I then reviewed the various financial measures since the commencement of the war. We were then in the peculiar condition of a nation involved in a war without any currency whatever which by law could be used in the ordinary transactions of public business. Gold was withdrawn by the suspension of specie payments. The money of the banks could not be used because the laws of the United States forbade it, and we were without any currency whatever. Under these circumstances, Congress had authorized the issue of $400,000,000 of United States notes. That this measure was wise but few would controvert. We were compelled, by a necessity as urgent as could be imposed upon any legislature, to issue these notes. To the extent to which they were issued they were useful; they were a loan by the public and without interest; they were eagerly sought by our people; they were taken by our enemies in the south, by our friends in the north; they were taken in the east and the west. They furnished the best substitute for gold and silver that could then be devised, and if we could limit United States notes to the amount then authorized by law they would form a suitable and valuable currency.
We had but four expedients from which to choose. First, to repeal the sub-treasury act and use the paper of local banks as a currency; second, to increase largely the issue of United States notes; third, to organize a system of national banking, and fourth, to sell the bonds of the United States in the open market. I discussed each of these expedients in considerable detail. The practical objection to the further issue of United States notes was that there was no mode of redemption; they were safe; they were of uniform value, but there was no mode pointed out by which they were to be redeemed. No one was bound to redeem them. They were receivable but not convertible. They were debts of the United States but could not be presented anywhere for redemption. No man could present them except for the purpose fo funding them into the bonds of the United States. They were not convertible into coin. They lacked that essential element in currency.
Another objection was that they were made the basis of state bank issues. Under the operation of the act declaring United States notes to be a legal tender, the state bank circulation had increased from $120,000,000 to $167,000,000. The banks sold their gold at a large premium, and placed in their vaults United States notes with which to redeem their own notes. While the government had been issuing its paper money some of the banks were inflating the currency, by issuing paper money on the basis of United States money. Illustrations of this inflation were given of existing banks, showing enormous issues based upon a comparatively small amount of legal tender notes. The issue of United States notes by the government, and the making them a legal tender, was made the basis of an inflated bank circulation in the country, and there was no way to check this except by uniting the interest of the government, the banks, and the people, together, by one uniform common system.
I said that during war local banks were the natural enemies of a national currency. They were in the War of 1812. Whenever specie payment was suspended, the power to issue a bank note was the same as the power to coin money. The power granted to the Bank of France and the Bank of England to issue circulating notes was greatly abused during the period of war. It was a power that ought never to be exercised except by the government, and only when the state was in danger. It was the power to coin money, because when a bank issued its bill without the restraint of specie payments, it substantially coined money and false money. This was a privilege that no nation could safely surrender to individuals or banks. Upon this point I cited a number of authorities, not only in our own country, but in Europe. While I believed that no system of paper money should depend upon banks, I was far from objecting to their agency. They were useful and necessary mediums of exchange, indispensable in all commercial countries. The only power they derived from corporation not granted to all citizens was to issue notes as money, and this power was not necessary to their business or essential to their profit. Their business connected them with the currency, and whether it should be gold or paper they were deeply interested in its credit and value. Was it not then possible to preserve to the government the exclusive right to issue paper money, and yet not injuriously affect the local banks? This was the object of that bill.
But, it was asked, why look at all to the interest of the banks, why not directly issue the notes of the government, and thus save to the people the interest on the debt represented by the notes in circulation? The only answer to this was that history taught us that the public faith of a nation alone is not sufficient to maintain a paper currency. There must be a combination between the interests of private individuals and the government. Our revolutionary currency, continental money, depreciated until it became worthless. The assignats of France, issued during her revolutionary period, shared the same fate. Other European countries which relied upon government money alone had a similar experience. An excessive issue of paper money by the government would produce bankruptcy and repudiation, not only of the notes abroad, but of bonds also. The government of the United States had in circulation nearly $400,000,000 United States notes. We had a bank circulation of $160,000,000. If we increased our circulation, as was then proposed, it would create an inflation that would evidently lead to the derangement of all business affairs in the country. Whatever might be the hazards, we had to check this over expansion and over issue. If a further issue of United States notes were authorized, it would be at once followed by the issue of more bank paper, and then we would have the wildest speculation. Hitherto the inflation had not extended to many articles. Real estate had not been much affected by it.
The question then occurred whether the bank bill proposed by the Secretary of the Treasury, and introduced by me into the Senate, would tend to secure a national currency beyond the danger of inflation. This, the principal question involved, was discussed at length. I contended that the notes issued would be convertible into United States notes while the war lasted, and afterwards into coin; that the currency would be uniform, of universal credit in every part of the United States, while the bank bills, which it would supersede, were current only in the states in which they were issued. It would furnish a market for our bonds by requiring them to be held as the security for bank notes, and thus advance the value of the bonds. The state bank bills would be withdrawn, and the state banks would be converted into national banks with severe restrictions as to the amount of notes issued, and these only issued to them by the general government upon ample security. The similarity of notes all over the United States would give them a wider circulation. I insisted that the passage of the bill would promote a sentiment of nationality.
The policy of this country ought to be to make everything national as far as possible. If we were dependent on the United States for a currency and a medium of exchange, we would have a broader and more prosperous nationality. The want of such nationality, I then declared, was one of the great evils of the times; and it was that principle of state rights, that bad sentiment that had elevated state authority above the great national authority, that had been the main instrument by which our government was sought to be overthrown. Another important advantage the banks would derive from this system, I urged, would be that their notes would be guarded against all frauds and all alterations. There would be but five or six kinds of notes in the United States, instead of the great diversity there was then. In 1862 the number of banks existing was 1,500, and the number whose notes were not counterfeited was 253. The number of kinds of "imitations" was 1,861. The number of kinds of "alterations" was 3,039. The number of kinds of "spurious" was 1,685. This was the kind of currency that was proposed to be superseded. Under the new system, the banks would be relieved from all this difficulty.
Other advantages to the banks would be that they might become depositaries of the public money, that their notes, being amply secured, would be received in all payments due to or from the United States, while the notes of state banks could not be so received, as they were dishonored and disgraced from the beginning, being refused by the national government.
This is an imperfect view of the question as it was then presented to my mind. I knew the vote upon the passage of the bill would be doubtful. The New England Senators, as a rule, voted for the bill, but Senators Collamer and Foote had taken decided grounds against it, and it was believed that Mr. Anthony and his colleague would do likewise. I informed Secretary Chase of my doubt as to the passage of the bill, and especially whether Mr. Anthony would vote for it; without his vote I did not think it would pass. Mr. Chase called at the Senate and had an interview with Mr. Anthony, in my presence, in which he urged him strongly, on national grounds, to vote for the bill, without regard to local interests in his own state. His remarks made an impression upon Mr. Anthony who finally exclaimed that he believed it to be his duty to vote for the bill, although it would be the end of his political career. When the vote was taken his name was the first recorded in favor of the bill. It passed by a vote of 23 yeas and 21 nays, so that I was entirely correct that if he had voted against the bill it would have been defeated by a tie vote.
These two measures, the absorption of the state banks, and the establishment of the system of national banks, taken in connection with the legal tender act, were the most important financial measures of the war, and, tested by time, have fully realized the anticipations and confident assurance of their authors.