The result of this policy of contraction was not only to increase the burden of the public debt, but it created serious derangement of the business of the country. It excited a strong popular opposition to the measures adopted.
The Greenback party, as it was called, grew out of this policy of contraction, and for a time threatened to carry the election of a majority of the Members of Congress. It contended practically for an unlimited issue of legal tender United States notes, and the payment of all bonds and securities in United States notes. This, however, did not disturb Secretary McCulloch. In his annual report of December 3, 1866, he again urged the policy of a further reduction of United States notes. He was not satisfied with the reduction already provided for, and recommended that the reduction should be increased from $4,000,000 a month, as contemplated by the act of April 12, 1866, to $6,000,000 a month for the fiscal year, and to $10,000,000 a month thereafter. He said:
"The policy of contracting the circulation of the government notes should be definitely and unchangeably established, and the process should go on just as rapidly as possible without producing a financial crisis or seriously embarrassing those branches of industry and trade upon which our revenues are dependent. That the policy indicated is the true and safe one, the secretary is thoroughly convinced. If it shall not be speedily adopted and rigidly, but judiciously, enforced, severe financial troubles are in store for us."
He insisted that the circulation of the country should be further reduced, not by compelling the national banks to retire their notes, but by the withdrawal of United States notes. When reminded of the great saving of interest in the issue of $400,000,000 United States notes, he answered:
"Considerations of this nature are more than counterbalanced by the discredit which attaches to the government by failing to pay its notes according to their tenor, by the bad influence of this involuntary discredit upon the public morals, and the wide departure, which a continued issue of legal tender notes involves, from the past usages, if not from the teachings of the constitution itself."
He said:
"The government cannot exercise powers not conferred by its organic law or necessary for its own preservation, nor dishonor its own engagements when able to meet them, without either shocking or demoralizing the sentiment of the people; and the fact that the indefinite continuance of the circulation of an inconvertible but still legal tender currency is so generally advocated indicates how far we have wandered from old landmarks both in finance and in ethics."
The growing opposition of the people at large to the contraction of the currency seemed to have no effect upon his mind.
He again recurs to the same subject in his annual report to Congress, in December, 1867. After stating that the United States notes, including fractional currency, had been reduced from $459,000,000 to $387,000,000, and the funded debt had been increased $684,548,800, he urged as a measure regarded by him as important, if not indispensable for national prosperity, the funding or payment of the balance of interest-bearing notes, and a continued contraction of the paper currency. He urged that the acts authorizing legal tender notes be repealed, and that the work of retiring the notes which had been issued under them should be commenced without delay, and carefully and persistently continued until all were retired.
This policy of contraction, honestly entertained and persistently urged by Secretary McCulloch in spite of growing stringency, led Congress, by the act of February 4, 1868, to suspend indefinitely the authority of the Secretary of the Treasury to make any reduction of the currency by retiring or canceling United States notes.