Triumphs and Wonders of the 19th Century: The True Mirror of a Phenomenal Era / A volume of original, entertaining and instructive historic and descriptive writings, showing the many and marvellous achievements which distinguish an hundred years of material, intellectual, social and moral progress

by James P. Boyd

The highest amount of legal-tender notes outstanding at any date was on January 3, 1864, $449,338,902. Their depreciation was hastened by the issue of the short-time interest-bearing securities in large amounts. During 1862 the average gold premium was 113.3; during 1863, 145.2; during 1864, 203.3. In July, 1864, this premium reached its highest point, an average of 258.1.

In 1865 the country began to feel the necessity of a contraction of the currency, with a view to as early a resumption of specie payments as the business interests would permit, and the Congress expressed the public sentiment by an almost unanimous resolution. On March 12, 1866, an act was approved calling for the retirement and cancellation of not more than $10,000,000 of legal tenders within six months, and thereafter not more than $4,000,000 during any one month. The effect was to reduce the legal tenders outstanding on December 31, 1867, to $356,000,000.

This reduction, together with the rapid payment of notes of other classes, used as currency, led to so sudden a contraction of the circulating medium, and such stringency in the money market, that Congress, by act of February 4, 1868, prohibited the further reduction of the legal-tender notes. The amount outstanding, October 1, 1872, was $356,000,000, and on January 1, 1874, $382,979,815, the increase being due to a construction on the part of secretaries of the Treasury to the effect that they had power to reissue retired notes which were held as a reserve. On June 20, 1874, Congress enacted that the United States notes outstanding and to be used as part of the circulating medium should not exceed $382,000,000, and that no part thereof should be held or used as a reserve.

Another attempt was made in 1875 to reduce the aggregate of legal-tender notes, preparatory to the resumption of specie payments. The Resumption Act of January 14, 1875, authorized, among other things, the retirement and cancellation of legal tenders till the amount outstanding should be reduced to $300,000,000; $35,318,984 were retired under this law, but further reduction was prohibited by act of May 31, 1878. The amount outstanding at that date was $346,681,016, and this has continued to the present time, no new issues having been authorized.

On January 1, 1879, the resumption of specie payments took place as provided in the act of January 14, 1875. At this latter date, the only legal-tender coin recognized by law was the gold coin. But, in February, 1878, the coinage of standard silver dollars was authorized, and they were to be a legal tender for all debts, unless otherwise expressly stipulated in the contract. This led to the claim on the part of those who favored silver that the redemption of legal-tender notes, provided for in coin in the act of 1875, could be effected by the use of silver dollars. But the general, and doubtless sound, construction of the law of 1875 has been that it was an express contract to redeem the legal-tender notes in the coin then recognized as legal tender, and in no other; and so the Treasury has redeemed legal tenders since 1879, in gold, when the same is demanded.

In 1869 the United States Supreme Court, the bench not being full, declared the acts authorizing legal-tender notes to be unconstitutional. But subsequently, the bench having its full quota of nine, the Court sustained the constitutionality of the acts, on the ground, mainly, that they were a proper exercise of the war power vested in the Congress. In 1883 the Court decided that the reissues of these notes, made in time of peace, were constitutional.

At the time of the resumption of specie payments there were $135,000,000 in gold and bullion on hand to provide for the redemption of such notes as might be presented. By Act of July 12, 1882, it was provided that when the redemption reserve of gold coin and bullion in the Treasury fell below $100,000,000, the issue of gold certificates should cease. This is held to indicate that Congress regarded $100,000,000 as the limit below which the redemption reserve should not be permitted to fall.

If this reserve had not been called upon to bear other burdens, there would probably never have been any doubts as to its sufficiency. In 1878, however, began the coinage of silver dollars and the issue of silver certificates. These notes were kept at par in gold by their interchangeability in the operations of commerce for legal-tender notes. They were thus an indirect charge on the gold reserve. From 1878 to 1890 they were increased at the rate of over $2,500,000 a month. In that year (July 14, 1890) an act was passed providing for the issue of Treasury notes in the purchase of silver bullion, which provided also for the coinage of some of the bullion purchased into silver dollars. These Treasury notes were redeemable both in gold and silver, and as the government never availed itself of its option to redeem in silver when gold was demanded for them, these notes as they were issued became a further burden on the gold reserve provided for the legal-tender notes.

By the beginning of the year 1893 the legal-tender notes, silver certificates, and Treasury notes had reached an aggregate of nearly $800,000,000, all depending on the Treasury reserve for gold redemption.

This reduction of the percentage of gold held to the amount of the demand liabilities raised doubts as to the ability of the government to maintain gold payments, and the legal tenders and Treasury notes were presented for redemption. The depletion of gold was so great that on one or two occasions there was danger that the reserve would be exhausted, and resort was had to the sale of bonds to procure gold to replenish the reserve.