When President Lincoln came into office he found the treasury empty, and the public debt somewhat over seventy-six million dollars. In the last days of President Buchanan's administration the Government had been borrowing money at twelve per cent. per annum. In December, 1860, Congress passed a bill for the issue of ten million dollars in one-year treasury notes. Half of this amount was advertised, and offers were received for a small portion, at rates of discount varying from twelve to thirty-six per cent. The twelve per cent. offers were accepted, and subsequently a syndicate of bankers took the remainder of the five millions at that figure. The other five millions were taken a month later at eleven per cent. discount. In February, 1861, Congress authorized a loan of twenty-five millions, to bear interest at six per cent., and to be paid in not less than ten nor more than twenty years. The Secretary succeeded in negotiating one-third of the amount at rates from ninety to ninety-six.
In Mr. Lincoln's cabinet, Salmon P. Chase (formerly governor of Ohio, and then United States senator) was made Secretary of the Treasury. Under the existing acts he borrowed eight millions in March at ninety-four and upward—rejecting all offers under ninety-four—and early in April issued at par nearly five millions in two-year treasury notes, receivable for public dues and also convertible into six-per-cent. stocks. On the 12th of that month the war was begun by the firing on Fort Sumter. In May seven millions more of the six-per-cent. loan were issued at rates from eighty-five to ninety-three, and two and a half millions in treasury notes at par. These transactions were looked upon as remarkably successful, for many considered it questionable whether the Government would survive the blow that was aimed at its life, and be able to redeem any of its securities. The existing tariff, which was low, produced an annual income of not more than thirty millions.
Congress met, at the call of the President, on the 4th of July, 1861, and on the 17th passed a bill (with but five dissenting votes in the House of Representatives) for the issue of bonds and treasury notes to the amount of two hundred and fifty millions. It also increased the duties on many articles, passed an act for the confiscation of the property of rebels, and levied a direct tax of twenty millions, apportioned among the States and Territories. The States that were in rebellion of course did not pay. All the others paid except Delaware, Colorado, Utah, Oregon, and the District of Columbia. The law provided for collection by United States officers in such States as should not formally assume and pay the tax themselves. In some of the seceding States, lands worth about seven hundred thousand dollars were seized and sold for non-payment.
In August the first demand notes were issued as currency, being paid to clerks in the departments for their salaries. Though these were convertible into gold, there was at first great reluctance to receive them, but after a little time they became popular, and in five months about thirty-three millions were issued.
In August also Mr. Chase held a conference with the principal bankers of New York, Boston, and Philadelphia, to negotiate a national loan on the basis of the recent acts of Congress. Most of them expressed their desire to sustain the Government, but they made some objections to the terms and rates of interest. When it looked as if the negotiation might fail, the Secretary assured the bankers that if they were not able to take the loan on his terms, he would return to Washington and issue notes for circulation, "for it is certain that the war must go on until the rebellion is put down, if we have to put out paper until it takes a thousand dollars to buy a breakfast." The banks agreed to form a syndicate to lend the Government fifty million dollars in coin, to pay which the Secretary was to issue three-year notes bearing seven and three-tenths per cent. interest, convertible into six-per-cent. twenty-year bonds. These were popularly known as "seven-thirties." The peculiar rate of interest was made both as a special inducement and for ease of calculation, the interest being two cents a day on each hundred dollars. They were issued in denominations as low as fifty dollars, so that people of limited means could take them, and were very popular. The coupon and registered bonds that were to run not less than five years nor more than twenty were popularly known as "five-twenties." Subscription-books were opened in every city, and the people responded so promptly that the Government was soon enabled to repay the banks and make another loan on similar terms. But a third loan was refused, and Secretary Chase then issued fifty millions in "five-twenties," bearing interest at six per cent., but sold at such a discount as to make a seven-per-cent. investment. Of all the agents employed to dispose of these bonds, Jay Cooke, of Philadelphia, was the most successful. They were paid one-fifth of one per cent. for the first hundred thousand dollars, and one-eighth of one per cent. for all in excess of that sum.
The amount of coin in circulation in the United States at this time was estimated at about two hundred and ten million dollars. Before the war had been in progress one year, the operations of the Government had become so vast that this did not furnish a sufficient volume of currency for the transactions. On December 30, 1861, the banks suspended specie payments, and the Government was then obliged to do likewise. There were now over half a million men in the field, and the navy had been increased from forty-two vessels to two hundred and sixty-four. The pay of a private soldier was thirteen dollars a month, with food and clothing. The total cost to the Government for each soldier maintained in the field was about a thousand dollars a year—two and a half times the cost of a British soldier, and twelve times the cost of a French soldier.
Early in 1862 even the smallest coins disappeared from circulation, and some kinds of business were almost paralyzed for want of change. Tokens and fractional notes were issued by private firms, and various expedients were resorted to, a favorite one being the enclosure of specified amounts of postage-stamps in small envelopes properly labelled. Thaddeus Stevens, member of Congress from Pennsylvania, proposed that the Government should issue notes for circulation, to any amount that might be required, and make them legal tender for all debts, public and private. Secretary Chase opposed this, and proposed instead a national banking system, which should embrace an issue of notes bearing a common impression and a common authority, the redemption of these notes by the institutions to which the Government should deliver them for issue, and a pledge of United States stocks as security for such redemption. This scheme was opposed by the State banks, and Mr. Chase gave a reluctant consent to the legal-tender measure, which was then carried through Congress, and the "greenbacks" became payable for everything except duties on imports. Subsequently Mr. Chase's plan for a national banking system was also adopted, substantially as we have it now. In the loyal States the greenbacks were popular from the first, and the large amount in circulation led to general extravagance in expenditures. In the insurrectionary States they were at first refused with scorn. But when the secessionists found that these notes had a purchasing power vastly superior to those of their own Government, they soon became reconciled to them. When soldiers of the National army were made prisoners of war, they were almost immediately requested by their captors to exchange any greenbacks they might have for Confederate money, and some show of fairness was made by the allowance of a heavy discount, seldom less than seven for one. The Confederate currency was redeemable "six months after the ratification of a treaty of peace with the United States." The Government supplemented the greenbacks with fractional paper currency in denominations of fifty, twenty-five, ten, and five cents; and in this money the war bills were paid and all business transacted, except at the custom-houses.
The daily quotations of gold were looked to as an indication of the prospects of the war. Gold itself did not materially change in value, but the premium on it represented the depreciation of the greenbacks with which it was purchased. At the beginning of 1862 there was a premium of about two per cent. on gold. This fluctuated from day to day, but the general tendency was upward, till at the end of that year the premium was thirty-three. By the end of 1863 gold had risen to one hundred and fifty-one; and on June 21, 1864, just after the Army of the Potomac crossed the James, it touched two hundred. In other words, the United States paper dollar was then worth half a dollar. On the 11th of July, 1864, gold reached its highest point, two hundred and eighty-five. Confederate paper money had been at par until November, 1861; but from that time its value diminished steadily and rapidly, until, at the close of 1864, five hundred paper dollars were worth but one dollar in gold, and three months later six hundred.
Most of the funded debt of the United States was represented by five-twenty bonds. An act was passed authorizing the issue of ten-forties, but they were not popular, and comparatively few were taken. The total assessed value of all the property in the United States, real and personal, by the census of 1860, was somewhat over sixteen thousand million dollars. The cost of the war to the Government has been nearly, if not quite, half that amount—or about equal to the value in 1860 of all the real estate in the loyal States. The amount of the Confederate debt is unknown. If that and the incidental losses could be ascertained, the cost of the war would probably make a grand total almost equivalent to a wiping out of all values in the country as they were estimated in the year of its beginning. The fourteenth amendment to the Constitution—proposed in 1866, and declared in force in 1868—provides, on the one hand, that the validity of the public debt shall not be questioned, and, on the other, that neither the United States nor any State shall ever pay any debt or obligation that has been incurred in aid of insurrection against the United States.
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