued in order to raise the money necessary to pay for military supplies, and other forms of indebtedness growing out of the war. The rebellion was practically at an end in May, 1865, yet the large amount of money required for immediate use in the payment and disbandment of our enormous armies necessitated the still further negotiation of loans under the several acts of Congress then in force, and it was not until after the 31st of August, 1865, that our national debt began to decrease. At that time the total indebtedness, exclusive of the “old funded and unfunded debt” of the Revolution, and of cash in the Treasury, amounted to $2,844,646,626.56. The course of our financial legislation since that date has been constantly toward a reduction of the interest, as well as the principal of the public debt.
“By an act approved March 3, 1865, a loan of $600,000,000 was authorized upon similar terms as had been granted for previous loans, with the exception that nothing authorized by this act should be made a legal tender, or be issued in smaller denominations than fifty dollars. The rate of interest was limited to 6 per cent. in coin, or 7.3 per cent. in currency, the bonds issued to be redeemable in not less than five, nor more than forty, years. Authority was also given for the conversion of Treasury notes or other interest-bearing obligations into bonds of this loan. An amendment to this act was passed April 12, 1866, authorizing the Secretary of the Treasury, at his discretion, to receive any Treasury notes or other obligations issued under any act of Congress, whether bearing interest or not, in exchange for any description of bonds authorized by the original act; and also to dispose of any such bonds, either in the United States or elsewhere, to such an amount, in such manner, and at such rates as he might deem advisable, for lawful money, Treasury notes, certificates of indebtedness, certificates of deposit, or other representatives of value, which had been or might be issued under any act of Congress; the proceeds to be used only for retiring Treasury notes or other national obligations, provided the public debt was not increased thereby. As this was the first important measure presented to Congress since the close of the war tending to place our securities upon a firm basis, the action of Congress in relation to it was looked forward to with a great deal of interest. The discussion took a wide range, in which the whole financial administration of the Government during the war was reviewed at length. After a long and exciting debate the bill finally passed, and was approved by the President. Under the authority of these two acts, 6 per cent, bonds to the amount of $958,483,550 have been issued to date. These bonds were disposed of at an aggregate premium of $21,522,074, and under the acts of July 14, 1870, and January 20, 1871, the same bonds to the amount of $725,582,400 have been refunded into other bonds bearing a lower rate of interest. The success of these several loans was remarkable, every exertion being used to provide for their general distribution among the people.
“In 1867 the first issue of 6 per cent. bonds, known as five-twenties, authorized by the act of Feb. 25, 1862, became redeemable, and the question of refunding them and other issues at a lower rate of interest had been discussed by the Secretary of the Treasury in his annual reports, but the agitation of the question as to the kinds of money in which the various obligations of the Government should be paid, had so excited the apprehension of investors as to prevent the execution of any refunding scheme.
“The act to strengthen the public credit was passed March 18, 1869, and its effect was such as secured to the public the strongest assurances that the interest and principal of the public debt outstanding at that time would be paid in coin, according to the terms of the bonds issued, without any abatement.
“On the 12th of January, 1870, a bill authorizing the refunding and consolidation of the national debt was introduced in the Senate, and extensively debated in both Houses for several months, during which the financial system pursued by the Government during the war was freely reviewed. The adoption of the proposed measure resulted in an entire revolution of the refunding system, under which the public debt of the United States at that time was provided for, by the transmission of a large amount of debt to a succeeding generation. The effect of this attempt at refunding the major portion of the public debt was far more successful than any similar effort on the part of any Government, so far as known.
“The act authorizing refunding certificates convertible into 4 per cent. bonds, approved February 26, 1879, was merely intended for the benefit of parties of limited means, and was simply a continuation of the refunding scheme authorized by previous legislation.
“The period covered precludes any attempt toward reviewing the operation by which the immediate predecessor of the present Secretary reduced the interest on some six hundred millions of 5 and 6 per cent. bonds to 3½ per cent. It is safe to say, however, that under the administration of the present Secretary there will be no deviation from the original law laid down by Hamilton.”