The debt of the United States on the 31st of August, 1866, when it reached its maximum, amounted to $2,844,649,627. On the 1st of March, 1870, the debt had been reduced to less than $2,500,000,000, of which about $400,000,000 was in United States notes, for the redemption of which no provision was made. It was the confident expectation of Congress, which proved to be correct, that before the refunding operations were complete, the debt would be gradually reduced, so that the sum of $1,500,000,000, provided for in the law, would be sufficient to refund all existing debts, except United States notes, into the new securities.
The process of refunding progressed slowly, was confined to the five per cent. bonds, and was somewhat interrupted by the financial stringency of 1873.
By the act approved January 20, 1871, the amount of five per cent. bonds authorized by the act approved July 14, 1870, was increased to $500,000,000, but the act was not to be construed to authorize any increase of bonds provided for by the refunding act.
Prior to the 24th of August, 1876, there had been sold, for refunding purposes, the whole of the $500,000,000 five per cents. authorized by that act, and on that day Lot M. Morrill, Secretary of the Treasury, entered into a contract for the sale of $40,000,000 of the four and a half per cent. bonds authorized by the refunding act. By this process of refunding an annual saving had been made of $5,400,000 a year, by the reduction of interest in the sale of $540,000,000 bonds. On the 9th day of June, 1877, I, as Secretary of the Treasury, terminated the contract made by Mr. Morrill, my predecessor, and placed on the market the four per cent. bonds provided for by the refunding act. The subsequent proceedings under this act will be more appropriately referred to hereafter.
The more difficult problem remained of advancing United States notes to par in coin. This could be accomplished by reducing the amount of these notes outstanding, and, thus, by their scarcity, add to their value. They were a legal tender in payment for all debts, public and private, except for duties on imported goods and interest on the public debt. As long as these notes were at a discount for coin they could circulate only in the United States, and until they were at par with coin, coin would not circulate as money in the United States, except to pay coin liabilities. The notes were a dishonored, depreciated promise, the purchasing power of which varied day by day, the football of "bulls and bears." In many respects these notes were better than any other form of depreciated paper money, for the people of the United States had full confidence in their ultimate redemption. They were much better and in higher favor with the people than the state bank notes which they replaced and which were not only depreciated like United States notes but had been often proven worthless in the hands of innocent holders. They were as good as national bank notes, however well secured, for these notes were not payable in coin, but could be redeemed by United States notes. Still, with all their defects the United States notes were the favorite money of the people, and any attempt to contract their volume was met by a strong popular opposition.
As already stated, the gradual reduction of the volume of United States notes, urged so strongly by Secretary McCulloch, and provided for by the resumption act, met with popular opposition and was repealed by Congress. Under these conditions it became necessary to approach the specie standard of value without a contraction of the currency. The act to strengthen the public credit, already referred to, was the beginning of this struggle. The government was, by this act, committed to the payment of the United States notes in coin or its equivalent. But when and how was not stated or even considered. The extent to which Congress would then go, and to which popular opinion would then consent, was the declaration that the "United States solemnly pledges its faith to make provision at the earliest practicable period for the redemption of United States notes, in coin." Many events must occur before the fulfillment of this promise could be attempted.
CHAPTER XXII. OUR COINAGE BEFORE AND AFTER THE WAR. But Little Coin in Circulation in 1869—General Use of Spanish Pieces—No Mention of the Dollar Piece in the Act of 1853—Free Circulation of Gold After the 1853 Act—No Truth in the "Demonetization" Charge—Account of the Bill Revising the Laws Relative to the Mint, Assay Offices and Coinage of the United States—Why the Dollar was Dropped from the Coins—Then Known Only as a Coin for the Foreign Market—Establishment of the "Trade Dollar"—A Legal Tender for Only Five Dollars—Repeated Attempts to Have Congress Pass a Free Coinage Act—How It Would Affect Us—Controversy Between Senator Sumner and Secretary Fish.
At the date of the passage of the act "to strengthen the public credit," on March 19, 1869, there was but little coin in circulation in the United States except gold coin, and that was chiefly confined to the Pacific coast, or to the large ports of entry, to be used in payment of duties on imported goods. Silver coins were not in circulation. The amount of silver coined in 1869 was less than one million dollars and that mainly for exportation. Fractional notes of different denominations, from ten to fifty cents, were issued by the treasury to the amount of $160,000,000, of which $120,000,000 had been redeemed, and $40,000,000 were outstanding in circulation or had been destroyed. These fractional notes superseded silver coin as United States notes superseded gold coin. The coinage laws as they then existed were scattered through the laws of the United States from 1793 to 1853, and were in many respects imperfect and conflicting.
The ratio fixed by Alexander Hamilton, of fifteen ounces of silver as the equivalent of one ounce of gold, was, at the time it was adopted, substantially the market ratio, but the constant tendency of silver to decline in relative value to gold had been going on for years and it continued to decline, almost imperceptibly perhaps, and the legal ratio in France having been fixed at fifteen and a half to one, there was an advantage in shipping gold to that country from this, and consequently very little if any of our gold, even if coined, came into circulation. By the act of 1793 foreign coins were made a legal tender for circulation in this country, and the Spanish silver dollar, on which ours was founded, with the 8th or "real" pieces, found great favor. Singularly enough, in Mexico and the West Indies, the Spanish population would exchange their dollars for ours, dollar for dollar, although their pieces, if not worn, were each three grains heavier. This led to an exchange of our dollars for the Spanish ones, which were promptly recoined at the mint at a fair profit to the depositor.
This put upon the government the expense of manufacturing coins with no advantage. The evil grew so great that in 1806 the further coinage of our silver dollars was prohibited by President Jefferson, in an order issued through the state department, as follows: