use it by way of offset. No one would take them as money, in the proper sense of that word. Government saw at once that it could not get along with such expedients as these: that the only way in which it could make its notes circulate as money was to compel their circulation, by making them competent to discharge all contracts; for so far they were to indebted parties the equivalent of gold. As the suspension of the Banks was a precautionary measure, rather than the result of any immediate necessity, they would undoubtedly have speedily resumed, but for the immediate provision for the issue of legal-tender notes. They were sufficiently strong, and proposed to Mr. Chase a plan by which the war could still be carried on by the use of their paper at the value of coin, or at only a slight discount from coin. Upon their suspension, from the apprehension naturally created, gold rose in January to a premium of about 3 per cent, to fall off by the middle of March to about 1 per cent. Mr. Chase, however, was wholly averse to any arrangement with them. The object nearest his heart was not money so much as the breaking down of the financial system which he found in existence on his accession to office, which was in a thoroughly healthy and strong condition, and by means of which alone the war could be conducted on a specie basis; and to substitute in its place his own, from which the proper constituent for conversion was to be wholly eliminated; and that, too, in the very face of the tremendous struggle in which the nation was already engaged. At the very moment when the Banks were advancing him $150,000,000, he declared them to be unworthy of credit; that "their currency was incongruous, unequal, and unsafe.". Their failure, which was his own work, was his first great triumph. Such is a brief account of the early financial operations of the government, of the suspension of payment by the Banks, and of the reasons for the issue of the government notes. Never did consequences more momentous hang upon questions apparently more insignificant in themselves, whether the notes of the Banks of the three great cities should be used, and whether Mr. Chase would deal with them on the same footing as other customers, or demand payment of all his loans in coin. They were questions, however, which lay at the very root of the most important functions and operations of society, the modes by which its means can be best transferred and utilized. Could the consequences have been foreseen, the Banks would undoubtedly have stood upon their convictions. As their objections were vital, they should have been insisted upon. The disasters that resulted should have been inferred from the violation of so obvious a duty or rule. Had they persisted, Mr. Chase would in the end have yielded, or, what was far better, would have been compelled to give up his place. One would have supposed that, after he had been lifted out of his embarrassments by the Banks, and had had such proof of their patriotism and financial strength, he would most readily have deferred to their suggestions, in matters coming so peculiarly within their own experience, and in which he must have known them to be far better fitted to advise and direct than himself. Among the managers of the hundred and twenty Banks which formed the association, were men of the most eminent weight and influence, in social as well as in monetary circles, men who were uninfluenced by party ties or animosities, whose experience could be confidently appealed to, and who had no purpose apart from the general welfare. If results be the test, certainly no conduct could have been more criminal than to refuse to give ear to persons so well fitted to counsel and guide.1 The Banks having suspended, and with them the government, what was Mr. Chase to do? The following extracts from his Second Annual Report will give his answer: "The Banks of New York suspended on the 30th of December, 1861. Their example was followed by most of the Banks through 1 The following is the section of the Act authorizing a National Loan, providing for a modification of the Independent Treasury: "Section 6. And be it further enacted: That the provisions of the Act entitled, An act to provide for the better organization of the Treasury, and for the collection, safe-keeping, transfer and disbursements of the public revenues,' passed August 6, 1846, be and the same are hereby suspended, so far as to allow the Secretary of the Treasury to deposit any of the moneys obtained on any of the loans now authorized by law, to the credit of the Treasurer of the United States, in such solvent specie-paying Banks as he may select; and the said moneys, so deposited, may be withdrawn from such deposit for deposit with the regular authorized depositories, or for the payment of public dues, or paid in redemption of the notes authorized to be issued under this Act, or the Act to which this is supplementary, payable on demand, as may seem expedient to, or be directed by, the Secretary of the Treasury." • Appendix Congressional Globe, 1st Session 37th Congress, p. 41. out the country; and government yielded to the same necessity in respect to the United States notes then in circulation. "These changed circumstances required a change of measures. The expenditures had already reached an average of nearly a million and a quarter of dollars each secular day, while the revenues from all sources hardly exceeded one-tenth of that sum. It was necessary, therefore, to raise by loans in some form about thirty millions a month, or sixty millions for every sixty days. "Careful inquiries satisfied the Secretary that the first $60,000,000 could not be had, in coin, at better rates than a dollar in bonds for eighty cents in money; and that each succeeding loan would involve submission to increasingly disadvantageous terms. To obtain the first $60,000,000 would require, therefore, an issue of bonds to the amount of $75,000,000, and, of course, an increase of the public debt by the same sum; the next $60,000,000 would require, perhaps, $90,000,000 in bonds and debt; and the next $60,000,000, if obtainable at all, would require perhaps $120,000,000. It was easy to see that, on this road, utter discredit and paralysis would soon be reached. The adoption of a plan of finance involving such consequences was not compatible with the Secretary's ideas of public duty. "There remained but one other possible way of raising money by the negotiation of bonds in the usual mode. That way was to receive in payment of loans the notes or credits of the Banks in suspension. To ascertain what would have been the consequences of a resort to this expedient, it is necessary to remember that the Bank circulation of the loyal States amounted, on the 1st day of January, 1861, to $150,000,000; that it had been reduced to $130,000,000 on the 1st day of January, 1862; and that this circulation was diffused throughout the country in all the channels of business. In these circumstances, the collection by loans of sufficient amounts to meet the demands upon the Treasury in season for prompt payments would be extremely difficult. The negotiation of such loans to the extent required by the public exigencies would create a demand for the notes, which would involve the necessity at first of sacrifices not greatly inferior to those attendant on coin loans. If subsequent negotiations should become practicable at seemingly better rates, it would be because the government demand had stimulated the making and issuing of bank-notes to an extent far beyond the ordinary needs of business. The increase of circulation thus stimulated would be unlimited, except by the possibility of obtaining interest on loans of it; or, in other words, by the possibility of obtaining credit for it with the community and the gov ernment. This limit, certain to be finally reached by all Banks improvidently managed, would not, however, be reached immediately or at the same time by all institutions, or by the same rate of progress in all parts of the country. But an excessive circulation would surely be thrust upon the community; forming a currency the business of the people, and to embarrass, if not arrest, the operations of the government. Loans negotiated in this circulation would be simply exchanges of the debts of the nation, bearing in terest and certain to be paid, for the debts of a multitude of corporations, bearing no interest, and certain, in part, never to be paid.”1 As Mr. Chase assumed that he could borrow neither coin nor bank-notes, and as he could not, without full provision for their payment, make plain notes circulate as money, he bent all his energies, as the only alternative, to secure an issue of legal-tender notes. In a letter addressed, under date of Jan. 29, 1862, to Mr. Stevens, Chairman of the Committee of Ways and Means of the House, he said :— "The provision making United States notes a legal tender has doubtless been well considered by the Committee, and their conclusion needs no support from any observations of mine. I think it my duty, however, to say that, in respect to this provision, my reflections have conducted me to the same conclusions they have reached." 2 On the 7th of June, 1862, Mr. Chase addressed a communication to the Committee of Ways and Means (accompanied by a bill of his own drafting providing therefor), asking for a further issue of $150,000,000 of legal-tender notes. "He proposed that authority be given to the Secretary of the Treasury to issue $150,000,000 in United States notes, in addition to the issue already authorized, and that these be a made legal tender for debts." 8 In reference to the issue of notes after it was made, he said: "No other mode of providing, with any tolerable degree of promptitude, for the wants of the army and the necessities of other branches of the public service, seemed likely to effect the object with so little public inconvenience and so considerable public advantage as the issue of United States notes, adapted to circulation as money, and available therefor immediately in government payments.... The choice was now to be made between a currency furnished by numerous and unconnected Banks, in various States, and a currency furnished by the government, which the government could and would, except in a very improbable, not to say impossible, contingency, amply provide for and protect. With these alternatives before him, the Secretary had already declared his unhesitating preference for a circulation authorized and issued by national authority.* "The recommendations now submitted, of a limited " (further) 1 Report of the Sectretary of the Treasury, for 1862, pp. 7, 8. 2 Spaulding's Financial History of the War of the Rebellion, p. 45. Report of the Secretary of the Treasury, for 1862, pp. 8, 9. "issue of United States notes, as a wise expedient for the present time, and as an occasional expedient in future times, ... are prompted by no favor to excessive issues of any description of credit money."1 "In former reports, the Secretary has stated his convictions, and the grounds of them, respecting the necessity and the utility of putting a large part of the debt in the form of United States notes, without interest, and adapted to circulation as money. These convictions remain unchanged, and seem now to be shared by the people. For the first time in our history has a real approach to a uniform currency been made; and the benefits of it, though still far from the best attainable condition, are felt by all. The circulation has been distributed throughout the country, and is everywhere acceptable. It is a gratification to know that a tribunal so distinguished by the learning and virtues of its members as the Supreme Court of New York has given the sanction of its judgment to the constitutional validity of the law." 2 Upon the suspension of the Banks due solely to his folly and obstinacy, and that of the government, which necessarily followed in their train, Mr. Chase could see but one course open for him. The government suspended upon its demand notes, equalling in amount only $33,460,000; although these were equally receivable with coin in payment of the rev What folly could have been greater than to allow government to break for such a paltry sum? As the notes were receivable, and were constantly being paid into the Treasury, in the collection of the revenues, a few millions of dollars would have been sufficient to have maintained them at par,- to have taken in such as were not returned through the revenues. What was the result, at least in Mr. Chase's estimation? That its suspension had so far destroyed the credit of the government that he could not hope to borrow from the public, coin which the Banks had paid him in exchange for its securities at par, on any better terms than 100 of the former to 80 of the latter; and at this rate, for only $60,000,000, to be supplied in sixty days. For the second $60,000,000, to be supplied within four months, he would have to give $90,000,000 in bonds; and for the third, $120,000,000. Certainly, money was not to be borrowed on such terms as these! He forced the government to suspend, and then proclaimed to the world that no one would trust it. In turning in the direction of the 1 Report of the Secretary of the Treasury, for 1862, p. 21. |