At the inauguration of the permanent Government, in February, 1862, a popular aversion to internal taxation had been so strongly manifested as to indicate its partial failure. This will be further explained presently in our statement of the system of taxation.
Under all these circumstances the effort was made to avoid the increase in the volume of notes in circulation, by offering inducements to voluntary funding. The measures adopted for that purpose were but partially successful. Meanwhile the intervening exigencies from the fortunes of war permitted no delay. The issues of Treasury notes were increased until, in December, 1863, the currency in circulation amounted to more than six hundred million dollars, or more than threefold the amount required by the business of the country. The evil effects of this financial condition were but too apparent. In addition to the difficulty presented to the necessary operations of the Government, and the efficient conduct of the war, the most deplorable of all its results was, undoubtedly, its corrupting influence on the morals of the people. The possession of large amounts of Treasury notes led to a desire for investment; and, with a constantly increasing volume of currency, there was an equally constant increase of price in all objects of investment. This effect stimulated purchase by the apparent certainty of profit, and a spirit of speculation was thus fostered, which had so debasing an influence and such ruinous consequences that it became our highest duty to remove the cause by prompt and stringent measures.
I therefore recommended to Congress, in December, 1863, the compulsory reduction of the currency to the amount required by the business of the country, accompanied by a pledge that, under no stress of circumstances, would the amount be increased. I stated that, if the currency was not greatly and promptly reduced, the existing scale of inflated prices would not only continue, but, by the very fact of the large amounts thus made requisite in the conduct of the war, these prices would reach rates still more extravagant, and the whole system would fall under its own weight, rendering the redemption of the debt impossible, and destroying its value in the hands of the holder. If, on the contrary, a funded debt, with interest secured by adequate taxation, could be substituted for the outstanding currency, its entire amount would be made available to the holder, and the Government would be in a condition, beyond the reach of any probable contingency, to prosecute the war to a successful issue.
This recommendation was followed by the passage of the act of February 17, 1864, above mentioned. One of its features is the tax levied on the circulation. Regarding the Government when contracting a debt as the agent of the people, its debt is their debt. As the currency was held exclusively by ourselves, it was obvious that, if each person, held Treasury notes in exact proportion to the valuation of his whole estate, each would in fact owe himself the amount of the notes held by him; and, were it possible to distribute the currency among the people in this exact proportion, a tax levied on the currency alone, to an amount sufficient to reduce it to its proper limits, would afford the best of all remedies. Under such circumstances, the notes remaining in the hands of each holder after the payment of his tax would be worth quite as much as the whole sum previously held, for it would have an equal purchasing capacity.
After this law had been in operation for one year, it was manifest that it had the desired effect of withdrawing from circulation the large excess of Treasury notes which had been issued. On July 1, 1864, the outstanding amount was estimated at two hundred and thirty million dollars. The estimate of the amount funded under this act, about this time, was three hundred million dollars, while new notes were authorized to be issued to the extent of two thirds of the sum received under its provisions. The chief difficulty apprehended in connection with our finances, up to the close of the war, resulted from the depreciation of our Treasury notes, which was to be attributed to the increasing redundancy in amount and the diminishing confidence in their ultimate redemption.
The financial condition of the Government, near its close, is very correctly represented in the report of the Treasury Department. The total receipts of the Treasury for the two quarters ending on September 30, 1864, amounted to $415,191,550, which sum, added to the balance, $308,282,722, that remained in the Treasury on April 1, 1864, formed a total of $723,474,272. Of this total, not far from half, that is to say, $342,560,327, were applied to the extinction of the public debt; while the total expenditures were $272,378,505, leaving a balance in the Treasury on October 1, 1864, of $108,435,440. The sources from which this revenue was derived were as follows:
| Four per cent. registered bonds, act of February 17, 1864 | $13,363,500 |
| Six per cent. bonds, $500,000,000 loan, act of February 17, 1864 | 14,481,050 |
| Four per cent. call certificates, act of February 17, 1864 | 20,978,100 |
| Tax on old issue of certificates redeemed | $14,440,566 |
| Repayments by disbursing officers | 20,115,830 |
| Treasury notes, act of February 17, 1864 | 277,576,950 |
| War-tax | 42,294,314 |
| Sequestrations | 1,338,732 |
| Customs | 50,004 |
| Export duty | 4,320 |
| Coin seized by the Secretary of War | 1,653,200 |
| Premium on loans | 4,822,249 |
| Soldiers' tax | 908,622 |
The total amount of the public debt on October 1, 1864, on the books of the Register of the Treasury, was $1,147,970,208, of which $530,340,090 were funded debt, bearing interest, and $283,880,150 were Treasury notes of the new issue, and the remainder consisted of the former issue of Treasury notes which were converted into other forms of debt, and ceased to exist on December 31st. In consequence, however, of the absence of certain returns from distant officers, the true amount of the debt was less by $21,500,000 than appeared on the books of the Register; so that the total public debt, on October 1st, might have been fairly considered to have been $1,126,381,095. Of this amount, $541,340,090 consisted of funded debt, and the balance unfunded debt, or Treasury notes. The foreign debt is omitted in these statements. It amounted to £2,200,000, and was provided for by about two hundred and fifty thousand bales of cotton collected by the Government.[192]
The aggregate appropriations called for by the different departments of the Government for the six months ending on June 30, 1865, amounted to $438,416,504. It was estimated that the remains of former appropriations would, on January 1, 1865, amount to a balance of $467,416,504. No additional appropriations were therefore required for the ensuing six months.