History of the United States, Volume 4

by Elisha Benjamin Andrews

The position of Secretary of the Treasury during the war was anything but a bed of roses. The ordinary national income was hardly a drop in the bucket compared with the enormous and constantly increasing expenses. The total receipts for the year ending July 1, 1860, were only $81,000,000. How should the vast sums needed to carry on the war be raised? Resort was had to two sources of revenue—taxation and loans.

A considerable revenue was already derived from customs imposed upon imported goods. In 1861, and again in 1863, tariffs were raised enormously, professedly to increase the revenue. These high rates in a measure defeated their own purpose, altogether stopping the importation of not a few articles.

The war compelled the Government to resort to internal taxation—always unpopular and now unknown in the United States for nearly half a century. Taxes were laid upon almost everything—upon trades, incomes, legacies, manufactures. The words of Sydney Smith will apply to our internal taxes during the war: “Taxes on the ermine which decorates the judge, and the rope which hangs the criminal; on the poor man’s salt and the rich man’s spice; on the brass nails of the coffin and the ribands of the bride.” The tax on many finished products ranged from eight to fifteen per cent.; on some it rose to twenty per cent.

Maximilian Watching the Departure of the Last French Troops from the City of Mexico.

But these taxes, severe as they were, could furnish only a small part of the necessary income. The Government must borrow. In the first year of the war the banks loaned the United States $150,000,000 at 7.3 per cent. interest. Many other loans were secured as the war went on—one for $500,000,000, another for $900,000,000. As security the Government issued bonds, bearing various rates of interest and payable after a certain number of years. Treasury notes were also issued and made legal tender for all debts public and private. As the Government paid its own debts with them, they were in the nature of a forced loan. Of those which bore no interest (commonly known as greenbacks) $433,000,000 were issued from first to last. Also, when property was seized for the use of the army, the owners were given certificates of indebtedness which entitled the holders to payment at the United States Treasury.

The proportion of revenue derived from each of the above sources is illustrated by the report of the treasurer of the United States for the year ending July 1, 1865. Customs yielded $85,000,000, internal revenue $209,000,000, loans $1,470,000,000.

Finance legislation during the war was more patriotic than wise, due partly to necessary haste, largely to ignorance. The internal taxes bore very unequally upon different classes. The tariff was ill-adjusted to the internal taxes, letting in at low rates some classes of goods whose home production was heavily taxed, thus discriminating in favor of the foreigner. Millions of debt and half the other economic evil of the war might have been saved by doing more to keep the paper dollar on a par with gold. Thus the banks should not have been compelled to pay in gold the loan of 1861. It forced them to suspend specie payment altogether, December 31st of that year—those of New York City first, followed by others everywhere, and by the United States itself. Gold had been at a nominal premium all through 1861, but the first recorded sale at an advance was on January 13, 1862. It would have been better, also, to resort earlier to heavy loans, even at high rates, instead of flooding the country with greenbacks. The national banks, which were created on purpose to help the sale of government bonds, should have been forced to purchase new bonds instead of supplying themselves with bonds already issued, their purchase of which did the Government no good whatever. Neglect in these regards caused the paper dollar to fall in value. In July, 1864, it was worth only thirty-five cents in gold.

The finances of the Confederacy went steadily from bad to worse. The blockade cut off its revenue from import duties. Its poor credit forbade large loans. The government had to rely mainly upon paper money. This soon became almost worthless. In December, 1861, it took $120 in paper money to buy $100 in gold; in 1863 it took $1,900; in 1864, $5,000. Nearly $1,000,000,000 in paper money was issued in all. The Confederate debt at the close of the war was $2,000,000,000. Under the combined influence of depreciated currency and scarcity of goods, prices became ludicrously high. As early as 1862 flour was $40 a barrel and salt $1 a pound. Before the war was over, a pound of sugar brought $75, a spool of thread $20. Toward the end of the war a Confederate soldier, just paid off, went into a store to buy a pair of boots. The price was $200. He handed the store-keeper a $500 bill. “I can’t change this,” “Oh, never mind,” replied the paper millionaire. “I never let a little matter like $300 interfere with a trade.” Of course when the Confederacy collapsed all this paper money became absolutely worthless.