American politics (non-partisan) from the beginning to date

by Thomas V. Cooper; Hector T. Fenton

“The ordinary expenses for the year 1812 were estimated by the Committee of Ways and Means of the House of Representatives at $1,200,000 more than the estimated receipts for the same period, and the impending war with Great Britain made it absolutely necessary that some measures should be adopted to maintain the public credit, and provide the requisite funds for carrying on the Government. Additional taxes were imposed upon the people, but as these could not be made immediately available there was no other resource but new loans and the issue of Treasury notes. This was the first time since the formation of the new Government that the issue of such notes had been proposed, and they were objected to as engrafting on our system of finance a new and untried measure.

“Under various acts of Congress approved between March 4, 1812, and February 24, 1815, 6 per cent. bonds were issued to the amount of $50,792,674. These bonds were negotiated at rates varying from 20 per cent. discount to par, the net cash realized amounting to $44,530,123. A further sum of $4,025,000 was obtained by temporary loans at par, of which sum $225,000 was for the purpose of repairing the public buildings in Washington, damaged by the enemy on the night of August 24, 1814. These ‘war loans’ were all made redeemable at the pleasure of the Government after a specified date, and the faith of the United States was solemnly pledged to provide sufficient revenues for this purpose. The ‘Treasury note system’ was a new feature, and its success was regarded as somewhat doubtful.

“Its subsequent popularity, however, was owing to a variety of causes. The notes were made receivable everywhere for dues and customs, and in payment for public lands. They were to bear interest from the day of issue, at the rate of 5–⅖ per cent. per annum, and their payment was guaranteed by the United States, principal and interest, at maturity. They thus furnished a circulating medium to the country, superior to the paper of the suspended and doubtful State banks. These issues were therefore considered more desirable than the issue of additional stock, which could be realized in cash only by the payment of a ruinous discount. The whole amount of Treasury notes issued during the war period was $36,680,794. The Commissioners of the Sinking Fund were authorized to provide for their redemption by purchase, in the same manner as for other evidences of the public debt, and by authority of law $10,575,738 was redeemed by the issue of certificates of funded stock, bearing interest at from 6 to 7 per cent. per annum, redeemable at any time after 1824.

“During the years 1812–13 the sum of $2,984,747 of the old 6 per cent. and deferred stocks were refunded into new 6 per cent. stock redeemable in twelve years; and by an act approved March 31, 1814, Congress having authorized a settlement of the ‘Yazoo claims’ by an issue of non-interest-bearing stock, payable out of the first receipts from the sale of public lands in the Mississippi territory, $4,282,037 was issued for this purpose. On the 24th of February, 1815, Secretary Dallas reported to Congress that the public debt had been increased, in consequence of the war with Great Britain, $68,783,122, a large portion of which was due and unpaid, while another considerable proportion was fast becoming due. These unpaid or accruing demands were in part for temporary loans, and the balance for Treasury notes either due or maturing daily. To provide for their payment a new loan for the full amount needed was authorized by act of March 3, 1815, and six per cent. stock redeemable in fifteen years, was issued in the sum of $12,288,148. This stock was sold at from 95 per cent. to par, and was nearly all redeemed in 1820 by purchases made by the Commissioners of the Sinking Fund.

“The Government became a stockholder in the second Bank of the United States, to the amount of 70,000 shares, under the act of incorporation, approved April 10, 1816. The capital stock was limited to $35,000,000, divided into 350,000 shares of $100 each. The Government subscription was paid by the issue of 5 per cent. stock to the amount of $7,000,000, redeemable at the pleasure of the Government. This was a profitable investment for the United States, as in addition to $1,500,000 which the bank paid as a bonus for its charter, the net receipts over and above disbursements amounted to $4,993,167. The available funds in the Treasury on the 1st of January, 1820, were less than $250,000, and the estimated deficiency for the year amounted to nearly $4,000,000. This state of affairs was owing partly to the disastrous effects of the commercial crisis of 1819, heavy payments for the redemption of the public debt, continued through a series of years, and large outstanding claims, amounting to over $30,000,000, resulting from the late war with Great Britain. To meet the emergency, a loan was authorized by act of May 15, 1820, and $999,999.13 was borrowed at 5 per cent., redeemable in twelve years, and $2,000,000 at 6 per cent., reimbursable at pleasure, this latter stock realizing a premium of 2 per cent. By act of March 3, 1821, 5 per cent. stock amounting to $4,735,276 was issued at a premium of over 5½ per cent., and the proceeds used in payment of the principal and interest of the public debt falling due within the year.

“An effort was made in 1822 to refund a portion of the 6 per cent. war loans of 1812–14 into 5 per cents., but only $56,705 could be obtained. Two years later the Government was more successful, and, under the act of May 26, 1824, 6 per cent. stock of 1813 to the amount of $4,454,728 was exchanged for new stock bearing 4½ per cent. interest, redeemable in 1833–34. During the same year $5,000,000 was borrowed at 4½ per cent. to provide for the payment of the awards made by the Commissioners under the treaty with Spain of February 22, 1819, and a like amount, at the same rate of interest, to be applied in paying off that part of the 6 per cent. stock of 1812 redeemable the following year. The act of March 3, 1825, authorized a loan of $12,000,000, at 4½ per cent. interest, the money borrowed to be applied in paying off prior loans, but only $1,539,336 was exchanged for an equal amount of 6 per cent. stock of 1813.

“In the year 1836 the United States was, for the first time in the history of the country, practically out of debt. Secretary Woodbury, in his report of December 8, 1836, estimated the amount of public debt still outstanding at about $328,582, and this remained unpaid solely because payment had not been demanded, ample funds to meet it having been deposited in the United States Bank and loan offices. The debt outstanding consisted mainly of unclaimed interest and dividends, of claims for services and supplies during the Revolution, and of old Treasury notes, and it is supposed that payment of these had not been asked for solely because the evidences of the debt had been lost or destroyed. The estimates showed the probability of a surplus of at least $14,000,000 in the Treasury at the close of the year 1836, and this estimate proved to be far below the truth. In this favorable condition of the public finances, Congress adopted the extraordinary resolution of depositing the surplus over $5,000,000 with the several States, and under the act of June 23, 1836, surplus revenue amounting to $28,101,644.91 was so deposited.

“In 1837, however, the state of the country had changed. The ‘flush’ times of 1835 and 1836 had been succeeded by extraordinary depression, which ultimately produced a panic. In May most of the banks suspended specie payments. The sales of public lands, and the duties on the importations of foreign goods, which had helped to swell the balance in the Treasury to over $42,000,000, had fallen off enormously. Even on the goods that were imported it was difficult to collect the duties, for the law compelled them to be paid in specie, and specie was hard to obtain. It had become impossible not only to pay the fourth installment of the surplus at the end of 1836 to the several States, but even to meet the current expenses of the Government from its ordinary revenues. In this emergency the Secretary of the Treasury suggested that contingent authority be given the President to cause the issue of Treasury notes. This measure was generally supported on the ground of absolute necessity, as there was a large deficit already existing, and this was likely to increase from the condition of the country at that time. The measure was opposed, however, by some who thought that greater economy in expenditures would relieve the Treasury, while others denounced it as an attempt “to start a Treasury bank.”

“However, an act was approved October 12, 1837, authorizing an issue of $10,000,000 in Treasury notes in denominations not less than fifty dollars, redeemable in one year from date, with interest at rates fixed by the Secretary, not exceeding 6 per cent. These notes, as usual, were receivable in payment of all duties and taxes levied by the United States, and in payment for public lands. Prior to 1846, the issue of notes of this character amounted to $47,002,900, bearing interest at rates varying from one tenth of one per cent. to 6 per cent. To provide in part for their redemption, authority was granted for the negotiation of several loans, and $21,021,094 was borrowed for this purpose, bonds being issued for a like sum, bearing interest at from 5 to 6 per cent., redeemable at specified dates. These bonds were sold at from 2½ per cent. discount to 3¾ per cent. premium, and redeemed at from par to 19¼ per cent. advance.

“War with Mexico was declared May 13, 1846, and in order to provide against a deficiency a further issue of $10,000,000 in Treasury notes was authorized by act of July 22, 1846, under the same limitations and restrictions as were contained in the act of October, 1837, except that the authority given was to expire at the end of one year from the passage of the act. The sum of $7,687,800 was issued in Treasury notes, and six per cent. bonds having ten years to run were issued under the same act to the amount of $4,999,149. These were sold at a small advance, and redeemed at various rates from par to eighteen and two-thirds per cent. premium.