Seventeen Talks on the Banking Question / Between Uncle Sam and Mr. Farmer, Mr. Banker, Mr. Lawyer, Mr. Laboringman, Mr. Merchant, Mr. Manufacturer

by Charles N. Fowler

As a result of the night's discussion, Mr. Lawyer was forced to admit the unwisdom of any such issue of legal tender money, and that in the light of the evidence, such an issue was without authority of law and unconstitutional.

Mr. Banker: Uncle Sam, I think it should be stated right here that every President of the United States and every successive Congress of the United States down to 1862 recognized the fact that it was the intention of the members of the Constitutional Convention "to shut and bar the door against any such issue." Here is what Horace White says: "During the war of 1812, the Government of the United States issued Treasury notes to the amount of $36,680,794. All except $3,392,994 were payable to order and payable at a definite time and bore interest at the rate of five and two-fifths per cent. About two-thirds of them were of denominations of $100 or more. They did not become a part of the circulating medium and were not intended to. They were paid to such creditors of the Government as were willing to receive them, and they were generally at par until specie payments were suspended in September, 1814. On November 12, 1814, Mr. Hall, a member of Congress from Georgia, introduced a bill into the House for an issue of Treasury notes to be legal tender. The House, by vote of 42 to 95, and without debate, refused to consider this bill. No other attempt was made to pass a legal tender bill until 1862.

"In the panic and crisis of 1837-43, during a portion of which time specie payments were suspended, the Government issued Treasury notes to the amount of $47,000,000 to meet deficiencies of revenue. All of these notes bore interest, and were payable at a fixed time. They did not become a part of the circulating medium. A few were issued by the Secretary of the Treasury in 1842, bearing only a nominal rate of interest (one mill per $100 per annum). Such notes had not been contemplated by Congress. The Committee of Ways and Means of the House, to whom the subject was referred, reported that the Secretary had exceeded his authority, but Congress took no action on the report. It was the opinion of the Committee that these notes were 'Bills of Credit' within the meaning of the Constitution, and that Congress had no power to issue 'Bills of Credit.' In 1847, during the war with Mexico, Treasury notes to the amount of $26,122,100 were issued. They bore interest at the rate of five and two-fifths and six per cent. They did not enter into the circulation, and were not intended to. The foregoing issues of interest bearing Treasury notes were merely Government loans, of which the securities were in small denominations and had only short periods to run.

"When specie payments were suspended in 1814, and again in 1837, silver and small change disappeared because it was worth more per dollar than the bank notes in circulation. On both occasions private notes and tickets or less denomination that $1.00, and copper coins were issued and put in circulation by bridge, ferry, and turnpike companies and by tradesmen and manufacturers. One hundred and sixty-four varieties of private copper coin of the period of 1837 have been preserved in numismatic collections. Most of them bore the names of the issuers who promised to redeem them.

"Prior to the Civil War, the fiscal operations of the Government were transacted exclusively with coin, by its own officers, without the intervention of banks."

Mr. Merchant: Now it seems to me an interesting question why after maintaining this policy for more than seventy years from 1789 to 1862, a fundamentally different view was taken in 1862.

Mr. Lawyer: I think I can answer that question, if you will allow me. You see, I have been looking this matter up since our last discussion, when you fellows knocked me out, and I am now loaded for bear myself.

Salmon P. Chase, Secretary of the Treasury, probably knew as little about finance as any man of his great ability could. He did not seem to be able to think in the terms of economics at all. When the war broke out he happened to do the natural thing by first going to the bankers of New York, Philadelphia and Boston, and making loans amounting to one hundred and fifty million dollars. Though prior to that time the Secretary of the Treasury had had no authority to deposit the Government money in the banks, Congress then authorized him to do so, and he was enabled to leave it in the banks until he wanted it; but he did not know enough to do that even. He required the banks to pay the gold into the Treasury at New York at the rate of $5,000,000 per week. Fortunately, the public creditors knew more about this question than he did, or had more confidence in the country than he seemed to have; and so when they received the gold they immediately returned it to the banks. Chase's utter incapacity to deal with the question in his report as Secretary of the Treasury in the fall of 1861, and a threatened war with Great Britain, growing out of the Trent affair, so shocked public confidence that by January 1, 1862, our national finances were in a state of complete and utter collapse, and the consequence was that specie payments were suspended. I do not see how anyone can fail to conclude, after a careful study of the situation, that had Chase allowed the bankers to finance the war, we should have fared very much better than we did. We should probably have saved thirty-three per cent of the cost of the war, or approximately one billion dollars ($1,000,000,000), the total cost of the war being three billion two hundred million ($3,200,000,000).

Mr. Banker: I agree with you absolutely, Mr. Lawyer, Chase seemed to be as unfit to run the Treasury Department, as a fish is to run a foot race. If he had allowed James Gallatin, Moses Taylor and George S. Coe, three great New York bankers, who arranged the first loan to formulate a financial policy for him, the war could undoubtedly have been carried on without issuing greenbacks, or any "legal tender money." But after specie payments had been suspended, the situation was certainly critical, and became more difficult to manage. However, there were those who thought, and I agree with them, that it was never necessary at any time, even then to resort to "legal tender money," or greenbacks.