THE problems presented to Hugh McCulloch, when he succeeded to the headship of the Treasury in Lincoln’s second cabinet, were to reduce expenditures, to reorganize taxation, to systematize and consolidate the debt, and to restore stability to the currency. The country was fortunate in having such a man as Mr. McCulloch to perform these services. Of long experience as a practical banker, he had been made Comptroller of the Currency upon the reorganization of the national banking system, and was familiar with all branches of government finance. Fortunately, also, he was not a politician. He was a descendant of that small but prolific colony of Scotch and Scotch-Irish who settled in northern New England, whose sturdy courage enriched the blood of all other races with which it was mingled. His views of what was required to restore sanity to the national finances were not warped by fear of popular clamor; and if they went further than the condition of the country warranted in the direction of monetary contraction, they at least set a standard of national honor and obligation which was like a beacon set on a hill to the supporters of honest money.
Toward reducing expenditures, rapid progress was made as the million men who had sprung to arms at the call of the country were mustered out of the Grand Army and returned to their plows and workshops. Expenditures for the War Department, which were $1,030,000,000 in 1865, were brought down the next year to $283,000,000, and in 1867 to $95,000,000. On the side of reducing and simplifying taxation much was accomplished by the clear-headed young man who had been called into consultation by President Lincoln a few weeks before his death. This man, David A. Wells, tall, gaunt, and deadly in earnest, had perhaps a greater capacity for massing facts than any other American economist. At his suggestion, the war taxes, which had fettered production and exchange, began to drop from the limbs of industry. By the act of July 13, 1866, taxes on articles of common consumption were abolished, the income tax was suspended from and after June 30, 1870, and the foundations were laid of the existing system of internal revenue, taxing substantially only spirits and tobacco.
Of the elaborate operations of refunding, which converted obligations paying six and seven per cent. into five, four, and finally even into three per cent. securities, and raised American credit to the level of that of other powerful nations, it is not desirable, here, to set forth the details. It is enough to say that the funded debt was reduced within ten years after the war by nearly $500,000,000, and that interest payments upon it, which in 1867 were $143,700,000, had fallen in 1877 to $97,100,000. Even more remarkable in figures were the achievements of later years; but if it is by obstacles overcome that the greatness of a victory is measured, then the palm of achievement belongs to those earlier years when, in the language of Secretary McCulloch, “the industry of one third part of the country, by reason of the war and the unsettled state of its political affairs, has been exceedingly depressed, and the other two thirds by no means exerted their full productive power.”
A MEASURE OF THE COUNTRY’S GROWTH
FOR America was still only on the threshold of that wonderful development which was to make her in the beginning of the twentieth century one of the half-dozen great Powers of the world; with a homogeneous white population second in numbers only to that of Russia; with accumulated wealth exceeding in per capita average that of any other country except perhaps England; and with imperial interests in Cuba, Porto Rico, Central America, Samoa, the Philippine Islands, and China.
The population of the United States in 1860 was only 31,443,000, or less than one third what it was in 1912; and the estimated total wealth was $16,159,616,000, or about one seventh of the great accumulations of to-day. Of these amounts, moreover, the South had taken out of the Union a proportion which may be estimated roughly at two fifths. Railway mileage, which was 30,626 for the whole Union in 1860, had increased only to 35,085 in 1865, or less than one seventh the mileage of to-day. Much of the country west of the Mississippi was still an untracked wilderness. Senator John Sherman, after the adjournment of Congress in 1866, made a vacation trip with his brother, General William T. Sherman, in the general’s official inspection of army posts. The Central Pacific Railroad ended at Fort Kearney, and thence the party traveled in light army-wagons drawn by mules, camping at night, sleeping in the wagons, the horses parked near by, guarded by sentinels, and with the frequent menace of Indian attack.
Skilful as was the financial leadership required to reduce expenditures, reform taxation, and refund the debt, these were the least difficult in a sense of the economic problems of the war, because they were chiefly problems of legislation. Much more serious were the questions of escape from the hectic influences of war prices and conditions and of inflated government-paper issues; and these were to give their color to the industrial and financial history of the country for a generation. Dreams of untold fortunes derived from speculation in the securities of new railways were rendered peculiarly vivid by the disorganized state of the currency and the fluctuations in its gold value, stimulated by manipulation in the gold-room of the New York Stock Exchange, but due fundamentally to uncertainty as to the quantity of currency in circulation and as to when it would be made redeemable. Thaddeus Stevens went to the extreme of declaring that one of the measures proposed, with the approval of the Secretary of the Treasury, would put under the absolute and uncontrolled discretion of that official more than sixteen hundred million dollars’ worth of paper money, and would confer upon him more power “than was ever before conferred upon any one man in a government claiming to have a constitution.” It is small wonder that amid such possibilities speculation became a rankly luxuriant growth of the financial markets.
“BLACK FRIDAY”
TYPICAL of these conditions was the famous “Black Friday” of September 24, 1869. It was the result of a daring speculation on the part of Jay Gould, “Jim” Fisk, and kindred spirits in Wall Street to corner the gold stock of the country and compel short sellers of the yellow metal to settle with them at their own price. Plans were carefully laid early in the summer of 1869 to enlist President Grant’s sympathy by convincing him that high prices were necessary to the prosperity of the country, and at the same time to entangle Mrs. Grant, her brother-in-law, A. R. Corbin (the husband of General Grant’s sister Virginia), the President’s private secretary, General Horace Porter, the Collector of the Port of New York, and others close to the President, in the appearance of a corrupt conspiracy to participate in the profits of the corner. It was planned to bring to a stop the sales of gold which were being made from time to time by the Secretary of the Treasury, and which tended to supply the demand for gold for the payment of customs and other special purposes, and thereby keep down its price. The tendency of the yellow metal had been downward during the spring, and the quotations of early September stood at about 135.
The effort to convince President Grant that he ought not to interfere by throwing Treasury gold upon the market was begun as early as the middle of June, when the President was on board one of the Fall River steamers on his way to Boston. Supper was served at nine o’clock, and the conversation was deftly turned to the state of the country, the crops, and the financial outlook. On Gould’s own confession, President Grant’s favorite rôle of a listener stood him in good stead. After listening for a long time to the talk, which had been carefully planned by Gould and in which Corbin and others took part, the President remarked that he thought there was a certain amount of fictitiousness about the prosperity of the country, and that the bubble might as well be tapped in one way as another. This remark, according to Gould, in his testimony before the Congressional Committee of investigation, “struck across us like a wet blanket.” They concluded that the President was a contractionist.