ISSUES OF BONDS AND NOTES

The convention authorized the General Assembly of the State to issue bonds to such amounts and in such sums as seemed best, thus giving the Assembly practically unlimited discretion. But it was provided that money must not be borrowed except for purposes of military defense, unless by a two-thirds vote of the members elected to each house; and the faith and credit of the State was pledged for the punctual payment of principal and interest.[[7]]

The Legislature hastened to avail itself of this permission. In 1861, a bond issue of $2,000,000 for defense, and not liable to taxation, was authorized at one time; at another, $385,000 for defense besides an issue of $1,000,000 in treasury notes receivable for taxes. Of the first issue authorized only $1,759,500 was ever issued. Opposition to taxation caused the State to take up the war tax of $2,000,000 (August 19, 1861), and for this purpose $1,700,000 in bonds were issued, the banks supplying the remainder. There was a relaxation in taxation during the war; paper money was easily printed, and the people were opposed to heavy taxes.[[8]]

In 1862, bonds to the amount of $2,000,000 were issued for the benefit of the indigent. The Governor was given unlimited authority to issue bonds and notes, receivable for taxes, to “repair the treasury,” and $2,085,000 in bonds was issued under this permit. These bonds drew interest at 6%, ran for 20 years, and sold at a premium of from 50% to 100%. Bonds were used both for civil and for military purposes, but chiefly for the support of the destitute. Treasury notes to the amount of $3,500,000 were issued, drawing interest at 5%, and receivable for taxes. The Confederate Congress came to the aid of Alabama with a grant of $1,200,000 for the defense of Mobile.[[9]] In 1863, notes and bonds for $4,000,000 were issued for the benefit of indigent families of soldiers, and $1,500,000 for defense; $90,000 in bonds was paid for the steamer Florida, which was later turned over to the Confederate government.[[10]] In 1864, $7,000,000 were appropriated for the support of indigent families of soldiers and an unlimited issue of bonds and notes was authorized.[[11]] In 1862, the Alabama Legislature proposed that each State should guarantee the debt of the Confederate States in proportion to its representation in Congress. This measure was opposed by the other States, and failed.[[12]] A year later a resolution of the Legislature declared that the people of Alabama would cheerfully submit to any tax, not too oppressive in amount or unequal in operation, laid by the Confederate government for the purpose of reducing the volume of currency and appreciating its value. The Assembly also signified its disapproval of the scheme put forth at the bankers’ meeting at Augusta, Georgia—to issue Confederate bonds with interest payable in coin and to levy a heavy tax of $60,000,000 to be paid in coin or in coupons of the proposed new issue.[[13]]

The Alabama treasury had many Confederate notes received in taxes. Before April 1, 1864, (when such notes were to be taxed one-third of their face value), these could be exchanged at par for 20-year 6% Confederate bonds. After that date the Confederate notes were fundable at 33⅓% of their face value only.[[14]] After June 14, 1864, the State treasury could exchange Confederate notes for 4% non-taxable Confederate bonds, or one-half for 6% bonds and one-half for new notes. The Alabama Legislature of 1864 arranged for funding the notes according to the latter method.[[15]] The Alabama Legislature of 1861 had made it lawful for debts contracted after that year to be payable in Confederate notes.[[16]] Later, a meeting of the citizens of Mobile proposed to ostracise those who refused to accept Confederate notes. Cheap money caused a clamor for more, and the heads of the people were filled with fiat money notions. The rise in prices stimulated more issues of notes. On February 9, 1861, $1,000,000 in State Treasury notes was issued and in 1862, there was a similar issue of $2,000,000 more. These State notes were at a premium in Confederate notes, which were discredited by the Confederate Funding Act of February 17, 1864. Confederate notes were eagerly offered for State notes, but the State stopped the exchange.[[17]] December 13, 1864, a law was passed providing for an unlimited issue of State notes redeemable in Confederate notes and receivable for taxes.

Private individuals often issued notes on their own account, and an enormous number was put into circulation. The Legislature, by a law of December 9, 1862, prohibited the issue of “shin-plaster” or other private money under penalty of $20 to $500 fine, and any person circulating such money was to be deemed the maker. It was not successful, however, in reducing the flood of private tokens; the credit of individuals was better than the credit of the government.

Executors, administrators, guardians, and trustees were authorized to make loans to the Confederacy, and to purchase and receive for debts due them bonds and Treasury notes of the Confederacy and of Alabama, and the interest coupons of the same. One-tenth of the Confederate $15,000,000 loan of February 28, 1861 was subscribed in Alabama.[[18]] In December 1863, the Legislature laid a tax of 37½% on bonds of the State and of the Confederacy unless the bonds had been bought directly from the Confederate government or from the State.[[19]] This was to punish speculators. After October 7, 1864, the State Treasurer was directed to refuse to receive for taxes (except at a discount of ⅓) Confederate notes issued before the date of the Funding Act (Feb. 17, 1864). Later, Confederate notes were taken for taxes at their full market value.[[20]]

Gold was shipped through the blockade at Mobile to pay the interest on the State bonded debt held in London. It has been charged that this money was borrowed from the Central, Commercial, and Eastern Banks and was never repaid, recovery being denied on the ground that the State could not be sued.[[21]] But the banks received State and Confederate bonds under the new banking law in return for their coin. The exchange was willingly made, for otherwise the banks would have had to continue specie payments or forfeit their charters. And to continue specie payments meant immediate bankruptcy.[[22]] After the war, the State was forbidden to pay any debt incurred in aid of the war, nor could the bonds issued in aid of the war be redeemed. The banks suffered just as all others suffered, and it is difficult to see why the State should make good the losses of the banks in Confederate bonds, and not make good the losses of private individuals. To do either would be contrary to the Fourteenth Amendment.

The last statement of the condition of the Alabama Treasury was as follows:

Balance in Treasury, September 30, 1864$3,713,959
Receipts, September 30, 1864 to May 24, 18653,776,188
Total7,490,147
Disbursements, September 30, 1864 to May 24, 18656,698,853
Balance in Treasury791,294
  The balance was in funds as follows:
Checks on Bank of Mobile payable in Confederate notes$ 11,440
Certificate of deposit, Bank of Mobile, payable in Confederate notes1,330
Confederate and State notes in Treasury517,889
State notes, change bills (legal shin plasters)250,004
Notes of State banks and branches358
Bank notes424
Silver337
Gold on hand497
Gold on deposit in Northern banks35
Balance$ 791,294

To dispose of nearly seven million dollars in small notes must have kept the Treasury very busy during the last seven months of its existence. It is interesting to note that the Treasury kept at work until May 24, 1865, six weeks after the surrender of General Lee.