"In the first place, I will say, every organ of financial opinion —if that is a correct expression—in this country agrees that there is such a necessity, in case we authorize the issue of demand notes. You commence with the Secretary of the Treasury, who has given this subject the most ample consideration. He declares, not only in his official communications here, but in his private intercourses with the members of the committee, that this clause is indispensably necessary to the security and negotiability of these demand notes. We all know from his antecedents, from his peculiar opinions, that he would probably be the last man among the leading politicians of our country to yield to the necessity of substituting paper money for coin. He has examined this question in all its length and breadth. He is in a position where he feels the necessity. He is a statesman of admitted ability, and distinguished in his high opinion. He informs us that, without this clause, to attempt to circulate as money the proposed amount of demand notes of the United States, will prove a fatal experiment.
"In addition to his opinion, we have the concurring opinion of the Chamber of Commerce of the city of New York. With almost entire unanimity they have passed a resolution on the subject, after full debate and consideration. That resolution has been read by your secretary. You have also the opinion of the committee of public safety of the city of New York, composed of distinguished gentlemen, nearly all of whom are good financiers, who agree fully in the same opinion. I may say the same in regard to the Chambers of Commerce of the city of Boston, of the city of Philadelphia, and of almost every recognized organ of financial opinion in this country. They have said to us, in the most solemn form, that this measure was indispensably necessary to maintain the credit of the government, and to keep these notes anywhere near par. In addition, we have the deliberate judgment and vote of the House of Representatives. After a full debate, in which the constitutionality, expediency and necessity of this measure were discussed, in which all the objections that have been made here, and many more, were urged, the House of Representatives, by a large vote, declared that it was necessary to issue United States notes, and that this clause was indispensable to their negotiation and credit. . . .
"A hard necessity presses the government. $100,000,000 is now due the army, and $250,000,000 more up to July first. The banks of New York, Boston and Philadelphia, have exhausted their capitals in making loans to the government. They have already tied up their capital in your bonds. Among others, Mr. Vail, the cashier of the Bank of Commerce, the largest bank corporation in the United States, and one that has done much to sustain the government, appeared before the finance committee, and stated explicitly that the Bank of Commerce, as well as other banks of New York, could aid the government no further, unless your proposed currency was stamped by, and invested with, the attributes of lawful money, which they could pay to others as well as receive themselves.
"Bonds cannot be sold except at a great sacrifice, because there is no money to buy them. As soon as the banks suspended, gold and silver ceased to circulate as money. You cannot sell your bonds for gold and silver, which is the only money that can now be received under the sub-treasury law. This currency made a legal tender was necessary to aid in making further loans. I insisted that the bill was constitutional. The Senator from Vermont has read extracts from the debates in the national convention, and from Story's 'Commentaries,' tending to show that Congress cannot authorize the issue of bills of credit. But I submit to him that this question has been settled by the practice of the government. We issued such bills during the War of 1812, during the war with Mexico, and at the recent session of Congress. We receive them now for our services; we pay them to our soldiers and our creditors. These notes are payable to bearer; they pass from hand to hand as currency; they bear no interest. If the argument of the Senator is true, then all these notes are unauthorized. The Senator admits that when we owe a debt and cannot pay it, we can issue a note. But where does he find the power to issue a note in the constitution? Where does he find the power to prescribe the terms of the note, to make it transferable, receivable for public dues? He draws all these powers as incidents to the power to borrow money. According to his argument, when we pay a soldier a ten dollar demand bill, we borrow ten dollars from the soldier; when I apply to the secretary of the Senate for a month's pay, I loan the United States $250. This certainly is not the view we take of it when we receive the money. On the other hand, we recognize the fact that the government cannot pay us in gold. We receive notes as money. The government ought to give, and has the power to give, to that money, all the sanction, authority, value, necessary and proper, to enable it to borrow money. The power to fix the standard of money, to regulate the medium of exchanges, must necessarily go with, and be incident to, the power to regulate commerce, to borrow money, to coin money, to maintain armies and navies. All these high powers are expressly prohibited to the states and also the incidental power to emit bills of credit, and to make anything but gold and silver a legal tender. But Congress is expressly invested with all these high powers, and, to remove all doubt, is expressly authorized to use all necessary and proper means to carry these powers into effect.
"If you strike out the legal tender clause you do so with the knowledge that these notes will fall dead upon the money market of the world. When you issue demand notes, and announce to the world your purpose not to pay any more gold and silver, you then tender to those who have furnished you provisions and services this paper money. What can they do? They cannot pay their debts with it; they cannot support their families with it, without a depreciation. The whole then depends on the promise of the government to pay at some time not fixed on the note. Justice to our creditors demands that it should be a legal tender; it will then circulate all over the country, and it will be the lifeblood of the whole business of the country, and it will enable capitalists to buy your bonds. The only objection to the measure is that too much may be issued. He did not believe the issue of $150,000,000 would do any harm. It is only a mere temporary expedient. . . .
"I have thus, Mr. president, endeavored to reply to the constitutional argument of the Senator from Vermont. Our arguments must be submitted finally to the arbitration of the courts of the United States. When I feel so strongly the necessity of this measure, I am constrained to assume the power, and refer our authority to exercise it to the courts. I have shown, in reply to the argument of the Senator from Maine, that we must no longer hesitate as to the necessity of this measure. That necessity does exist, and now presses upon us. I rest my vote upon the proposition that this is a necessary and proper measure to furnish a currency—a medium of exchange—to enable the government to borrow money, to maintain an army and support a navy. Believing this, I find ample authority to authorize my vote. We have been taught by recent fearful experience that delay and doubt in this time of revolutionary activity are stagnation and death. I have sworn to raise and support your armies; to provide for and maintain your navy; to borrow money; to uphold your government against all enemies, at home and abroad. That oath is sacred. As a Member of this body, I am armed with high powers for a holy purpose, and I am authorized —nay, required—to vote for all laws necessary and proper for executing these high powers, and to accomplish that purpose. This is not the time when I would limit these powers. Rather than yield to revolutionary force, I would use revolutionary force. Here it is not necessary, for the framers of the constitution did not assume to foresee all the means that might be necessary to maintain the delegated powers of the national government. Regarding this great measure as a necessary and proper one, and within our power to enact, I see plain before me the path of duty, and one that is easy to tread."
The motion to strike out the legal tender clause in the bill was defeated by a vote of yeas 17, nays 22. The amendments proposed by the finance committee were agreed to substantially as reported by the committee. The bill finally passed by a vote of yeas 30, nays 7. The House agreed to the amendment providing for the payment of the interest on bonds and notes in coin, and disagreed to the remaining amendments, and these were referred to a committee of conference, composed of Messrs. Fessenden, Sherman and Carlisle, of West Virginia, of the Senate and Messrs. Stevens, Horton, and Sedgwick, of the House. The conference met, and, after two or three days of full discussion, the material parts of the disagreements between the two Houses were settled. The provision that coin only be received for duties on imports, and that it be held as a fund to pay the interest on the bonded debt, was retained. The report of the conference was agreed to by both Houses, and on the same day the bill was approved by the President. Thus, the legal tender act, after a most able and determined opposition, became a law on the 25th of February, 1862.
It would be difficult to measure the beneficial results that rapidly followed the passage of this bill. The public credit was greatly strengthened by the provision for the payment of interest in coin furnished by duties on imported goods. The legal tender clause was acquiesced in by all classes, and we had, for the first time, in circulation national paper money as the actual standard of value. It was silent as to time of its payment, but each note contained a promise of the United States to pay a specific sum, and the implied obligation was to pay in coin as soon as practicable.
On the 11th of July, 1862, a further issue of $150,000,000 United States treasury notes (or "greenbacks," as they were commonly called from their color) of the same description was authorized, and subsequent issues increased the total amount to $450,000,000, the extreme limit. By the act of March 31, 1863, fractional currency was authorized to an amount not exceeding $50,000,000, to take the place of fractional silver coins, which had entirely disappeared from circulation, and this amount was issued.
The passage of the legal tender act was the turning point of our physical and financial history. Less than a year before the government was bankrupt; our bonds bearing six per cent. interest were sold at a discount; our national expenditures exceeded our receipts; loans could only be made upon the basis of coin, and this coin was disappearing from circulation. We had to appeal to the patriotism of bankers to accept the demand notes of the United States as money, with no prospect of being able to pay them. Our regular army was practically disbanded by the disloyalty of many of its leading officers. Washington was then practically in a state of siege, forcing me, in May, 1861, to go there at the heels of the 7th regiment of New York militia, avoiding the regular channels of travel. The city of Baltimore was decked under the flag of rebellion. Through the State of Maryland, loyal citizens passed in disguise, except by a single route opened and defended by military power. The great State of Kentucky, important as well from its central position as from the known prowess and courage of its people, hung suspended in doubt between loyalty and secession. In the State of Missouri, St. Louis was the only place of unquestioned loyalty, and even there we regarded it a fortunate prize that we were able to take the public arms from a government arsenal. The whole State of Virginia, with the single exception of Fortress Monroe, was in the possession of the revolutionary force.