Elbridge Gerry Spaulding

History of the Legal Tender Paper Money


On the 2d February, 1863, the National Currency Bank bill, [S. No. 486, to provide a national currency, secured by a pledge of United States stocks, and to provide for the circulation and redemption thereof.] as prepared by Mr. Spaulding, in December, 1861, after being altered and amended in several important particulars, was reported from the Finance Committee to the Senate by John Sherman of Ohio.  The debate upon it was opened on the 9th, and continued from day to day until the 12th, when it was passed by the following vote—yeas 23, nays 21, as follows :

Yeas—Messrs. Anthony, Arnold, Chandler, Clark, Doolittle, Fessenden, Foster, Harding, Harlan, Harris, Howard, Howe, Lane (of Kansas), Morrill, Nesmith, Pomeroy, Sherman, Sumner, Ten Eyck, Wade, Wilkinson, Wilmot, and Wilson (of Massachusetts)—23.

Nays—Messrs. Carlisle, Collamer, Cowan, Davis, Dixon, Foot, Grimes, Henderson, Hicks, Kennedy, King, Latham, McDougal, Powell, Rice, Richardson, Saulsbury, Trumbull, Turpie, Wall and Wilson (of Missouri)—21.

So the bill was passed.

The bill as it passed the Senate was sent to the House on the 13th.  On motion of Mr. Hooper it was ordered to be printed, but was not referred to the Committee of Ways and Means.  It remained on the Speaker’s table until the 19th, when it was taken up for consideration in the House.  A motion to refer it to the Committee of the Whole having been defeated, Mr. Spaulding opened the debate in a lengthy speech in favor of the bill, which will be found in the Appendix.  The debate continued until the 20th, when the bill was passed without amendment by the following vote—yeas 78, nays 64, as follows :

Yeas— Messrs. Aldrich, Alley, Ashley, Babbitt, Beaman, Bingham, Jacob B. Blair, Blake, Buffinton, Calvert, Campbell, Casey, Chamberlain, Clements, Colfax, Conway, Covode, Cutler, Davis, Delano, Dunn, Edgerton, Eliot, Ely, Fenton, Samuel C. Fessenden, Thomas A.D. Fessenden, Fisher, Frank, Goodwin, Granger, Hahn, Haight, Hickman, Hooper, Hutchins, Julian, Pig Iron Kelley, Francis W. Kellogg, William Kellogg, Lansing, Leary, Lovejoy, Law, McIndoe, McKean, McPherson, Marston, Maynard, Moorhead, Anson P. Morrill, Noell, Olin, Patton, Timothy G. Phelps, Potter, Alexander H. Rice, John H. Rice, Sargent, Sedgwick, Segar, Shanks, Shellabarger, Sherman, Sloan, Spaulding, Thaddeus Stevens, Trimble, Trowbridge, Van Horn, Van Wyck, Verree, Wall, Wallace, Washburne, Albert S. White, Windom and Worcester—78.

Nays— Messrs. William Allen, Ancona, Baily, Baker, Baxter, Biddle, Cobb, Frederick A. Conkling, Roscoe Conkling, Cox, Cravens, Crittenden, Dawes, Edwards, English, Gooch, Grider, Gurley, Hall, Harding, Harrison, Holman, Horton, Johnson, Kerrigan, Knapp, Law, Lazear, Loomis, Mallory, May, Menzies, Justin Morrill, Morris, Nixon, Noble, Norton, Nugen, Odell, Pendleton, Perry, Pike, Pomeroy, Porter, Price, Robinson, James S. Rollins, Sheffield, Shiel, John B. Steele, William G. Steele, Stiles, Stratton, Benjamin F. Thomas, Francis Thomas, Vallandigham, Wadsworth, Wheeler, Whaley, Chilton A. White, Wickliffe, Wilson, Woodruff and Wright—64.

So the bill was passed and approved by President Lincoln, February 25, 1863.

No National Bank currency was issued until about the first of January, 1864.  After that time it was gradually issued.  On the first of July, 1864, the sum of $25,825,695 had been issued ;  and on the 22d of April, 1865, shortly after the surrender of General Lee, the whole amount of National Bank circulation issued to that time, was only $146,927,975.  It will therefore be seen that comparatively little direct aid was realized from this currency until after the close of the war.  All the channels of circulation were well filled up with the greenback notes, compound interest notes, and certificates of indebtedness, to the amount of over $700,000,000, before the National Bank act got fairly into operation.  This Bank issue was in fact an additional inflation of the currency.


The first legal tender notes were issued bearing date March 10, 1862, and on the back of them was printed these words :

The right to exchange these notes at par for six per cent. bonds was distinctly authorized by the second section of the legal tender act, and was in the nature of a contract made by the Government with the holders of the notes.  It was inserted as a just and equitable provision for the benefit of those persons who should be compelled, by the legal tender clause, to take the notes, by giving them, at any time, the privilege of converting them into a six per cent. bond.  It was, in effect, a forced loan, but the right of immediately returning them to the Government for gold bonds, divested the forced character of the transaction of any material hardship.  It also had a tendency to prevent any great inflation, for the reason that as soon as this currency became redundant in the hands of the people, and not bearing interest, they would invest it in the six per cent. bonds to prevent any loss of interest.

This right to exchange the notes for bonds was, at the request of Secretary Chase, taken away by the third section of the above act after July 1, 1863.  It is true that the Secretary had still the discretionary power to receive the notes at par for bonds, but it never seemed to be quite right to change the law while any of the legal tender notes were outstanding with the above endorsement upon them.

After passing the $900,000,000 loan act and the national currency bank bill, authorizing $300,000,000 of national currency, Congress adjourned on the 4th of March, 1863, leaving the Secretary of the Treasury clothed with most extraordinary discretionary power to carry on the financial affairs of the Government.

In April and May it became apparent that the paper currency was sufficiently expanded to enable the Secretary to float the 5-20 bonds authorized, to the amount of $500,000,000, by the first legal tender act, which, up to that time, had been taken only to a very limited amount :

JAY COOKE, an enterprising banker at Philadelphia, was employed as General Agent by Secretary Chase to negotiate these bonds.  He advertised very extensively, and employed subagents in all the principal cities and towns in all the loyal States.  The editors of newspapers and others were enlisted to bring the advantages and importance of this loan before the people, in order to make it a great popular loan, to be taken by them in large and small sums in all the loyal States.  Mr. Cooke succeeded admirably in this undertaking.  The loan became very popular, and was taken extensively by farmers, mechanics and laboring people in all the towns, villages and cities all over the country.  By the first of July, 1863, the amount of $168,880,250 of these bonds were taken ;  and by the first of October following $278,511,500 had been taken up ;  and by the 21st of January following the whole sum of $500,000,000 had been taken at par, and the rush was so great near the closing out of the loan, that nearly $11,000,000 extra had been subscribed and paid for before notice could be given to sub-agents that the amount authorized by that act had been taken up.  Congress, however, soon after authorized this extra sum to be issued.

This successful funding of 5-20 six per cent. bonds showed conclusively that it was not necessary to inflate the currency any further in order to raise the means to successfully prosecute the war.  The six per cent. bonds would furnish sufficient inducement for people to take them at the rate of from $1,500,000 to $2,000,000 a day, which was about the amount required to pay the daily expenses of the Government.  It looked as if the limit of paper money expansion had been reached ;  that the greenback currency would not further depreciate below the standard of gold :  and that the price of commodities would not continue to advance.


The policy of funding into six per cent. bonds, which had been successful during the last eight months, was changed to five per cent. 10-40 bonds, which proved unsuccessful, and funding to any considerable extent was arrested for several months.  The people were not satisfied with this change made by the Secretary in the rate of interest.  The loan became unpopular, and only $73,337,750 was taken between the 21st of January, 1864, and the 1st of July following, more than five months, and this sum was taken mostly by bankers, because the five per cent. bonds could be used in the organization of national banks.  The Secretary had the discretionary power, under the $900,000,000 loan act, to continue the funding at six per cent., but he desired to lower the rate of interest, and believed that he could successfully negotiate the five per cent. bonds, which proved to be a mistake.

Congress passed an act supplementary to the $900,000,000 loan act, giving still further discretionary power to the Secretary.  This act was approved March 3, 1864, and is the law under which the 10-40 five per cent. bonds above mentioned were issued.  It authorized the Secretary to issue bonds not exceeding $200,000,000, bearing date March 1, 1864, or any subsequent date, redeemable at the pleasure of the Government after any period not less than five years, and payable at any period not more than forty years from date in coin, bearing interest not exceeding six per cent. per annum, payable on bonds not over $100, annually, and on all other bonds semi-annually, in coin.


“BUFFALO, March 19, 1864.

To Morris Ketchum, Esq., Banker, New York :

Dear Sir—When I met you in New York in December last, you expressed the apprehension that the rate of interest on government securities would be reduced to five per cent.;  that there would be a further inflation of the currency ;  and, consequently, that gold would advance, and the price of labor and commodities would be greatly increased.  The apprehensions which you then expressed are now being realized, and the government and people are alike feeling its evil effects.  By reducing the rate of interest from six to five per cent. on bonds and notes issued to redeem greenback currency printed and paid out by the government, one per cent. interest is apparently saved to the government on its notes and bonds, but all the flour, beef, pork, and other supplies for the army and navy have advanced ten to fifteen per cent., thereby making it necessary for the government to pay ten to fifteen per cent. more for all supplies purchased, while it saves only one per cent. on its notes and bonds.

Five per cent. bonds, running from five to twenty years, can, no doubt, be floated on the market nominally at par, if the currency is sufficiently diluted and the volume increased large enough for that purpose ;  and so may four per cent. bonds be carried on the surface, if the currency is printed and paid out in such a large volume as to still further dilute the government paper already afloat.  But if this should be successfully carried out, and four per cent. bonds be negotiated at par in consequence of a further expansion of the currency, gold would advance to 90 or 100 per cent., and all commodities for the army and navy would advance in the same proportion.  What would be saved in the rate of interest would be lost fourfold on the enhanced price of all supplies purchased to carry on the war.

Five per cent. interest, payable in currency, which has been the rate since the twenty-first of January last, for redeeming legal tender notes, is a most exhilarating atmosphere to be reveled in by speculators and jobbers, but very unsatisfactory to men of steady purposes, who are engaged in manufactures, commerce, and other legitimate pursuits.  With such a money market, all articles consumed by laborers advance in price, rents increase, skilled laborers and common laborers combine and strike for higher wages, in order to be able to pay for the enhanced prices of living caused by the excess of paper issue.

In order to illustrate what I desire to say further on this subject, you will, I trust, allow me to make a brief review of the laws of Congress bearing upon the increased price of labor and commodities, and the advance in the price of gold.  Gold and silver, as you well know, are the standard of value in conducting the commerce of all the civilized nations of the world.  The commerce of the United States is still carried on with all foreign nations with gold as the standard or measure of value.

The laws of Congress, passed in 1792, fixed the gold standard in the United States, for the ten dollar eagle, at two hundred and forty-seven grains and four-eighths of a grain of pure gold, or two hundred and seventy-five grains of standard gold, and half that quantity for the half eagle.  The law of Congress, passed in 1837, changed the gold standard established in 1792, by providing that the standard of both gold and silver should be such, that of one thousand parts by weight, nine hundred parts should be pure metal and one hundred of alloy ;  that the alloy of silver coins should be of copper, and the alloy of gold coins should be of copper and silver.  That the weight of the gold eagle should be two hundred and fifty-eight grains, that of the half eagle one hundred and twenty-nine grains, and that the eagle should be a legal tender for ten dollars, and the half eagle for five dollars.  This was the standard value up to the time when the legal tender note bill was passed.

The last loan of $50,000,000, made by the government before the suspension of specie payments, was on the issue of six per cent. twenty year bonds at 89¼, being a discount of 10¾ per cent., and a loss to the Treasury of about $5,338,769.  The agreement for this loan was made with the associated banks of New York, Boston and Philadelphia, in the fall of 1861.  It was made on a specie basis, and in the efforts made by the banks to pay the gold on this loan into the Sub-Treasury, it brought on such a stringency in the money market as to cause a general suspension of specie payments on the 31st of December, 1861, which made it exceedingly difficult for the banks to pay the last instalments to complete the loan.  No further loans could be negotiated except at a still greater discount ;  indeed, it was deemed nearly or quite impossible to make any further loans on a specie basis, unless at the most ruinous rates of discount.  There was then due to the army and navy, and for supplies, not less than $100,000,000, and at least $200,000,000 more would be required within six months.  The necessity for immediate action was most pressing and urgent.  We were grappling with a most gigantic rebellion.  We were in a most extraordinary crisis, and extraordinary measures had to be resorted to, in order to save the government and preserve our nationality.  In this great emergency the original legal tender note bill, introduced by me as a necessary , war measure, and which, after being amended and passed, was approved by the President February 25th, 1862, changed the standard of value, not with the world at large, but within the United States, by authorizing the Secretary of the Treasury to issue $150,000,000 of United States notes to circulate as currency, making them lawful money and a legal tender for all debts, public and private, and providing for their redemption at all times at the Treasury Department in five-twenty six per cent. bonds, interest payable semi-annually in coin ;  and further authorizing the issue of $500,000,000 of these bonds for that purpose.  This was not the issue of an irredeemable paper currency.  There was a fixed standard and measure of value for the redemption of all these legal tender notes as they should be issued and re-issued from time to time.  That standard was five-twenty six per cent. bonds, principal and interest payable in gold, whatever might be their value.  Every person who should receive these notes voluntarily, or by compulsion, knew exactly what he could do with them.  He knew that the laws of Congress provided that he should have gold bearing bonds for all the notes taken by him.  The redemption in this case was not gold on demand as formerly, but six per cent. interest in gold every six months, and the principal payable in gold within twenty years.  This was the standard of value fixed by the legal tender note bill.  It was in effect a forced loan from the people to the government, but at a fair rate of interest for both the lender and the borrower.

This was a radical change in the standard or measure of value within the United States, but it was a fixed standard established by law, and every business man could act upon it, and shape all his contracts and business transactions accordingly.

The act of July 11th, 1862, authorized a further issue of $150,000,000 of legal tender notes, and requiring their redemption by the government at all times, on demand, in the 5.20 six per cent. bonds ;  still leaving the standard of value of legal tender notes by providing for their conversion at any time into six per cent. United States bonds, principal and interest payable in gold.  Although this was in effect a forced loan from the people, it was so fair and equitable in its terms, the peril of the country so great, and the object to be attained in crushing the rebellion so important, that no loyal citizen could object to it.  There was no very great danger that the currency would become excessively inflated so long as every person holding greenbacks, not bearing interest, could exchange them at his own will into gold-bearing bonds at six per cent. interest per annum.

In the remarks which I made in the House on the 17th of June, 1862, in favor of this additional issue of legal tender notes, I said that ‘ I never have been, and I trust I never shall be, unnecessarily an advocate for the creation of an unsound or an inflated currency ;  but, sir, I have long ago resolved, since this savage war has been forced upon us, to do whatever was necessary, and which I might lawfully do, to crush out the traitors and annihilate their armies.  This cannot be done without the ‘ sinews of war.’  Your army and navy must be supplied with all the terrible armament necessary to crush the enemy.  Your sick, wounded and famishing soldiers must all be supplied with hospitals, medical attendance, and all necessaries and conveniences to make them comfortable.  This is a plain duty which we cannot any of us fail to perform.  If, in the performance of this duty, it becomes necessary to authorize a further issue of United States notes, I shall not hesitate to give my vote for it.  I am not in favor of increasing the issue of them beyond the imperative necessities of the government to sustain the army and navy.  I much prefer to have our six per cent. bonds issued on permanent loans.  I would like to see the Secretary of the Treasury borrow at par all the money he can on the six per cent. bonds heretofore authorized to be issued.

When money can be obtained at par on six per cent. bonds, I would prefer to have that done to the issuing a very large amount of legal tender notes.  Too large an issue of demand notes, to circulate as money, will no doubt lead to an expansion which will inflate prices, stimulate undue speculations, and ultimately produce a reaction that will derange the whole business of the country.  This is to be avoided if possible.  I cannot therefore, advocate any greater issue of demand notes than the absolute necessities of the government requires to carry on the war with vigor.  I am disposed to give the Secretary power to issue the additional $150,000,000 United States notes asked for by him ;  but, at the same time, I feel the importance of having this power exercised discreetly, and I trust that he will not issue, or pay them out at all, when money can be obtained at par on our six per cent. bonds.  I do not understand that the Secretary intends to have them all issued and put into circulation at any one time; on the contrary, I believe he has no such intention.  He wants the power to issue and use them if necessary, but not otherwise.  When he can obtain a sufficient amount of money at par, on six per cent. bonds, or by temporary deposits in the Treasury, there will be no necessity for their issue, and the Secretary assures us in his letter that no further issues of notes will be made when that can be done ;  and, besides, the bill provides for this retaining in his own hands legal tender notes equal to one-third of the temporary deposits that may be in the Treasury.’

The government was carried on smoothly and the war prosecuted vigorously under this system up to January 21, 1864, when the 5-20 six per cent. bonds authorized by the act of 25th of February, 1862, were exhausted.  In the mean time, the standard of value for the redemption of greenbacks had been changed, which is the principal cause of the present advance in the price of gold and other commodities and services, as I will now proceed to show.

The act of the 3d of March, 1863, to provide ways and means for the support of the government, commonly called the $900,000,000 loan bill, so modified the legal tender note bill as to leave it in the discretion of the Secretary of the Treasury to fix the time and manner of issuing the bonds or notes, and the rate of interest they should bear under the act.  It gives him the power to issue them at six percent., five per cent., or even at a lower rate of interest if he deems advisable ;  but under the modification of the act, there is no longer any standard of value fixed by law.  It rests with the Secretary to say, from time to time, what the rate of interest shall be.  He also has the power to issue and re-issue legal tender notes on demand and on time in sufficient volume to float five per cent., and even four per cent. bonds and notes, if he shall deem it advisable to do so.  No man can regulate his contracts or business affairs with any certainty.  No person, when he takes legal tender greenback currency, can fix in his own mind what is its real value.  It is no longer convertible at the will of the holder into United States six per cent. bonds, nor is there any provision in the law which compels the government to redeem them in any kind of bonds, or in any other way—except for dues to the government.  It has, however, been the practice of the Treasury Department during the past two months to redeem legal tender greenbacks, not bearing interest, by exchanging for them one and two years Treasury notes bearing five per cent. interest, both principal and interest payable in currency.

I did not, at the last session of Congress, think it wise to change the standard of value fixed in the legal tender note bill.  I thought it better to issue and pay out to the army and navy, and other creditors of the Government, an amount of greenbacks sufficient to float, easily, the five twenty six per cent. bonds, but no more.  I believed seven and 3-10 per cent. interest too high a rate ;  but I deemed it fair and just that on forced loans of this kind that the Government should pay six per cent., and that the war should be prosecuted until the rebellion should be crushed, on the basis of six per cent. interest on all the funded debt to accomplish that result.  I thought it better for the Government and the people that there should be that stability attached to business transactions which can only be fully realized by a public law establishing the measure of value.  In the remarks which I made in the House on the 12th of January, 1863, I said, ‘ that Congress, by its legislation at the last session, has, to a considerable extent, changed the standard of value for all business operations with the United States.  The standard of value fixed by Congress is legal tender Treasury notes, convertible at any time into United States specie-paying bonds, bearing interest at the rate of six per centum per annum, payable half-yearly in coin, based upon adequate taxation upon the entire property of the country.  Legal tender notes constitute the national currency now established by law.  All exchanges of property, all contracts, and all loans, are based upon the value of legal tender notes and United States six per cent. bonds.

At a later period in the session the $900,000,000 act was passed.  I was not in favor of the change made by that act in the standard of value, or rather I was not in favor of the discretionary power given to the Secretary of the Treasury to change it, as provided in the act ;  not because I had not full confidence in the Secretary, but because I thought it better that so important a matter, relating as it does to the stability of the whole business operations of the country, should be fixed in the law itself, so that all men could shape their business accordingly.  This would have relieved the Secretary from a vast responsibility, and the inflations, fluctuations and changes now so apparent would have been less likely to have happened.  I reluctantly assented to the change.  It was against my better judgment, and I am now satisfied that it was a mistake.

The daily conversions, during the past year, of legal tender notes into the 5-20 six per cent. bonds, at the rate of from one to two millions a day, furnished the means for paying the daily expenditures of the Government ;  the conversions went on so smoothly, so steadily and so satisfactorily to all parties, without causing any great inflation of the currency, or increase in the price of labor or commodities, that I was in hopes it would be continued by the Secretary, under the discretionary power given him to continue it, under the $900,000,000 loan bill.  This would have kept things steady, kept down the price of gold, and would probably have prevented any necessity for paying out the reserve $50,000,0000 of greenbacks which have been issued since the meeting of Congress, and over $150,000,000 five per cent. one and two years legal tender notes, also issued and circulated to a considerable extent as currency, making about $200,000,000 that have been printed and paid out since the meeting of Congress in December last, which, added to the $400,000,000 of greenbacks previously issued, amounts altogether to $600,000,000 of greenbacks and legal tender Treasury notes, and which is probably a volume of currency large enough to float the proposed new issue of five per cent. ten-forty bonds ;  but it is not my wish or desire to say a word that will in any way retard or embarrass the operations of the government in a vigorous prosecution of the war to put down this gigantic and wicked rebellion, and effectually remove the cause that brought on such a bloody war.  The last man and the last dollar are pledged for this purpose, and, if necessary, to inflate the currency to such an extent that 10-40 five per cent. bonds may be floated at par, I am ready to yield my assent to such a measure, and will lend my feeble efforts to sustain the administration in carrying it out.  The rebellion must be crushed at all hazards, and at every sacrifice.

The principal object I have in writing to you at this time, is to solicit the co-operation of our friends in New York in submitting to Congress the propriety of establishing, by law, the standard value of legal tender notes, by fixing the rate of interest at which they may at any time be converted into the funded debt of the United States, principal and interest payable in gold.  If it is to be five per cent. bonds, gold and prices will be considerably higher than they will be if such notes are convertible into six per cent. bonds.  I think it will be cheaper in the end, and specie payments can be resumed at an earlier day, for the Government to continue the conversion of legal tender notes into six per cent. bonds, because gold will be lower and prices less ;  but whatever the rate of interest is to be, I trust it will be fixed in the law itself, so that all business men may be able to shape their contracts and business in accordance with the public law establishing such standard of value.

I intended to say a few words on one or two other points, but this letter is already longer than I intended, and I must defer to some other more convenient time what more I may desire to say on the national finances.

I remain yours, very truly,

NEW YORK, March 21.
My Dear Sir—I am in receipt of your favor of the 19th inst., upon the subject of national finances.
    It expresses fully and clearly my own views—so admirably, in fact, that I beg your permission to publish it, as I think it of great importance that the attention of business men should be drawn to the subject—than which nothing is of greater or more immediate consequence to their interests.
Truly yours,

BUFFALO, April 11, 1864.
Morris Ketchum, Esq., Banker, N.Y.:

Dear Sir—Referring to my letter to you of the 19th of March last, I desire to make some additional remarks on the National Finances.  It is a subject upon which I feel a deep interest, for you well know that if we fail here there is danger that we may not succeed in accomplishing what is the most ardent wish of all patriotic citizens—that of crushing the rebellion, and a restoration of the national unity.  The national debt will increase at a fearful rate, under any policy that can be devised, and prudent, patriotic citizens are looking anxiously at the result of measures that are adopted.  Desiring, as I do, the crushing of the rebellion in the shortest time, and with the least possible expenditure of blood and treasure, I venture to make a few suggestions further on the future policy of executing the $900,000,000, loan act.

It seems to me that the policy of the Treasury Department for the last three months has been that of inflation, and over-issues of a paper circulating medium.  It has, by such a policy, unintentionally stimulated and encouraged speculations in gold, stocks and other things, rather than to encourage industry, the production of commodities, and other legitimate business.  Under this policy, gold has advanced 20 per cent., and the price of labor and commodities continues to increase to such an extent as to render it very embarrassing for business men to carry on their ordinary pursuits.  I know very well that these evils cannot be fully guarded against during the prosecution of such a gigantic war, and the large amount of paper necessarily issued by the Government ;  but it is the duty of the Government that these, evils should be mitigated and rendered as light as possible.

The Department has partially executed the $900,000,000 loan act ;  the first section of which authorized the Secretary to borrow the whole amount of nine hundred millions of dollars on the ten-forty bonds, bearing six per cent. (or, in his discretion, five or four per, cent.) interest payable semiannually in coin ;  or, by other sections of the bill, he had the discretionary power to print and pay out to creditors of the Government an additional amount of $150,000,000 of greenbacks, and $400,000,000 legal tender Treasury notes, which, in the form issued by him, circulate to a considerable extent as currency ;  and a further contingent authority to issue a still further sum of $150,000,000 of greenbacks ;  but the whole aggregate of all kinds of bonds and notes to be issued under the bill was not to exceed $900,000,000.

In administering and carrying into effect the provisions of this act, it is plain that, by borrowing on the issue of ten-forty six per cent. bonds under the first section of the act, the tendency would be to repress and keep down inflation, prevent speculation in stocks, gold and other commodities, and, at the same time, by holding a steady money market, encourage all kinds of productive industry and other legitimate pursuits.

On the other hand, by resorting to the other sections of the bill and issuing greenbacks and legal tender treasury notes in large volume, the currency is still further expanded and cheapened to such an extent that all legitimate business is greatly embarrassed by the increase in the price of labor, the cost of living, transportation, and the cost of the raw materials used in building, manufacturing, and other industrial operations.

In the partial execution of this law, the Treasury Department has printed and paid out $150,000,000 greenbacks as currency, and over $175,000,000 of one and two years legal tender Treasury notes, which also circulate to a considerable extent as currency, making $325,000,000 of inflating paper issued under this act, thus far ;  while the department has only borrowed on a permanent loan, under the first section of the bill and the supplementary act, less than $15,000,000 on five instead of six per cent. ten-forty bonds.  The whole policy thus far under this law has been one of inflation on temporary loans, rather than funding on long government bonds at a fair rate of interest.

It has been supposed that by this policy of inflation a five per cent. ten-forty bond might be floated, nominally at par.  Funding the present excessive floating debt at five per cent. interest is better than not to be funded at all, and I hope that the bonds now offered at five per cent. may be taken up rapidly, and that the evils of the present inflation may be removed ;  but I fear the conversions will not be rapid enough at this rate of interest.  The bonds do not seem to be readily taken, as yet, by the people.  It required the printing and paying out of $400,000,000 of greenbacks before the five-twenty six per cent. bonds could be floated easily at par, and it will probably require the circulating paper issues of the Government, now amounting to about $625,000,000, to be increased to $650,000,000 or $700,000,000, before the people will be induced to take five per cent. bonds in order to get rid of the surplus circulation that may accumulate in their hands, that cannot be more profitably invested in other modes.

I agree with all that has been said by the Press and in Congress in favor of annual taxation to the amount of $300,000,000.  At the extra session of Congress in July, 1861, I advocated immediate taxation to the extent of paying the annual expenses of the government on a peace footing, and the interest on all the war debt, and I have advocated that policy ever since.  I hope Congress will not adjourn without providing for raising at least the sum of $300,000,000 each year by taxation.  Assuming that Congress will provide for raising that sum by taxation for the next fiscal year, still the whole expenses of the year will not be less than $1,000,000,000, which will leave the additional sum of $700,000,000 to be borrowed in some form to pay the expenses of the army and navy.  This brings us to the practical question :  How is this large sum to be obtained ?  Shall it be on temporary issues of paper calculated to still further inflate the currency already afloat, thereby adding to the embarrassments already bad enough ;  or shall it be on a permanent loan, based on the issue of long bonds, principal and interest payable in gold, and at such a fair rate of interest that the bonds will be readily taken, in such large amounts as not only to make any further temporary issues under the $900,000,000 act unnecessary, but also materially diminish the present excess of paper currency ?  This would check speculation, and bring down the price of gold and all other commodities to a more safe and stable standard.

It is of great consequence for all business men to know what is to be the future policy of the Treasury Department.  Whether it will still further inflate the currency by temporary expedients, or whether it will contract the floating debt by funding in long bonds.  Shall it be inflation and high prices, or contraction and lower prices ?  This question is of vital interest, affecting the large purchases of the Government in the prosecution of the war, as well as the legitimate business of the people.

If the Treasury Department will print and put at the disposal of the people ten-forty bonds, paying six per cent. interest semi-annually in coin, for the balance of the $900,000,000 loan, it will be so rapidly taken, judging from the manner in which conversions were made into the 5-20 bonds, that all its other printing presses employed in printing temporary circulating paper maybe safely stopped until this loan is exhausted, and with the most beneficial results to the Government and the people.

I remain, yours truly,


The attempt of the Secretary of the Treasury to float five per cent. 10-40 bonds made it necessary, in order to pay the current expenses of the Government, to issue and keep out large amounts of currency in the form of greenbacks, legal tender notes, interest-bearing Treasury notes, certificates of indebtedness, postal and fractional currency, and national bank notes, besides the currency issued by State banks.  Gold and commodities continued to advance in price.  On the 15th of January, ’64, gold was 1.55, on the 15th of April 1.78, on the 15th of June 1.97, and on the 29th of June 2.35 to 2.50, which showed that the legal tender notes were worth only forty cents on a dollar in gold.

On the 30th of June, 1864, Secretary Chase resigned the office, of Secretary of the Treasury.  President Lincoln announced the fact to the Senate by nominating David Todd, of Ohio, to fill the vacancy, which was the first announcement of the resignation of Gov. Chase.  Gov. Todd declined the appointment.  Mr. George Harrington, Assistant Secretary, was appointed Secretary of the Treasury ad interim.  William P. Fessenden, U.S. Senator from Maine, with some reluctance, finally consented to take the place.

He was nominated and confirmed, and entered upon the duties of the office on the 5th of July.

He subsequently published a statement of the audited public debt as it existed, on the books of the Treasury Department on the 30th day of June, which was the close of the fiscal year, and the day that Secretary Chase resigned, showing the total amount of debt to be $1,740,690,489.49.  The 10-40 five per cent. bonds amounted only to $73,337,750.

This statement showed that the currency items and others operating to inflate prices were as follows :

U.S. notes, greenbacks
Postal, fractional currency
Interest-bearing legal tender Treasury notes
Certificates of indebtedness
National bank notes
Add State bank circulation, not less than

Seven-thirty Treasury notes
Temporary deposits for which certificates were issued
June 30, 1864, total inflating paper issued

$ 109,356,150.00
$ 72,330,191.44

$ 431,178,670.84
$ 944,190,693.09

—$ 181,686,341.44
$ 1,125,877,034.53

This great inflation, with the military situation doubtful and unsatisfactory, caused gold to advance until July 11, 1864, when it reached its highest quotation, 2.85½, or, more accurately speaking, the United States notes continued to decline until they were only worth in gold 35 cents on the dollar at the Board of Brokers in the city of New York.

It was thought at the time that the gold bill passed by Congress, and approved June 17, 1864, prohibiting time contracts for the sale of gold and foreign exchange, operated to advance the price of gold, instead of depressing it.  It was intended by Congress, in passing the act, to prevent the gold speculators from operating for an advance, but it had the contrary effect, and only aggravated the difficulty.  The price of gold would advance in spite of the legal enactments, and the act only continued in force fifteen days, (the 2d of July) when it was repealed.

Secretary Fessenden says “ that on assuming the office on the 5th of July he found his condition peculiarly embarrassing.  The cash balance in the Treasury was, on the first of July, $18,842,558.71, and the unpaid requisitions, chiefly for the army, were $71,814,000, and the daily expenditures $2,250,000.”  The loan of $33,000,000, advertised by Secretary Chase on the 25th of June, was withdrawn on the 2d of July.  Secretary Fessenden raised the means to carry on the Government to March 4, 1865, by the issue of greenbacks, 7-30 Treasury notes, interest-bearing Treasury notes, certificates of indebtedness, loans of money obtained on six per cent. 5-20 bonds, and the receipts from taxes.  In his Annual Report he says :

“ The experience of the past few months cannot have failed to convince the most careless observer that, whatever may be the effect of a redundant circulation upon the price of coin, other causes have exercised a greater and more deleterious influence.  In the course of a few days the price of this article rose from $1.50 to $2.85 in paper for $1.00 in specie, and subsequently fell, in as short a period, to $1.87, and then again rose, as rapidly, to $2.50 ;  and all without any assignable cause, traceable to an increase or decrease in the circulation of paper money, or an expansion or contraction of credit, or other similar influence on the market, tending to occasion a fluctuation so violent.  It is quite apparent that the solution of the problem may be found in the unpatriotic and criminal efforts of speculators, and probably of secret enemies, to raise the price of coin, regardless of the injury inflicted upon the country—or, desiring to inflict it.”


By the second section of the act of June 30, 1864, it was provided that “the total amount of United States notes issued, or to be issued, shall not exceed $400,000,000, and such additional sum not exceeding $50,000,000, as may be temporarily required for the redemption of temporary loans.”

This act contained a further provision that “ all bonds, Treasury notes, and other obligations of the United States, shall be exempt from taxation, by or under State or municipal authority;”  and the last section of this act declares that “the words ‘obligation or other security of the United States,’ used in this act, shall be held to include and mean all bonds, coupons, national currency, United States notes, Treasury notes, fractional notes, checks for money of authenticated officers of the United States, certificates of indebtedness, certificates of deposits, stamps, and other representatives of value of whatever denomination, which have been or may be issued under any act of Congress.”

This act also authorized the issue of $200,000,000 of interest-bearing Treasury notes, payable at any time not exceeding three years from date, and made a legal tender at their face value to the same extent as United States notes, except in redemption of notes issued by banks.  And the power to issue interest-bearing Treasury notes, of this character, was still further enlarged by the act of January 28, 1865.  This was the last act of Congress giving power to the Secretary of the Treasury to issue any kind of legal tender notes.


Upon the inauguration of President Lincoln for a second term, Hugh McCulloch was appointed Secretary of the Treasury in place of Mr. Fessenden, who wished to be relieved from the duties of the office, and who returned again to the Senate.  Secretary McCulloch did not increase the issue of United States notes, but continued the issue of bonds, 7-30 Treasury notes, and compound interest-bearing Treasury notes made a legal tender at their face value.  After the surrender of the rebel armies to General Grant and General Sherman, the volunteer army was mustered out of the service, and had to be paid, in full.  Secretary McCulloch obtained the means to pay them chiefly by the issue of 7-30 Treasury notes, which were negotiated under the general agency of Jay Cooke, at par.  The amount required for this purpose was very large, and the amount of 7-30 Treasury notes outstanding in October, 1865, after paying the army was $830,000,000, which were convertible in three years into 5-20 six per cent. bonds.  The public debt during that month run up to about the highest figures it ever reached.  The following is a statement of the debt, without deducting funds in the Treasury, as it stood on the books of the Treasury Department on the 31st of October, 1865.


Bonds, 10-40’s, five per cent., due in 1904
Bonds, Pacific Railroad, 6 per cent., due in 1895
Bonds, 5-20’s, 6 per cent., due in 1882,1884 and 1885
Bonds, 6 per cent., due in 1881
Bonds, 5 percent., due in 1880
Bonds, 5 per cent., due in 1874
Bonds, 5 per cent., due in 1871
  $ 172,770,100.00
$ 1,144,072,100.00
Bonds, 6 per cent., due in 1868
Bonds, 6 per cent., due in 1867
Compound interest notes, due in 1867-’68
7-30 Treasury notes, due in 1867 and 1868
Bonds, Texas indemnity, part due
Bonds, Treasury notes, etc., part due
Temporary loans, ten days’ notice
Certificates of indebtedness, due in 1866
Treasury notes, 5 per cent., Dec. l, 1865
United States notes
Fractional currency

Total debt October 31, 1865

National bank notes issued
State bank notes issued

Total bank circulation
$   8,908,341.80
760,000 00

— 1,021,335,732.80

— 1,373,920.09

— 187,549,646.46

— 454,218,038.20
$ 2,808,549,437.55
$ 185,000,000.00
$ 250,000,000.00


The act of July 1, 1862, called the INTERNAL REVENUE LAW, was passed, providing for a levy of duties on various domestic manufactures, upon trades and occupations, and also providing a system of stamp, license, income, and other duties.  And the act of July 14th, of the same year, largely increased the duties on imports.  These laws were from time to time amended and enlarged, until large sums were realized from this mode of taxation, and formed a very substantial basis on which to rest the credit of the Government for the large issue of notes, bonds and other obligations.  Enough money was realized from these sources to pay the ordinary expenses of the Government, all the interest on the war debt, and liquidate a considerable portion of the principal.  The total debt, October 31, 1865, was over $2,800,000,000, and it does not at the present time much exceed $2,500,000,000, exclusive of Pacific Railroad bonds.


Secretary McCulloch, in his first annual report, 4th of December, 1865, expressed the opinion “ that the legal tender acts were war measures, passed in a great emergency ;  that they should be regarded only as temporary ;  that they ought not to remain in force a day longer than would be necessary to enable the people to prepare for a return to the gold standard ;  and that the work of retiring the notes which have been issued, should be commenced without delay, and carefully and persistently continued until all are retired.”  The House of Representatives on the 18th December, 1865, concurred in these views, expressed in the annual report of Mr. McCulloch, by the adoption of the following resolution offered by Mr. Alley, of Massachusetts :

Resolved, That this House cordially concurs in the views of the Secretary of the Treasury in relation to the necessity of a contraction of the currency, with a view to as early a resumption of specie payments as the business interests of the country will permit ;  and we hereby pledge co-operative action to this end as speedily as possible.

The above resolution was passed by the following vote—yeas 144, nays 6, as follows :

Messrs. Alley, Allison, Ames, Ancona, Anderson, James M. Ashley, Baldwin, Banks, Barker, Baxter, Beaman, Bergen, Bidwell, Bingham, Blow, Boutwell, Boyer, Brandegee, Brooks, Broomall, Bundy, Reader W. Clarke, Sidney Clarke, Conkling, Cook, Cullom, Darling, Dawes, Dawson, Defrees, Delano, Deming, Dennison, Dixon, Driggs, Eldridge, Eliot, Farquhar, Ferry, Finck, Garfield, Grider, Griswold, Hale, Aaron Harding, Abner C. Harding, Hart, Hayes, Henderson, Higby, Hill, Hogan, Holmes, Hooper, Hotchkiss, Asahel W. Hubbard, Chester D. Hubbard, Demas Hubbard, John H. Hubbard, Edwin N. Hubbell, James R. Hubbell, Hulbard, James Humphrey, Ingersoll, Jencks, Johnson, Julian, Kasson, Kelley, Kelso, Kerr, Ketcham, Kuykendall, Laflin, Latham, George V. Lawrence, William Lawrence, Longyear, Marshall, Marston, Marvin, McClurg, McIndoe, McKee, McRuer, Mercur, Miller, Moorhead, Morrill, Moulton Myers, Niblack, Nicholson, Noell, O’Neill, Orth, Paine, Patterson, Perham, Phelps, Pike, Plants, Price, Radford, Samuel J. Randall, William H. Randall, Raymond, Alexander H. Rice, John H. Rice, Ritter, Rollins, Ross, Rousseau, Sawyer, Scofield, Shanklin, Shellabarger, Sitgreaves, Sloan, Spaulding, Starr, Stillwell, Strouse, Taber, Taylor, Thornton, Trimble, Trowbridge, Upson, Van Aernam, Burt Van Horn, Robert T. Van Horn, Voorhees, Ward, Warner, Elihn B. Waahburn, William B. Washburn, Welker, Wentworth, Whaley, Williams, James F. Wilson, Stephen F. Wilson and Wright—144.

Nays—Messrs. Baker, Cobb, Eckley, Harris, Smith, and Thayer—6.

In order to carry into effect the above resolution, Congress, by the act of April 12, 1866, authorized the Secretary of the Treasury to exchange bonds for notes, but “that of United States notes not more than $10,000,000 should be retired and canceled within six months from the passage of the act, and thereafter not more than $4,000,000 should be retired in any one month.”

Under the provisions of this act the Secretary commenced retiring and canceling legal tender notes, but contraction very soon began to affect speculators and the debtor class of the community, who raised a cry against the course pursued by the Secretary.  As contraction gradually went on, money became more in demand, and it soon became unpopular with a large class of the community.  Members of Congress very soon changed their opinions on the subject, and in January, 1868, a law was passed, declaring “that from and after its passage, the authority of the Secretary of the Treasury to make any reduction of the currency by retiring or canceling United States notes, shall be and is hereby suspended.”

Before this law was passed Secretary McCulloch had reduced the circulation of United States notes down to about $356,000,000, which at this time (April, 1869), is the amount outstanding, and for which the Government is still liable, besides fractional currency amounting to over $36,000,000.


Since the close of the war there has been considerable discussion in regard to the meaning of the words used in the legal tender act.

It has been insisted by a large class of citizens that the 5-20 bonds might, after five years, be redeemed in legal tender notes, instead of gold and silver.  Others insisted that the bonds are payable in “ dollars,” which means gold and silver coin, and that an attempt to pay in legal tender notes would not be payment but merely changing the form of the debt.  That a matured debt cannot be discharged by another promise ;  that it is contrary to reason that a bond should be paid in an inferior obligation ;  and that it would be unjust to force inconvertible paper, without interest, in payment of an interest-bearing obligation, especially as the right was given in the original act to fund legal tender notes at any time in the bonds which were authorized by the same act.  Taking up bonds not due with greenback notes, would simply be to unfund a debt already funded, which would be contrary to the whole spirit and intent of the legal tender act.

To remove all doubt upon the subject, and with a view to improve the public credit, Mr. Shenck, Chairman of the Committee of Ways and Means, reported a bill, which, after a lengthy discussion, was amended, and finally passed both Houses of Congress.

The following is the vote by which it passed the House.  Yeas 97, nays 47.

Yeas—Messrs. Allison, Ambler, Ames, Armstrong, Arnell, Asper, Axtell, Bailey, Banks, Beaman, Benjamin, Bennett, Bingham, Blair, Boles, Boyd, Buffinton, Burdett, Cessna, Churchill, Cobb, Cook, Conger, Cowles, Cullom, Davees, Donley, Duval, Dyer, Farnsworth, Ferriss, Ferry, Finckelnburg, Fisher, Fitch, Gilfallan, Hale, Hawley, Heaton, Boar, Hooper, Hotchkiss, Jenckes, Jones (N.C.), Judd, Julian, Kelsey, Ketcham, Knapp, Laflin, Lash, Lawrence (Ohio), Lynch, Maynard, McCrary, McGrew, Mercur, Moore (Ill.), Moore (N.J.), Morrill (Me.), Negley, O’Neill, Packard, Paine, Palmer, Phelps, Poland, Pomeroy, Prosser, Roots, Sanford, Sergeant, Sawyer, Schenck, Scofield, Sheldon, Smith (Ohio), Smith (Vt.), Smythe (Iowa), Stokes, Stoughton, Strickland, Tanner, Tillman, Twichell, Upson, Van Horn, Ward, Washburn (Wis.), Washburn (Mass.), Welker, Wheeler, Whittemore, Wilkinson, Willard, Williams, Winans—97.

Nays—Archer, Beatty, Beck, Briggs, Bird, Burr, Butler (Mass.), Butler (Tenn.), Cobb, Coburn, Crebs, Dewees, Dickinson, Eldridge, Getz, Golladay, Hawkins, Holman, Hopkins, Johnson, Jones (Ky.), Kerr, Knott, Marshall, Mayhem, McCormick, McNeely, Moffett, Mungen, Niblack, Orth, Reading, Reeves, Rice, Shanks, Smith (Oregon), Stevenson, Stiles, Stone, Strader, Sweeney, Taffe, Trimble, Tyner, Van Trump, Wilson (Ohio), Winchester, Woodward—48.

The bill was approved by President Grant on the 18th of March, 1869, and was the first act approved by him after his inauguration, and is as follows :

An Act to strengthen the public credit of the United States.
   Be it enacted, etc., That in order to remove any doubt as to the purpose of the Government to discharge all its obligations to the public creditors, and to settle conflicting questions and interpretations of the law, by virtue of which such obligations have been contracted, it is hereby provided and declared that the faith of the United States is solemnly pledged to the payment in coin, or its equivalent, of all the obligations of the United States not bearing interest, known as United States notes, and of all the interest-bearing obligations, except in cases where the law authorizing the issue of any such obligations has expressly provided that the same may be paid in lawful money, or in other currency than gold and silver ;  but none of the said interest-bearing obligations, not already due, shall be redeemed or paid before maturity, unless at such times as United States notes shall be convertible into coin at the option of the holder, or unless at such time bonds of the United States, bearing a lower rate of interest than the bonds to be redeemed, can be sold at par in coin.  And the United States also solemnly pledges its faith to make provision at the earliest practicable period for the redemption of the United States notes in coin.
Approved March 18, 1869.


In most of the States where the constitutionality of the legal tender act has been raised, the State Courts have decided that the law was constitutional and valid.  The decisions in such cases were generally made upon the ground that the United States had express power to wage war, to raise and support armies and navies ;  to borrow money on the credit of the United States ;  and pass all laws necessary and proper to carry into execution these great powers.  In borrowing money to carry on the war, it was necessary and proper for the Government to give its notes for the amount borrowed ;  that Congress had the right to affix to such notes the attributes, and prescribe the terms which would give most value and the greatest facility to their negotiation, in order to obtain the necessary means of sustaining the army and navy in the prosecution of the war ;  that it was a form of credit justified by the exigency of the crisis, and necessary to the execution of the war powers expressly granted in the Constitution.  And that upon the authority of Chief-Justice Marshall, “ Congress must possess the choice of means, and must be empowered to use any means which are in fact conducive to the exercise of the powers granted by the Constitution.”

The Court of Appeals, the highest Court in the State of New York, decided in the case of Myer vs. Rosevelt, 27 N.Y. Rep., 400, “that the power to borrow money on the credit of the United States, carries with it the power to attach the quality of a legal tender to the notes issued, when, in the judgment of Congress, it is necessary to make them effectual for the purpose of borrowing.”

Judge Davies, in his opinion, says :

“ We take notice of the fact, that to maintain armies and provide a navy for the prosecution of the war, more money is needed annually than all the specie within the United States, and that a resort by the Government to the use of its own credit, was not only a matter of necessary, but the result has demonstrated that it was a measure of prudence and wisdom.”

The issue of Treasury notes under the Constitution commenced during the last war with Great Britain.  On the 30th of June, 1812, the first act was passed.  Further issues were authorized by the acts of Congress of February 25, 1813 ;  March 4, and December 26, 1814 ;  October 12, 1837 ;  January 31, and August 31, 1842 ;  July 22, 1846, and January 28, 1857.  In Thorndike vs. The United States, (2 Mason, 1, 18,) Judge Story said :

“ By the statutes of the United States, under which the Treasury notes have been from time to time issued, it is enacted that such notes shall be receivable in payment to the United States, for duties, taxes and sales of public lands, to the full amount of the principal and interest accruing due on such notes.  It follows, of course, that they are a legal tender in payment of debts of this nature due to the United States, and by the very tenure of the acts, public officers are bound to receive them.”

The legality of the issue of Treasury notes has been sanctioned by all the departments of the Government since 1812, but the United States Supreme Court has not yet decided that Treasury notes can be made “lawful money and a legal tender in payment of all debts public and private,” but on the contrary it has decided that contracts expressly payable in coin, must be paid in coin.


The Court of Appeals in the State of New, York, in the case of Bronson vs. Rhodes, went so far as to decide that a contract made before the passage of the legal tender act, payable expressly “ in gold and silver coin, lawful money of the United States,” might be paid and satisfied by a tender of United States notes, issued under the act of February 25, 1862.

But the U.S. Supreme Court at Washington reversed this decision.  Chief Justice Chase announced the opinion of the Court on the 15th of February, 1869, as follows :

“ This is an appeal from a judgment of the Court of Appeals of the State of New York, holding that a tender of Treasury notes for the satisfaction of a mortgage made in 1851, by its terms to be satisfied in gold and silver coin, was sufficient.  The tender was made in January, 1865, when a dollar in coin was equal to two dollars and twenty-five cents in legal tender notes, and, the tender being refused, action was commenced to compel the cancellation of the mortgage.  The Supreme Court of the State subsequently adjudged the mortgage paid, and required it to be satisfied of record, holding the tender to have been sufficient.  The Court of Appeals affirm that judgment, and the affirmance is here for review.  The Chief Justice delivered the opinion of the Court, holding that it is the duty of courts of justice to enforce contracts according to the intent of the parties to them ;  and in this case it is held that it is clear that the intent of the parties was that payment should be made in coin.  There were two descriptions of money in use at the time the tender in this case was made, both authorized by law, and both made legal tender.  The general denomination of both descriptions was dollars, but they were essentially unlike in nature.  The coined dollar was a piece of gold or silver of a certain degree of purity and weight.  The note dollar was a promise to pay a coined dollar, but not on demand, nor at any fixed time, nor was it convertible into a coined dollar.  It was impossible, in the nature of things, that these two dollars should be equivalents of each other, nor did the currency act purport to make them so.  There were then two descriptions of money issued by the same Government, and contracts to pay either were equally sanctioned by law.  No question can be made as to this fact ;  doubt concerning it can only spring from that confusion of ideas which always attends the introduction of varying and uncertain measures of value into circulation as money.  In the absence of any specific control for the payment of coin, legal tender notes may be a sufficient tender, but it is clear to the Court that express contracts for the payment of coined dollars can only be satisfied by the payment of coined dollars.  They are not debts which may be satisfied by the tender of Treasury notes.  As to the judgments to be entered on contracts for the payment of coin, it is said the difficulty arises in the supposition that damages can be assessed in only one description of money ;  but where there are two kinds of currency provided by law, it is necessary, in order to avoid ambiguity and prevent a failure of justice, to render judgment for coined money where the contract provides for payment in coined money.  Where no specified description of money is made, judgments may be entered generally without such specification.  Judgment below reversed.
    Mr. Justice Miller dissented, holding that, although it was the intention of the parties that gold should be paid, it was only so because gold was then the currency of the Government, the lawful money of the United States, mentioned in the contract.  There was nothing in the contract to make it differ from any other ordinary contract payable in dollars.  When Treasury notes became lawful money of the United States, their tender was sufficient to discharge the contract, and within its terms and within the understanding and intention of the parties.  This decision in no way affects the legal tender cases argued by Mr. Potter and the Attorney General at the present term of the Court, although argued at the time of the argument of those cases.”

The constitutional question has been argued and is still pending before the Supreme Court of the United States :  “ was Congress authorized, under the extraordinary exigencies of the war, to make United States notes fitted for circulation as currency, ‘ lawful money and a legal tender in payment of all debts, public and private ? ’ ”  The business men of the country are anxiously waiting for the highest tribunal under the Government to answer this question.


Having completed the Historical narrative of the origin, progress and development of the system of Finance adopted during the rebellion, and which furnished the means of prosecuting to a successful issue the greatest civil war known in the history of the human race, some reflections on the subject may not be uninteresting.

At the breaking out of hostilities, the financial affairs of the banks and people were in a remarkably good condition, except, perhaps, in some of the Northwestern States, where the banks were badly organized.

In the Atlantic cities the banks were never in a better condition.  The balances were settled through the Clearing House, in New York and other cities, with great regularity.  There was paper currency and gold and silver enough to do the legitimate business of the country.  Bank notes were regularly convertible at the will of the holder into specie, and to a large extent these notes were redeemed in New York, Boston and other Atlantic cities.  The financial machinery and credit institutions of the country were in a prosperous condition, and there was no lack of means for legitimate wants.

It was not long after the war began before it became apparent to the best financial men of the country, that a financial system adequate to the wants of the nation in time of peace, was wholly inadequate to meet the requirements of a great war ;  that the war was a new and great business of itself, demanding new and additional facilities, greater even than existed before the war.  That the facilities for carrying on the business of the country as they existed before the war, were still necessary to carry on that business, and could not safely be withdrawn from it ;  and that a new currency, national in character, and to some extent a new financial system, must be created to meet the new and enlarged demands of the war which had been forced upon the country.  This was an exigency not foreseen, and the Government was obliged to exercise all the power it possessed in passing the war measures detailed in the foregoing narrative.

The plan of Finance adopted in 1861-2 was successful, and proved adequate to these enlarged requirements.  The Government was maintained and the Union preserved.  By this plan all the men and material of war necessary to crush the rebellion were obtained without difficulty.  Many mistakes were made in the conduct of the war, but the financial plan, including taxation, was an ample resource sufficient at all times to meet the vast requirements of the War and Navy Departments.  The credit of the Government was brought into immediate action in the most available form.  Some mistakes were also made by the Secretary of the Treasury in administering the Loan acts, and too large an inflation occurred in 1864, which might have been prevented by continued funding in 5-20 six per cent. bonds, yet in the main the financial management during the war was a decided success, because it carried the country through the terrible ordeal, and brought the ship of state safely into port.  It is true that this plan was not at all in accordance with peace notions of finance, but by it all officers, soldiers, sailors and marines were paid in full, and all demands for supplies and material of war were promptly discharged.  It was a complete success as a means of carrying into effect the war powers of the Government.  These facts abundantly prove the efficiency and wisdom of the plan adopted in bringing the war to a successful termination.  Although successful it was a heavy drain upon the resources of the country, and at times very embarrassing to business men, and they had to submit to many sacrifices.  The withdrawal of such a large number of youthful laboring men into a vast army of unproductive labor, and the mistake made in the over-issue of paper currency, so inflated prices as to materially increase the expenses of the war.  It also embarrassed the people engaged in legitimate pursuits ;  laborers struck for higher wages, and the price of commodities greatly increased, causing considerable difficulty in keeping up the productive energies of the country, especially in establishments where large gangs of men are employed.

Nor can it be denied that the management of the fiscal affairs of the Government, both legislative and executive, during the war, was a material departure from sound political economy, applicable to ordinary times of peace.  The demand for money means forced upon the country by such a gigantic rebellion, was wholly unprecedented—nothing ever recorded in history equaled this demand—and reached to such overwhelming amounts, so vastly beyond any former financial requirements, that the careful observer cannot but look back with wonder and amazement that the Government was at all able to pass successfully through such an extraordinary crisis.  The authorization of a loan of $900,000,000, in one act, and an increase of the public debt in one year of over $940,000,000, over and above custom duties and internal taxes, are matters of history.  The amount of the issue of paper currency and temporary obligations in various forms was almost appalling.  Considerably over one million of men were at one period of the war withdrawn from productive labor.  The strain upon the credit of the Government, with eleven States practically out of the Union, was very great.  It would seem that no other country could have borne up under such a sudden expansion of the credit circulation, and the changing of so many men from producers to destroyers of life and property.  This great inflation of the paper medium had, however, some compensating advantages.  It stimulated into wonderful activity all the productive energies of common labor, skilled labor, and machinery of all kinds.  War material was produced with amazing rapidity, and in abundant quantity, for equipping, supporting and moving all the great armies in the field and navies afloat.  The people never flagged, hesitated, or faltered in producing and furnishing all these vast war materials, and receiving in exchange for it the promises issued to them by the Government.  They seemed to be getting rich by the operation and although it was to some extent unreal, yet this stimulus, aided by patriotic determination to maintain the Union, was great enough to induce the people to furnish every thing necessary to supply the army and navy to crush the rebellion, at the mouth of the cannon and point of the bayonet.  No compromise was made.  Superior force, backed by powerful and abundant resources, accomplished this great achievement.  The army and navy were powerful and victorious, because they were sustained by all the vast resources of the country, brought to their aid voluntarily, and by the superior power of the Government which commanded these resources.  These bold and decisive financial measures gave power and dignity to the Government, and although it operated upon the unwilling as a forced loan, the crisis demanded it ;  it was the price of the national Union ;  the national faith is pledged, and every dollar of this debt must be paid, principal and interest, in gold and silver.

The value of the Union and the Government preserved in full vigor under the Constitution, cannot be estimated in dollars and cents.  It is above all price.  A vast continent, embracing territory and people, is now held under the control of a mighty central and consolidated Government, based upon the will of an enterprising, intelligent and powerful people.  The mind of man is incapable of estimating the future progress and destiny of the American people under such a Government wisely administered.  But in a financial and economical aspect, these vast sums expended present an entirely different view.  Viewed simply as an economical question, the immense war debt represents only lives and property consumed.  All the unproductive labor, vast material of war, provisions and supplies of all kinds are used up, wasted and blotted out of existence.  This immense debt rolled up during four years of bloody war, stands out in bold demand upon the nation for liquidation from the future earnings and income of the people.  Future labor and economy must furnish the means for its payment.  This debt is the price of the Union and Constitutional Government, but their value cannot be estimated in dollars.  The Government value is intangible and not present as a means of payment, but the war debt is already tangible ;  the bills are footed up, and the total amount is over $2,500,000,000.

This sum must be paid, principal and interest, not by the issue of new promises to pay it, but by the production of actual value, measured by gold and silver, the world’s commercial standard, as well as the standard regulated by law.

To illustrate more fully.  When individuals in commercial transactions give their notes, bonds or other promises to pay money, they usually receive in exchange either real or personal property, or labor, which is made valuable in some form to pay the obligation given for it.  Not so with the war debt ;  the property received and services performed for the United States notes and obligations, outstanding, has not, in a financial sense, been employed in such a useful way as to furnish present value to pay them with, but on the contrary, it was consumed by the war.  Hence the difference between a debt created for commercial purposes and a war debt.  The one is generally for property or labor made useful, and productive, while the other is for unproductive labor or property consumed, wasted or destroyed not for any pecuniarily useful purpose.

Immediately, after the war began we commenced our departure from the gold standard, for the reason that every dollar expended for the waste of war was expended for a pecuniarily unproductive purpose.  Every dollar expended took out of existence a dollar of value for which the Government gave its promise to pay.  Every dollar of property thus destroyed led us farther and farther away from the specie standard, and has to be produced again by labor before the value is restored.  In one year, from July 1, 1864, to July 1, 1865,

The Expenditures of the War Department were........ . $ 1,031,323,360.79
For Navy Department.......................................................122,567,776.12
Total waste of War in one year ...................................$ 1,153,891,136.91

The history of the human race shows no such consumption and waste in any war during a single year.  One billion, one hundred and fifty-three million, eight hundred and ninety-one thousand, one hundred and thirty-six dollars and ninety-one cents expended in one year !  At the close of this year, July 1, 1865, and the close of active hostilities, one dollar in gold was worth, in greenbacks, 1.41, at the Broker’s Board in New York.  All the bonds and greenback promises to pay dollars, now outstanding, do not represent tangible property or means owned by the Government, but property in the possession of the people under its jurisdiction, and from which all this waste must be reproduced again, and the value restored, in order to bring us to the specie standard and enable us to pay the debt.  In short, the debt must be paid from the earnings and income of the people, in some form of taxation to be enforced by the Government.

It was fortunate that the debt, during the war and since, was distributed to a large extent among all classes of people.  In fact, this was the only way in which the resources necessary to sustain the war could be obtained.  The legal tender notes were paid out and distributed to the army and navy and for supplies and material of war.  Certificates of indebtedness and interest-bearing Treasury notes, were also paid out to contractors and others.  The loans were negotiated by direct appeals to the people to subscribe in large and small amounts.  The great body of the people in the loyal states took up the loans, and became directly interested in sustaining the Government, and the great diffusion of the notes, bonds and certificates all over the country, was the only way in which the enormous debt so suddenly created could be carried through to the close of the war.  The greenback notes were very popular among the people.  It was a currency in daily use, uniform in value, and passed freely in every state.  It was the people’s loan to the Government, without interest, and was at the same time advantageous to them, because it was money in all business transactions.  It immediately became the people’s war.  All became pecuniarily intrusted in its success, and they furnished the means to carry it on.  The crushing of the rebellion was the people’s triumph ;  and the people will in due time pay the debt, and thereby preserve the honor and good faith of the nation.

Notwithstanding the great destruction of values consequent upon the prosecution of the war, the nation was, at its close, still possessed of great power and resources, and the material interests of the Northern and Western States were still advancing.  They continue to advance ;  and now that peace and order are restored, and the whole country North and South have a common interest and a common destiny, will continue to advance.  There is a rapid increase of population ;  new fields of enterprise are continually opening, adding new strength and ability to the people to work back to the specie standard, and ultimately pay, without embarrassment, every dollar of the debt incurred in maintaining the national Union.

To make this more plain the following estimate of the increase of the population of the United States is submitted.

According to the rate of increase in past years, our population will advance in the following proportion :

In 1870.............42,000,000,
In 1890.............76,500,000,
In 1880.............56,500,000,
In 1900...........103,600,000,
In 1910...........138,900,000.

The vast means for prosecuting the war to a successful issue were furnished by a population not over 20,000,000.  The population subject to the jurisdiction of the national Government and giving it support in 1870, will be double what it was in 1862.  The resources of the country will increase with as great rapidity as its population.  New and improved systems of communication are expanding in all directions ;  the Atlantic and Pacific slopes will very soon be bound together by iron bands “ across the continent;”  the mechanic arts, improved machinery, with agricultural, mineral and commercial facilities fully developed, will carry the nation so rapidly forward in power and resources, that nothing need prevent the Government, if wisely and economically administered, from retiring the legal tender notes within a reasonable time, and as early as the year 1900, pay the last dollar of the debt incurred in crushing the greatest rebellion known in the world’s history, and without retarding the growth and prosperity of the great Republic.