37th Congress, 2d Session
Treasury Notes -- Legal Tender -- The Currency

Speech of Hon. Samuel Hooper
in the House of Representatives
Monday, February 3, 1862.

The House being in the Committee of the Whole on the Treasury bill [House bill 240]—

Mr. Hooper. [Samuel Hooper (1808-1875) (R) Mass.; instrumental in the sneaking through and passing of the February 12th 1873, Mint act which demonetized silver; voted against reduction of currency act; voted FOR the credit strengthening act]  The unusual exigencies of the country require that we should look for other and deeper sources of revenue than any to which we have heretofore been accustomed.  We are contending for the maintenance of the Government, for the preservation of the Union, and for the enforcement of the laws, on which depend the existence as well as the security of property.

To insure our success in this contest, great and unusual exertions have already been made.  An enormous Army, a powerful Navy, with vast stores of artillery and ammunition, have been created.  In providing for the sustenance, comfort, and equipment of this Army and Navy, the Government have been obliged to incur expenses far exceeding in magnitude any which have been hitherto known in our history.  To continue them in their present state of efficiency, large additional sums must be expended;  and it now becomes the duty of Congress to devise methods by which these sums can be obtained with the least hardship to the people and the least risk to the credit of the Government.

In considering the means by which this is to be effected it must be remembered that it is hardly possible for the Government to raise money for any purpose without occasioning some inconvenience to individuals.  To oppose necessary measures, therefore, simply, upon the ground that it will injuriously affect this class or that class of the people is unreasonable.  Parties interested may endeavor to show that the same objects can be effected with less hardship than by the methods proposed, or may endeavor to alleviate any objectionable features so far as may be consistent with the attainment of the desired end;  but they should always remember that the end aimed at must be attained;  that its attainment will require individual sacrifices in some form, and that it is the part of wisdom, of patriotism, and of discretion to submit to such necessary sacrifices cheerfully when called upon;  and not by their opposition attempt to excite popular clamor and weaken public confidence in the Government to which they are indebted far the safety of their persons and the security of their possessions.  Every step which tends to weaken the public credit has the effect of rendering private property more insecure, because it obstructs the Government in procuring its necessary funds in the ordinary way, and may oblige it to resort to the arbitrary modes of forced loans and heavier rates of taxation.  At this moment, therefore, when for the time every hope of aid from foreign capital is idle, when the country is compelled to look to her own resources for the means with which to maintain her integrity and subdue the rebellion, not only does every dictate of patriotism and every ennobling sentiment of humanity call upon the capitalists of the country to rally in defense of the Government, but the meaner instinct of self-preservation admonishes them to submit to slight sacrifices now that they may secure and preserve their property.

Three measures have been considered in the committee which are, to some extent, connected together, and form a comprehensive system by which, it is believed, the Government wilt be enabled to procure the sums necessary to the successful prosecution of the war, while, at the same time, the burden upon the capital of the country will be light, and the public will be benefited in some important particulars.

The first of these measures is the one now before the House, by which the Secretary of the Treasury is authorized to issue United States notes, not to exceed $150,000,000 in amount, (including those authorized by previous laws,) of denominations not less than five dollars.  They are not to bear interest, but are to be issued and received as money, convertible, at the option of the holder, into six per cent. stock of the United States, the principal and interest being payable either here or abroad;  and these notes are to be a legal tender.

The second measure consists of a tax bill, which shall, with the tariff on imports, insure an annual revenue of at least $150,000,000.

national currency, based on bonds The third is a national banking law, which will require the deposit of United States stock as security for the bank notes that are circulated as currency.

In order more fully to understand and more easily to meet any objections which may be urged against the first of these measures, being the one now occupying the attention of the House, it will be desirable to notice the other two, which are designed to be more permanent in their character, and upon the expected results of which the present measure is in some degree based.

The tax bill is now being perfected in its details.  It proposes a moderate rate of taxation upon most of the articles of necessary consumption, with higher rates on distilled liquors and other articles of luxury, on legacies and probates, on passengers by railroads and other conveyances, on newspapers, and telegraphic messages.  From these sources, taken in connection with the tariff upon imports, it is confidently expected, after a most careful investigation, the Government will derive an annual revenue of at least $150,000,000.  The ordinary expenses of the Government do not exceed $75,000,000, which, being deducted from the estimated revenue, will leave an amount sufficient to pay an interest of six per cent. upon a loan of $1,250,000,000, or nearly three hundred million dollars more than the estimates of the several Departments oft the am amount of the public debt at the end of another fiscal year, if the state of affairs should remain in the same deplorable condition as now.

This tax bill will give to the bonds of the United States the character so much desired by capitalists, that of a sure interest-paying security.  With such a character there would be no harm done if the principal were never paid, so far as those holding the bonds are concerned, because capitalists in the aggregate do not care for the payment of their principal;  the only value which they place upon the capital is derived from the fact that it will yield them a revenue;  and if at any time the capitalist should wish to use the principal of his bond he knows that he can always sell it to another who desires to invest as much as he desires to sell.  The amount of debt of the British Government is so great that the most sanguine political economist can devise no method by which it can be extinguished;  but yet the bonds representing that very debt are of great value.  Capital seeks them for investment because the interest is sure;  and the only reason that they are ever below par is, not because the payment of the principal is more or less hopeless, but because the rates of interest in the market at the time being are higher than the rate provided for in the bonds.

There is another advantage attached to this scheme of taxation.  As the surplus, after deducting the ordinary expenses of the Government, will be more than sufficient to pay the interest upon any debts which the United States has now incurred or hereafter proposes to contract, when this rebellion shall have been subdued and peace shall have once again spread her wings over the land, the revenue will increase with the prosperity of the country, and the excess will operate, as a sinking fund, by means of which the whole debt can be gradually extinguished.  We have seen, in our own experience, at no very distant date, a surplus revenue used to diminish the national debt by even paying for it an exorbitant premium.

Having thus, as we believe, provided a wise system of taxation which should enable the Government to borrow all the money which it may need, at fair rates, it is proposed, in order to give still further assistance, and also with the object of securing a much-needed reform, to recommend a general banking law.  The views which have been considered in framing that bill will serve to give it clearer understanding of its provisions.

For nearly thirty years the country has been without a uniform paper currency.  As nearly all the business of the country is done by means of paper, specie being seldom used except in the payment of balances, the inconveniences resulting from this want have been very great.  The traveling public, remitters of small sums by mail, and the laboring classes, who often receive their pay in uncurrent funds, chiefly experience these inconveniences.  In order to relieve this want it is necessary to give to the paper currency three qualifications:

First.  It must be well secured, so that the people may feel that they are sure of obtaining its value when needed.
Secondly.  It must have a Governmental indorsement or guarantee, so that the people everywhere may be able to distinguish it, and the Government prove its confidence in it by taking it in payment of taxes, assessments, and other dues.
Thirdly.  It must be guarded, as far as possible, against arbitrary increase.

These requisites have all been provided for in the bill.  The paper currency is to be secured by a deposit, with the Government, of United States stocks, the market value of which shall be equal to the amount of the currency issued.  There can be no higher security known to the Government, and its permanent value has heretofore been shown.  The Government, upon the receipt of such security, is to certify on the face of the notes for currency, that the same are "secured by pledge of United States stocks," and is to take them in payment of all taxes, excises, and other dues, excepting only for duties upon imports.  Lastly, the Government cannot increase the amount of the currency, except upon the application of a bank, and the banks cannot increase it except upon application to, and depositing security with the Government.

[asshole, it was your party that did everything to prevent a uniform currency;  if this new currency is secured by government stocks, there is no need for private banks to issue this currency, the Treasury can do it, without the banker middle man]

It has been suggested that, as far as the Government alone was interested, the objects which it had to gain could be attained in an easier and less expensive manner;  the paper circulation of the country being in reality a loan from the people without interest, it would be equitable and just that the Government should take this loan directly into its own hands, and furnish all the paper circulation, instead of allowing the benefit of it to private associations and individuals.  But the committee deemed it more wise to attain their proposed ends, if possible, without disturbing existing institutions, or habits, or doing anything that might injuriously affect private interests.  The currency is therefore left to the banks;  they are only required to deposit security for it, and to submit to certain established rules and regulations prescribed in the bill, in order to insure conformity of management for the common benefit of the banks themselves and of the public.

[Oh yes, the committee in its wisdom, looking out for the interest of the bankers;  the whole country is disturbed and turned upside down, but the buggers may not be affected in their habits !]

To many of the banks these requirements will not be difficult of performance, as they already hold stocks of the United States, which they will be at liberty to pledge.  In exchange for the restrictions imposed upon them, the banks will enjoy the benefit of a fixed and permanent interest upon their hypothecated stocks.  "An odor of nationality," as Mr. Webster called it, is also imparted to their bills, enabling them to circulate wider and further than before.  And what would become a constant drain upon their specie is checked by the consent of the Government to receive their notes in satisfaction of its dues.

[and presently you tell us the real aim of the game: Bank o’U.S.A.]

Thus are secured all the benefits of the old United States Bank without many of those objectionable features which aroused opposition.  It was affirmed that, by its favors, the Government enabled that bank to monopolize the business of the country.  Here no such system of favoritism exists.  It was affirmed that, while a large portion of the property in the several States, owned by foreign stockholders, was invested in that bank and its branches, yet it was unjustly exempted from taxation.  Here every State is left at perfect liberty, so far as this law is concerned, to tax banks within its limits in whatever manner and to whatever extent it may please.  It was affirmed that sometimes terrible disaster resulted to the trade and commerce of different localities by the Mother Bank of the United States arbitrarily interfering with the management of the branches by reducing suddenly their loans and sometimes withdrawing large amounts of their specie, for political effect.  Here each bank transacts its own business upon its own capital, and is subject to no demands except those of its own customers and its own business.  It will be as if the Bank of the United States had been divided into many parts, and each part endowed with the life, motion, and similitude of the whole, revolving in its own orbit, managed by its own board of directors, attending to the business interests of its own locality;  and yet to the bills of each will be given as wide a circulation and as fixed a value as were ever given to those of the Bank of the United States in its palmiest days.  It is not to be supposed that variation in the rates of exchange will entirely disappear.  Specie itself yields to the law of demand and supply, and fluctuates in value with the continual changes of the balance of trade.  But this currency will approach as near uniformity in its value as possible.  These institutions all originate among the people in their own localities, and are not created by the Government.  The Government simply authorizes the investment of capital in the loans, and the use of the bonds representing the loans as the basis of a sound circulation.

[debt instruments to circulate as currency, to pay debt, public and private !]

This measure will, therefore, give to the people that which they most desire, a currency which shall not only purport to be money, but shall actually be money in a broader and more positive sense than are the notes of the Bank of England, high as they are in the estimation of the commercial world, for the reason that the entire capital of the Bank of England is vested in its Government stocks, paying a very small rate of interest, and upon these stocks are based, therefore, the ultimate security of their bills, which is a divided security, because the depositors of the bank look to it equally with the bill-holders;  while the plan proposed by the committee contemplates the hypothecation of the stocks of a Government with fewer liabilities, paying a larger rate of interest, which are specially pledged for the security of the currency alone.

Having thus considered a method by which the ordinary expenses of the Government can be paid, and the interest upon its contemplated loans secured beyond reasonable doubt;  having also considered a method by which a sound paper currency will be guarantied to the people, and by which a comparatively clear market will be secured to the Government for the negotiation of future loans, the way is now prepared to consider the precise measure pending before the House.

The levying of the contemplated tax, the proper inauguration of the new banking scheme, and the successful negotiation of a new loan, are matters that will require time.  In the meanwhile the Treasury is comparatively empty, and the demands upon the Government are numerous and pressing.  To enable the Government to support itself during this interval of time, and to facilitate the negotiation of their loans, the committee have decided to recommend the issue of Government notes.

So much has been said and written, and so discordant are the views entertained in regard to money and finance, that many consider the subject an intricate one, that it is useless for them to attempt to understand without more attention and time than they are willing to devote to it.  But, in reference to the present condition of the country and wants of the Government, the case may be stated in a few words and within the comprehension of all.

Throughout the North the country abounds with necessaries and luxuries.  The means of transportation are insufficient to convey to the sea-board the surplus food now ready, with unparalleled bounty, to meet all the demands of other nations.  Our stores and warehouses are filled with everything required for convenience or comfort.  An Army of more than half a million of soldiers is in the field, and a powerful naval force on the waters, provided already with everything needful for their comfort and our defense.

The question we have to consider is, how this armed force which has been thus raised and provided shall he paid for ?  And how shall we pay for what is necessary to maintain it in the future ?  There is an abundance of everything requisite for the purpose;  the question is, simply, how can the Government best provide the means of paying those who have supplied and may continue to supply those forces ?

There are but two ways in which this can be justly and fairly accomplished.  One is by taxation;  in other words, calling on every man to furnish at once his just portion of the amount required.  The other is by loans;  that is, by using the obligation of the Government to pay at some future time, with such rate of interest as may be agreed upon;  thereby allowing our descendants to share some portion of that burden which is incurred as much for their benefit as for ours.

The Committee of Ways and Means recommend loans, with taxation to meet the interest and ordinary expenses of the Government;  and the measures they have considered are for that purpose.  The people are ready and willing and anxious to be taxed, to an extent that will secure the prompt payment of this interest, and a sinking fund that will provide for the payment of the principal in twenty or thirty years.  By joint resolution Congress has pledged itself to meet their wishes in that respect with great unanimity;  and the tax bill, as mentioned heretofore, is now being perfected in the committee, and will soon be submitted.

It is proposed to issue $500,000,000 of bonds, payable in twenty years, with interest, semi-annually, at the rate of six per cent. per annum, upon which the committee confidently rely for adequate means to maintain the Government and carry on the war until the rebellion is subdued.  There would be no difficulty in relying upon these bonds alone, if the parties who contracted to furnish the necessary supplies, and other creditors of the Government, were the parties who are also to receive and hold the bonds that are to be issued.  But, unfortunately, these contractors and others have incurred large debts to banks and capitalists, which they are called upon to pay, and have thus far been put to great inconvenience by the delay of the Government in paying them.  Hence there is a necessity for money;  and the object of the authority to issue $150,000,000 United States notes, not bearing interest, and made a legal tender, is to pay these creditors of the United States, and enable them to discharge their debts.

[so, these creditor discharged their debts, paid these new notes to the banks, the banks purchased bonds with them, and seven years later wanted gold for the bonds]

In the natural course of trade these United States notes will continue to be transferred from one to another until they come into the hands of the banks and the capitalists, who will not allow them to remain long idle in their possession.  Money for commercial purposes can now be obtained for less than five per cent.  Such portion, therefore, of the "United States notes" as are not needed for circulation, and cannot be used in regular business channels in a way to earn interest, will be returned sooner or later to the Treasury Department, to be converted into bonds bearing interest at the rate of six per cent., and payable in twenty years.  By this process the exchange is completed, and these bonds of the Government will thus be made to furnish the supplies required to carry on the war without the intervention or use by the Government of bank paper.

The propositions of the committees from boards of trade and banks which recently visited Washington, submitted to the Secretary of the Treasury, and declined by him, differed from the theory of this bill so far as to require that, instead of the issue of the United States notes, the banks should be relied upon to furnish the amount needed.  The effect of this would be that the Government bonds must first be disposed of, and the money received for them paid to the contractors;  in other words, that the Government should go into the money market and negotiate their bonds, without restriction as to the rate or terms, at a time when the Government is discredited by the delay and the difficulties that have occurred in paying contractors and others;  taking the notes of suspended banks in payment of these bonds, and, with these bank notes thus obtained, pay off the contractors.  The obvious effect of such an arrangement would be to put the reins of our national finances in the hands of the banks, leaving to them the direction of our path, with little opportunity for the Government to exercise any influence on the subject.  Exactly upon what terms the Government bonds could be negotiated now, under such circumstances, no one can say;  but last summer, when the banks made their negotiation with the Secretary of the Treasury for $100,000,000, they at first refused to do anything, because the Secretary was restricted by law to taking par for seven per cent. bonds payable in twenty years, and for seven and three tenths Treasury notes payable in three years.  They finally decided, though with great reluctance -- influenced by patriotic regard for the public interest as well as wisely consulting their own -- to take $100,000,000 of the latter;  though at that time, as now, money was not worth for commercial purposes more than five per cent.  It is now proposed in this bill to limit the Secretary to par for six per cent. bonds, the principal and interest to be payable in specie or its equivalent.  It is believed that there can be nothing more secure than these bonds, which thus become, as it were, a standard of value in reference to the currency.

In the war of 1812, the Government paid for its supplies with funds obtained from the banks, in the same manner as proposed in the plan recently submitted to the Secretary by those committees.  The bonds of the United States were then negotiated in some instances at twenty per cent. less than their par value, and paid for in bank currency of different degrees of depreciation, according to locality, but averaging from twenty to twenty-five per cent. discount, as compared with coin.

To render the Government financially more independent, it is necessary to make the United States notes a legal tender.  It is possible that they would become a practical tender like bank notes, without providing for them to be a legal tender.  If this were a foreign war, there would be no doubt of it;  but in this present emergency, when those who are openly or secretly disloyal to the Government are found everywhere to suggest obstacles that may embarrass the Government, nothing should be omitted that will add to their efficiency.  I am, therefore, in favor of making the notes a legal tender, believing the Secretary of the Treasury, who alone has the power to issue them, can and will use the power with his well-known discretion, and that it will assist him in his endeavor to keep the notes at par with coin.  We shall probably be told that England, in her great struggle, while specie payments were suspended, never made paper money a legal tender.  But in this respect her example should serve us as a warning rather than a guide, because, instead of it, she did what was much worse, by suspending the laws to enforce the payment of debts in cases where the paper money had been refused as a tender.

Various objections of a theoretic nature have been made to the issue of United States notes, as proposed by this bill.  Their main features may be summed up in a few words.  It is said that when a Government once assumes the power to issue a currency, the temptation to continue issuing it rather than to resort to the more unpopular method of taxation is so great that it will not cease to issue it until it finds itself in a state of utter bankruptcy.  The answer to this objection is, that the power of the Government is limited by the law in this respect to $150,000,000, and consequently the Government cannot, if it would, yield to any such temptation.

Again, it is said that the country already has a supply of paper currency equal to the demand;  that if this amount is, therefore, thrust upon it at the present time, the currency will depreciate and prices will be unduly inflated.  The answer to this objection is manifold in its nature.  In the first place, the objection supposes, that the total amount authorized to be issued by the Treasury will immediately be thrown upon the market;  which is far from probable.  On the contrary, it is highly probable that the total amount will never be issued.  The Secretary issues it in making payments from time to time, and in the usual course of trade it will come back to the Treasury, either in payment of taxes and other Government dues, or in purchasing the Government loans;  when it can be reissued as the Government may require it;  so that the amount permanently remaining in the market as a currency will by no means be so large as the objectors suppose.  In the second place, as has already been shown, while this currency can be converted in such a manner as to yield six per cent, interest on its par value, it can never greatly depreciate, because the moment the capitalist holding it sees any evidence of its depreciation, he will convert it into the bonds bearing interest, giving him a permanent income.  Thus it secures itself against over-circulation.

In the third place, the objection supposes that the supply of bank paper now in circulation is, and will continue to be, equal to the demand, and hence the danger of the disastrous consequences of an inflation.  Do those who make this objection forget that the heavy taxation which they desire must create an unusual demand for currency, which will call for an unusual supply ?  How do they expect to pay the very moderate tax (in their estimation) which we propose when the banks have suspended specie payments, and the gold is hoarded by a few speculators, in anticipation of future augmentation in its value or price ?  Will they expect the Government to receive the tax of $150,000,000 in specie ?  If not, can they wish the Government to take the notes of any and every banking association in the country ? or, that the Government shall discriminate between the different private banks, and arbitrarily reject one bank bill as bad and accept another as good ?  If not, and the people at large will be unable to pay this tax in coin, and the Government cannot accept it in the bills of private local corporations, then the issue provided for in this bill will be not only useful to the Government as relieving its temporary necessities, but will be essential to the people as a means of supplying them with he currency necessary to pay their taxes.

The plan which I have thus sketched in its several branches fills up the outlines of the policy submitted by the Secretary of the Treasury in his very able report.

Mr. Chairman, the loyal States stand in a more independent position to-day than they have ever before occupied.  The reports of the Treasury show that they have been small purchasers, while the record of the exports tells us that they have sold largely.  Where, then, are the abundant resources of this country ?  I answer, sir, that they are in our banks and our warehouses and our granaries.  Commerce and its attendant trade are paralyzed;  the timid and disloyal are sending their wealth abroad for security;  while the Government is offering the only safe and sure opportunities for investment within their reach.

Some of the very men who owe their freedom, their standing, their wealth to the development of the principles in defense of which this war is now waged, seem to be hesitating and wavering whether to come to the support of those principles or abandon them to their threatened destruction.  For, sir, disguise it under whatever name you please, this is a war, on the part of the South, inspired by slavery against the free labor of the North;  and hence the sympathy it receives from those who favor aristocratic institutions.  The prosperity of the North, like that of England and France, is mainly to be attributed to the skill that it has developed in manufactures, the enterprise that it has displayed in commerce, and the constant investment of its accumulated wealth in industrial pursuits of every kind;  while the South, from policy, has preferred that its labor should be unskilled and ignorant, suited only to the employments of a peculiar agriculture, keeping itself dependent upon foreign trade for many of the conveniences and luxuries which it has not the ingenuity to produce.  It is important in this great struggle to show the superiority of the principles of freedom, of education, of the elevation of man kind, upon which society at the North is based, over those of slavery, which doom men to hopeless ignorance in order to insure abject obedience.  To do this our resources of every kind are abundant, both in men and in means;  and it is only necessary to draw them out in order to be successful.

To fail would not be because the nation was so poorly endowed as to be without the means of success, but because it refused to make use of them.  Such a result, if it were possible, would not weaken the truth of the great principles for which we are contending;  but would simply demonstrate that we, of this generation, were faithless in guarding those principles;  faithless to ourselves;  faithless to our country;  faithless to good government throughout the world;  and, since such infidelity is a violation of unquestionable duty, faithless to God.

Mr. Roscoe Conkling obtained the floor.

Mr. Morrill, of Vermont.  I ask the gentleman from New York to yield me the floor.  Two members of the majority of the Committee of Ways and Means have spoken on this question, and if the gentleman will permit me now to express the views of the minority of the committee against the pending bill, I will be obliged to him.

Mr. Roscoe Conkling.  I yield to the gentlemen from Vermont.

Mr. Stevens.  I move that the committee rise.

The motion was agreed to.

So the committee rose;  and the Speaker having resumed the chair, Mr. MALLORY reported that the Committee of the Whole on the state of the Union had, according to order, had the Union generally under consideration, and particularly House bill No. 240, to authorize the issue of United States notes, and for the redemption or funding thereof, and for funding the floating debt of the United States, and had come to no resolution thereon.

Mr. Stevens.  I feel it my duty to state that the Treasury Department is urgent for the passage of this bill, and I trust, therefore, that the vote on it will not be put off longer than Thursday next.

By unanimous consent it was ordered that the amendments of Mr. Roscoe Conkling and Mr. Vallandigham be printed.