The Act of July 22, 1846, was based upon and virtually embodied that of Oct. 12, 1837. Notes redeemed could be reissued. Any fraction of the $10,000,000 could be issued in notes or in stock (bonds) at the President’s discretion, but the amount of both could not exceed that figure. The bonds were to conform to the Act of Apr. 15, 1842, and to “be redeemable at a period not longer than ten years from the issue thereof.” Walker thought that only a war with a powerful maritime nation, exposing our commerce to peril and causing a great loss in customs revenue, would be thought to warrant excise and direct taxes. (The idea of a direct tax was widely unpopular, because such a tax would be based upon population, and therefore would favor the capitalistic sections.) Before issuing treasury notes Walker used up much of the surplus lying in the banks. The notes were issued at par. They could not become a circulating medium. For redemption they went to the city banks. So long as these banks had deposits of public funds, they were accepted as cash. After that, their tendency was to fall. About Oct. 1, 1846, the notes were quoted at 98–1/2 in St. Louis. For a time the New Orleans banks would not receive the notes, but retaliation brought the banks round. Since only specie and treasury notes were to be receivable after Jan. 1, 1847, for dues to the government, the sub-treasury Act aided the notes. On the other hand the issuance of the notes offset the specie requirement of that Act, and therefore prevented or modified some of its anticipated consequences—particularly a drain upon the specie of the banks. One advantage of the notes was that, should the war suddenly end, they could be withdrawn and the interest on them stopped. This was not true of loans.
[12.] Ho. 6; 29, 1 (Walker, report, Dec. 3, 1845). Polk, Diary, Sept. 29, 1846. Gallatin, War Expenses, 14–6. Niles, Sept, 12, 1846, p. 17. De Knight, Currency, 69. N. Y. Herald (weekly), June 6; Aug. 15, 1846; Jan. 9, 1847; Jan. 29, 1848. Bankers’ Mag., i, 193–4.
The authority to issue these notes was limited to one year; but on Jan. 28, 1847, the time was extended to six months after the ratification of peace with Mexico, with the proviso that the notes thus authorized should not exceed $5,000,000 in amount (§ 15, U. S. Stat. at Large, ix, 121–2). In his report of Dec. 9, 1846, Walker stated that $3,853,100 of these notes had been issued, $1,766,450 bearing interest at one tenth of 1 per cent (De Knight, Currency, 69), and the residue at 5–2/5 per cent per annum payable on redemption. Nov. 2, 1846, treasury notes of prior issues amounting to $412,283.97 were outstanding. The surplus, July 1, 1846, was $9,126,439. Sept. 29, 1846, the treasury contained “only a fraction over” four millions (Polk, Diary, Sept. 29).
[13.] [13]Pakenham, nos. 127, Oct. 29; 130, Nov. 12, 1846. (Walker) Wash. Union, May 10; Dec. 9, 1847; N. Y. Express, Dec. 12, 1846; Welles papers; Boston Courier, Feb. 17, 1848; [345]G. A. Worth to V. Buren, Dec. 16, 1847; [198]Gallatin to Newboldt, Feb. 8, 1848; [198]Id.to Rockwell, May 8, 1848; [181]Buchanan to Donelson, May 13, 1847. Miss. Hist. Soc. Pubs., vi, 363. Dodd, Walker, 24, etc. Wash. Union, Nov. 16; Dec. 8, 1846. N. Y. Express, Nov. 18, 1846. Bankers’ Mag., i, 321–2. N. Y. Herald (weekly), Sept. 19; Nov. 7, 14, 28, 1846. Bayley, National Loans, 71. De Knight, Currency, 70. Niles, Oct. 10, p. 81; Oct. 17, p. 97; Oct. 24, p. 128; Nov. 7, pp. 146–7, 1846. Sen. 105; 29, 2 (Walker to Dallas, Feb. 1, 1847). Polk, Diary, Oct. 1, 13, 15–7, 22, 30; Nov. 7, 1846. London Times, Oct. 27, 1846. Sen. 2; 29, 2 (Walker, report, Dec. 9, 1846). Cong. Globe, 29, 2, app., 124 (Ingersoll). Dewey, Financial History, 256.
Professor Tucker proved, it was said, that Walker’s argument for free trade made an error of $1,000,000 per year in the productive industry of the United States. Stewart of Pennsylvania charged him in Congress with a number of errors. Rockwell of Connecticut made a startling analysis of treasury statements (Cong. Globe, 30, 1, pp. 404–7); but it would lead us too far afield to enter upon such a discussion. $4,999,149 of the loan was issued (Bayley, Nat. Loans, 71). On $363,900 there was an average premium of .277 of 1 per cent, while the rest went at par (De Knight, Currency, 70). Opponents of the government attributed the success of the loan to Marcy’s statement that it would not be necessary to call for more volunteers. As a new call for volunteers went out almost immediately after the bids were opened, he was charged falsely with having played a trick on the public (N. Y. Express, Nov. 18, 1846). For the truth in this matter see vol. i, p. 351. Most of the loan was taken at New York, but it became fairly well distributed. Walker’s offering the loan only ten days after advertising an issue of $3,000,000 in notes (Niles, Nov., 1846, p. 147) was rather alarming, it must be admitted. A less reasonable criticism on his policy was that he could and should have borrowed liberally June 1 and July 1 at 5 per cent. At those dates he had a large surplus, the tariff had not been changed, and the administration did not expect a serious war.
[14.] Sen. 2; 29, 2 (Walker, report, Dec. 9, 1846). Dewey, Financial History, 255–6. U. S. Stat. at Large, ix, 118. [247]King to Larkin, Nov. 7, 1847. Polk, Diary, Feb. 16. [13]Pakenham, no. 13, Nov. 12, 1846. Niles, Apr. 24, 1847, p. 113; June 5, p. 224; Aug. 21, pp. 392, 400; Feb. 5, 1848, p. 354 (McLean). Wash. Union, Jan. 14; Apr. 12, 1847. N. Y. Herald (weekly), Apr. 24; Nov. 30, 1847; Feb. 26; Mar. 4, 11, 18, 1848. Bayley, Nat. Loans, 72. De Knight, Currency, 71–2. Knox, U. S. Notes, 64, 69. [108]Buchanan to Bancroft, Dec. 29, 1846, priv.
The estimated deficit, July 1, 1847, was $4,779,042 (Walker, report, Dec. 9, 1846 in Sen. 2; 29, 2). By the Act of Jan. 28, 1847, the treasury notes were to be redeemable in one or two years, to bear interest (not more than 6 per cent) at the discretion of the President, and to be convertible into bonds. None could be issued, used as security for loans, or bought up by the government, at less than par plus the accrued interest. New notes could be issued for those redeemed, but the total outstanding amount of notes and bonds issued under the Act could not exceed $23,000,000. The public lands were in effect pledged as security for the loan, which was made payable at any time after Dec. 31, 1867. The Act provided that the notes to be issued under it and all previous treasury notes could be converted into 6 per cent stock (bonds).
It was predicted that the loan could not be placed at better than 90, if at all (N. Y. Express, Dec. 14, 1846). Bids (to be in by Apr. 10) for $18,000,000 of it were invited on Feb. 9, 1847. The New York and Boston banks appear to have agreed on a price, but some New York capitalists offered more, and they in turn were outbid by Corcoran and Riggs of Washington, who seem to have taken a very large part of it. The bids above par totalled about $55,000,000, and the premiums offered ran as high as 2 per cent. It has been called a mistake to pay 6 per cent on long-term bonds, and this is proved by the premium they soon commanded. But before the bonds were issued grave doubts regarding their acceptability were entertained, and a saving in interest was of relatively little importance. Many had expected that the whole amount($23,000,000) would be issued in treasury notes and practically increase the amount of the currency; but the amount issued at first was largely taken for investments (N. Y. Herald (weekly), Mar. 20, 1847). Hence the currency in circulation was diminished. However, the specie coming from abroad soon made up for this.
Bids for $5,000,000 of notes were invited on Feb. 26. The Rothschilds (represented by A. Belmont) were soon understood to be interested, and were in fact successful to a large extent in the bidding. Their bidding encouraged American capitalists. Probably the notes could safely, and therefore should, have been made convertible into 5 per cent, instead of 6 per cent, bonds. The interest paid on them at redemption was 5–2/5 or 6 per cent (De Knight, Currency, 71).
June 1, 1817, Walker reported treasury notes as outstanding (minus $789,700 of cancelled notes on hand): of issues prior to July 22, 1846, $303,817; of issues under the Act of July 22, $3,565,600; of issues under the Act of Jan. 28, $8,100,000; net total, $11,179,717 (Niles, June 5, p. 224). About the middle of August, 1847, they sold at 106–1/2, but within a week (probably because reports that Scott had captured Mexico City were found to be false) they fell at New York to 103–1/2. The issuing of more notes was objected to on the ground that it would virtually mean a government bank controlled by a party. It was argued by some that notes for small amounts bearing interest at a nominal rate should have been put out. These, it was said, would have been purchased by persons of small means, who actually put their savings into specie needed by the government. The question was raised why Polk asked in December, 1846, for funds to cover the fiscal year 1847–8 (N. Y. Express, Dec. 14, 1846). Walker’s report included estimates for that period, but this fact does not seem to be an adequate explanation. One suspects that Polk and Walker knew the money would be needed, and thought this the easiest way to get it.