In a circular letter dated December 4, 1860, addressed to the banks, Governor Moore announced that should the State secede from the Union, as seemed probable, $1,000,000 in specie or its equivalent, would be needed by the administration. The State bonds could not be sold in the North, nor in Europe except at a ruinous discount, and a tax on the people at this time would be inexpedient. Therefore he recommended that the banks hold their specie. Otherwise there would be a run on them and should an extra session of the Legislature be called to authorize the banks to suspend specie payments, such action would produce a run and thus defeat the object. He requested the banks to suspend specie payments, trusting to the convention to legalize this action.[[1]] The Governor then issued an address to the people stating his reasons for such a step. It was done, he said, at the request and by the advice of many citizens whose opinions were entitled to respect and consideration. Such a course, they thought, would relieve the banks from a run during the cotton season, enable them to aid the State, do away with the expense of a special session of the Legislature, prevent the sale of State bonds at a great sacrifice, and prevent extra taxation of the people in time of financial crisis.[[2]]
Three banks—the Central, Eastern, and Commercial—suspended at his request and made a loan of $200,000 in coin to the State. Their suspension was legalized later by an ordinance of the convention. The Bank of Mobile, and the Northern and the Southern Banks refused to suspend, though they announced that the State should have their full support. The Legislature passed an act in February, 1861, authorizing the suspension, on condition that the banks subscribe for 10-year State bonds at their par value. The bonds were to stand as capital, and the bills issued by the banks upon these bonds were to be receivable in payment of taxes. The amount which each bank was to pay into the Treasury for the bonds was fixed, and no interest was to be paid by the State on these bonds until specie payments were resumed. All the banks suspended under these acts, and thus the government secured most of the coin in the State.[[3]] In October, 1861, before all the banks had suspended, State bonds at par to the amount of $975,066.68 had been sold—all but $28,500 to the banks. By early acts specie payments were to be resumed in May, 1862, but in December, 1861, the suspension was continued until “one year after the conclusion of peace with the United States.” By this law the banks were to receive at par the Confederate Treasury notes in payment of debts, their notes being good for public dues. The banks were further required to make a loan of $200,000 to the State to pay its quota of the Confederate war tax of August 16, 1861. (The privilege of suspension was evidently worth paying for.[[4]])
The banking law was revised by the convention so that a bank might deposit with the State comptroller stocks of the Confederate States or of Alabama, receiving in return notes countersigned by the comptroller amounting to twice the market value of the bonds deposited. If a bank had on deposit with the comptroller under the old law any stocks of the United States, they could be withdrawn upon the deposit of an equal amount of Confederate stocks or bonds of the State. The same ordinance provided that none except citizens of Alabama and members of State corporations might engage in the banking business under this law. But no rights under the old law were to be affected. It was further provided that subsequent legislation might require any “free” bank to reduce its circulation to an amount not exceeding the market value of the bonds deposited with the comptroller. The notes thus retired were to be cancelled by the comptroller.[[5]] The suspension of specie payments was followed by an increase of banking business; note issues were enlarged; eleven new banks were chartered,[[6]] and none wound up affairs. They paid dividends regularly of from six to ten per cent. in coin, or Confederate notes, or in both. Speculation in government funds was quite profitable to the banks.
ISSUES OF BONDS AND NOTES
The convention authorized the General Assembly of the State to issue bonds to such amounts and in such sums as seemed best, thus giving the Assembly practically unlimited discretion. But it was provided that money must not be borrowed except for purposes of military defense, unless by a two-thirds vote of the members elected to each house; and the faith and credit of the State was pledged for the punctual payment of principal and interest.[[7]]
The Legislature hastened to avail itself of this permission. In 1861, a bond issue of $2,000,000 for defense, and not liable to taxation, was authorized at one time; at another, $385,000 for defense besides an issue of $1,000,000 in treasury notes receivable for taxes. Of the first issue authorized only $1,759,500 was ever issued. Opposition to taxation caused the State to take up the war tax of $2,000,000 (August 19, 1861), and for this purpose $1,700,000 in bonds were issued, the banks supplying the remainder. There was a relaxation in taxation during the war; paper money was easily printed, and the people were opposed to heavy taxes.[[8]]
In 1862, bonds to the amount of $2,000,000 were issued for the benefit of the indigent. The Governor was given unlimited authority to issue bonds and notes, receivable for taxes, to “repair the treasury,” and $2,085,000 in bonds was issued under this permit. These bonds drew interest at 6%, ran for 20 years, and sold at a premium of from 50% to 100%. Bonds were used both for civil and for military purposes, but chiefly for the support of the destitute. Treasury notes to the amount of $3,500,000 were issued, drawing interest at 5%, and receivable for taxes. The Confederate Congress came to the aid of Alabama with a grant of $1,200,000 for the defense of Mobile.[[9]] In 1863, notes and bonds for $4,000,000 were issued for the benefit of indigent families of soldiers, and $1,500,000 for defense; $90,000 in bonds was paid for the steamer Florida, which was later turned over to the Confederate government.[[10]] In 1864, $7,000,000 were appropriated for the support of indigent families of soldiers and an unlimited issue of bonds and notes was authorized.[[11]] In 1862, the Alabama Legislature proposed that each State should guarantee the debt of the Confederate States in proportion to its representation in Congress. This measure was opposed by the other States, and failed.[[12]] A year later a resolution of the Legislature declared that the people of Alabama would cheerfully submit to any tax, not too oppressive in amount or unequal in operation, laid by the Confederate government for the purpose of reducing the volume of currency and appreciating its value. The Assembly also signified its disapproval of the scheme put forth at the bankers’ meeting at Augusta, Georgia—to issue Confederate bonds with interest payable in coin and to levy a heavy tax of $60,000,000 to be paid in coin or in coupons of the proposed new issue.[[13]]
The Alabama treasury had many Confederate notes received in taxes. Before April 1, 1864, (when such notes were to be taxed one-third of their face value), these could be exchanged at par for 20-year 6% Confederate bonds. After that date the Confederate notes were fundable at 33⅓% of their face value only.[[14]] After June 14, 1864, the State treasury could exchange Confederate notes for 4% non-taxable Confederate bonds, or one-half for 6% bonds and one-half for new notes. The Alabama Legislature of 1864 arranged for funding the notes according to the latter method.[[15]] The Alabama Legislature of 1861 had made it lawful for debts contracted after that year to be payable in Confederate notes.[[16]] Later, a meeting of the citizens of Mobile proposed to ostracise those who refused to accept Confederate notes. Cheap money caused a clamor for more, and the heads of the people were filled with fiat money notions. The rise in prices stimulated more issues of notes. On February 9, 1861, $1,000,000 in State Treasury notes was issued and in 1862, there was a similar issue of $2,000,000 more. These State notes were at a premium in Confederate notes, which were discredited by the Confederate Funding Act of February 17, 1864. Confederate notes were eagerly offered for State notes, but the State stopped the exchange.[[17]] December 13, 1864, a law was passed providing for an unlimited issue of State notes redeemable in Confederate notes and receivable for taxes.
Private individuals often issued notes on their own account, and an enormous number was put into circulation. The Legislature, by a law of December 9, 1862, prohibited the issue of “shin-plaster” or other private money under penalty of $20 to $500 fine, and any person circulating such money was to be deemed the maker. It was not successful, however, in reducing the flood of private tokens; the credit of individuals was better than the credit of the government.
Executors, administrators, guardians, and trustees were authorized to make loans to the Confederacy, and to purchase and receive for debts due them bonds and Treasury notes of the Confederacy and of Alabama, and the interest coupons of the same. One-tenth of the Confederate $15,000,000 loan of February 28, 1861 was subscribed in Alabama.[[18]] In December 1863, the Legislature laid a tax of 37½% on bonds of the State and of the Confederacy unless the bonds had been bought directly from the Confederate government or from the State.[[19]] This was to punish speculators. After October 7, 1864, the State Treasurer was directed to refuse to receive for taxes (except at a discount of ⅓) Confederate notes issued before the date of the Funding Act (Feb. 17, 1864). Later, Confederate notes were taken for taxes at their full market value.[[20]]