It was apparent that a radical change in existing laws relating to our currency must be made, or the government would practically be unable to make the current disbursements on account of the war, and the destruction of the Union would be unavoidable, notwithstanding the immense resources of the country which had then hardly been touched.
The annual report of Secretary Chase reached Congress on the 10th of December, having been delayed by the press of business. So much of it as related to the currency was the basis of the long debates that followed. The circulation of the banks of the United States on the 1st of January, 1861, was reported at $202,000,767. Of this $152,000,000, in round numbers, was in the loyal states, including West Virginia, and $50,000,000 in the rebel states, the whole constituting a loan without interest from the people to the banks, costing the latter only the expense of issue and redemption and the interest on the specie kept in hand for the latter purpose. The secretary called especial attention to the organization and nature of these banks, and questioned whether a currency of banks issued by local institutions under state laws was not in fact prohibited by the national constitution. He said:
"Such emissions certainly fall within the spirit, if not within the letter, of the constitutional prohibition of the emission of 'bills of credit' by the states, and of the making by them of anything except gold and silver coin a legal tender in payment of debts. However this may be, it is too clear to be reasonably disputed that Congress, under its constitutional powers to lay taxes, to regulate commerce, and to regulate the value of coin, possesses ample authority to control the credit circulation which enters so largely into the transaction of commerce, and affects in so many ways the value of coin. In the judgment of the secretary, the time has arrived when Congress should exercise this authority."
He described with great force the weakness of the state banking system, and the repeated losses by the people of the United States on account of the failure of such banks. He recommended two plans by either of which he held that these banks might be absorbed, and a national currency be substituted in the place of their issues. One plan proposed the gradual withdrawal from circulation of the notes of private corporations, and the issue in their stead of United States notes, payable in coin on demand, in amounts sufficient for the useful ends of a representative currency. The other proposed a system of national banks authorized to issue notes for circulation under national direction, to be secured as to prompt convertibility into coin by the pledge of United States bonds and other needful regulations. He discussed these two plans at length, but concluded by recommending a system of national banks, the advantages of which would be uniformity in currency, uniformity in security, an effectual safeguard against depreciation, and protection from losses from discounts and exchanges. He expressed the opinion that such notes would give to the government the further advantage of a large demand for government securities, of increased facilities for obtaining the loans required for the war, a reduction of interest, and a participation by the government in the profit of circulation without risking the perils of a great money monopoly. It will be noticed that the secretary nowhere suggested the suspension of coin payments, or making the notes a legal tender in payment of public and private debts, or the redemption in coin of the bank notes to be issued.
These recommendations were referred to the committee of ways and means of the House, and by it to a sub-committee, of which Elbridge G. Spaulding, of New York, was chairman. Undoubtedly we owe to him, more than to any other individual Member, the important and radical changes made in our currency system by the act reported by him to the House and amended in the Senate. Mr. Spaulding perceived the objection to the recommendations of Secretary Chase that they did not provide for any payments but in coin, or call for a suitable provision that the notes when issued should be a legal tender for public and private debts, or for their reissue in case of payment, nor did they provide for the absorption of the demand notes outstanding, which were, on their face, payable on demand, an obligation that could not be ignored without severely impairing the public credit. It was also apparent that the system of national banks proposed by the secretary could not be organized and put in effective force for a year or more, and that in the meantime the state banks would be in a condition of suspension, without coin or the possibility of obtaining it, and, with no effective money which the people were bound to receive, or which the government could receive, it would have been difficult to carry on the operations of the war.
The first bill introduced by Mr. Spaulding, on the 30th of December, met some of these difficulties. It provided for the issue of $50,000,000 treasury notes, payable on demand, the notes to be receivable for all debts and demands due to or by the United States, to be a legal tender in payment of all debts, public or private, within the United States, and exchangeable at their face value, the same as coin, at the treasury of the United States, and the offices of the assistant treasurers in New York, Boston, Philadelphia, St. Louis and Cincinnati, for any of the coupon or registered bonds which the secretary was authorized to issue. It also contained this provision: "Such treasury notes may be reissued from time to time as the exigencies of the public service may require," the first authority ever given for the reissue of treasury notes after redemption.
On the 7th of January, 1862, Mr. Spaulding reported the bill to the House with some important changes, and it soon became the subject of a long and interesting debate. On the 22nd of January, Secretary Chase returned Mr. Spaulding's bill to him and suggested some modifications, referring to the legal tender clause as follows, being his first reference to that clause:
"Regretting exceedingly that it is found necessary to resort to the measure of making fundable notes of the United States a legal tender, but heartily desiring to co-operate with the committee in all measures to meet existing necessities in the most useful and least hurtful to the general interest, I remain," etc.
In a letter to the committee of ways and means, on the 29th of
January, the secretary said:
"The condition of the treasury certainly needs immediate action on the subject of affording provision for the expenditures of the government, both expedient and necessary. The general provisions of the bill submitted to me seem to me well adapted to the end proposed. There are, however, some points which may, perhaps, be usefully amended.