Readings in Money and Banking / Selected and Adapted

by Chester Arthur Phillips

	1862	Fiscal Year			1866
	(Six Months)	1863	1864	1865	(Two Months)
Current receipts:
From customs	33.5	69.1	102.3	84.9	31.3
From sales of public lands	.1	.2	.6	1.0	.1
From direct tax	1.8	1.5	.5	1.2	.0
From miscellaneous sources	.5	3.0	47.5	33.0	12.3
From internal revenue	...	37.6	109.7	209.5	64.4
	——	———	———	———	———
	35.9	111.4	260.6	329.6	108.1
Estimated actual increase	0	10	39	106	19

The caution is hardly necessary that the above results are to be accepted subject also to a wide margin of error.

There were other financial consequences of the shift from the specie to the paper standard, however, that were not unimportant, though they were indirect and difficult to gauge. Two of the most prominent must be indicated.

1. It is probable that not a little of the lavishness with which public funds were appropriated by Congress during the war can be traced to the paper-money policy.

2. If the paper currency tempted the Government to reckless expenditures, it also predisposed the people to submit more willingly to heavy taxation. It has been remarked several times that the advance of money wages and of money prices made most people feel wealthier, and, feeling wealthier, they were less inclined to grumble over the taxes.

While these indirect effects of the paper currency on expenditures and receipts could not by any system of bookkeeping be brought to definite quantitative statement, it is probable that their net result was unfavorable to the treasury.

Contraction and Inflation of the Legal Tenders[9]

The policy of a permanent currency of government legal-tender paper at the close of the Civil War was unknown. Upwards of four hundred million notes of the United States were, it is true, in circulation at the return of peace. There were doubtless many individuals who approved the continuance of exactly this form of currency. But no such proposition had been advanced by any public man of influence or by any political organization. That the resort to legal-tender powers was an evil justified only by extreme emergency, and that the circulation of government notes in any form was a purely temporary measure, were the unanimous convictions of the statesmen who contrived the system. The logical inference that these Government notes would be paid off and cancelled, as soon as the war deficiency had ended, was publicly accepted.

Such was the theory and purpose of the public men through whom the Legal-Tender Act was constructed and applied. Nor is the general position of our statesmen, at the close of the Civil War, any more obscure than their original position. The first financial resolution adopted by Congress, in December, 1865, was an explicit promise to retire the legal tenders. The first legislation of that Congress gave discretionary powers to the Secretary of the Treasury for continuous contraction. Very few legislative victories are won without at least a temporary popular endorsement, and the votes of December, 1865, and of March, 1866, were no exceptions. But the popular approval of contraction in that year, exception as it was to all our subsequent legislation, is readily enough explained. Public opinion, when the war ended, was governed by impatience with inflated prices; inflation far beyond the European level, and properly ascribed to the condition of the currency. The cost of living reached during 1865 the highest point recorded in this country's history. From 1860 to 1865, inclusive, the average of European prices rose only 4 to 6 per cent.; average prices in the United States advanced, in the same period, no less than 116 per cent. With flour at $16 a barrel, butter at 55 cents a pound, coal at $10 a ton, and wages and salaries advanced since 1860 hardly one-third as far as prices, the demand for currency reform obtained ready endorsement from the people.

This popular sentiment was further strengthened by the Administration's attitude at the opening of Lincoln's second term. Mr. McCulloch's first official Treasury report, dated December 4, 1865, took positive ground for the reduction of the legal-tender debt. He asked authority to issue bonds in his discretion, at 6 per cent. or less, "for the purpose of retiring not only the compound interest notes, but the United States notes."