Volume I Part 43 (1/2)

”I have now more than enough to load three 'Bermudas,' and can not s.h.i.+p a package, though I have a steamer off the wharf, all ready to receive her cargo. We are literally fighting two governments here. Government watchmen guard the wharf where our goods are stowed and others in the neighborhood, night and day-and the wharfinger has orders not to s.h.i.+p or deliver, by land or water, any goods marked W. D., without first acquainting the honorable Board of Customs. I have applied myself to s.h.i.+p to Bermuda, offering to give bonds to double the amount of value of the goods, that they should be held in Bermuda, subject to the direction of her Majesty's representative in Bermuda. I ... has applied for permission to s.h.i.+p to Cardenas, agreeing to hold the goods subject to the order of the Spanish authorities-but all without avail, and our army must suffer for the want of blankets, overcoats, shoes, socks, field forges, arms, and ammunition, which have been collected to an amount more than double that I have yet received.

”It is miserable to have to look at the immense pile of packages in the warehouse at St. Andrews Wharf, and not be able to send anything-only read the following: twenty-five thousand rifles; two thousand barrels of powder; five hundred thousand caps; ten thousand friction-tubes; five hundred thousand cartridges; thirteen thousand accoutrements; thirteen thousand knapsacks; thirteen thousand gun-slings; forty-four thousand three hundred and twenty-eight pairs of socks; sixteen thousand four hundred and eighty-four blankets; two hundred and twenty-six saddles; saddlers' tools; artillery-harness; leather, etc. Very truly yours,

”Caleb Huse.”

[pg 484]

CHAPTER XIII.

Extracts from my Inaugural.-Our Financial System: Receipts and Expenditures of the First Year.-Resources, Loans, and Taxes.-Loans authorized.-Notes and Bonds.-Funding Notes.-Treasury Notes guaranteed by the States.-Measure to reduce the Currency.-Operation of the General System.-Currency fundable.-Taxation.-Popular Aversion.-Compulsory Reduction of the Currency.-Tax Law.-Successful Result.-Financial Condition of the Government at its Close.-Sources whence Revenue was derived.-Total Public Debt.-System of Direct Taxes and Revenue.-The Tariff.-War-Tax of Fifty Cents on a Hundred Dollars.-Property subject to it.-Every Resource of the Country to be reached.-Tax paid by the States mostly.-Obstacle to the taking of the Census.-The Foreign Debt.-Terms of the Contract.-Premium.-False charge against me of Repudiation.-Facts stated.

In my inaugural address in 1862 I said:

”The first year of our history has been the most eventful in the annals of this continent. A new Government has been established, and its machinery put in operation over an area exceeding seven hundred thousand square miles. The great principles upon which we have been willing to hazard everything that is dear to man, have made conquests for us which could never have been achieved by the sword. Our Confederacy has grown from six to thirteen States; and Maryland, already united to us by hallowed memories and material interests, will, I believe, when enabled to speak with unstifled voice, connect her destiny with the South. Our people have rallied with unexampled unanimity to the support of the great principles of const.i.tutional government, with firm resolve to perpetuate by arms the rights which they could not peacefully secure. A million of men, it is estimated, are now standing in hostile array and waging war along a frontier of thousands of miles. Battles have been fought, sieges have been conducted, and, although the contest is not ended, and the tide for the moment is against us, the final result in our favor is not doubtful.... Fellow-citizens, after the struggles of ages had consecrated the right of the Englishman to const.i.tutional representative government, our colonial ancestors were forced to vindicate that birthright by an appeal to arms. Success crowned their efforts, and they provided for their posterity a peaceful remedy against future aggression.

[pg 485]

”The tyranny of an unbridled majority, the most odious and the least responsible form of despotism, has denied us both the right and the remedy. Therefore, we are in arms to renew such sacrifices as our forefathers made to the holy cause of const.i.tutional liberty.”

The financial system which had been adopted from necessity proved adequate at this early period to supply all the wants of the Government and of the people. An unexpected and very large increase of expenditures had resulted from the great enlargement of the necessary means of defense. Yet the Government entered on its second year without a floating debt and with its credit unimpaired. The total expenditures of the first year, ending February 1, 1862, amounted to one hundred and seventy million dollars. A statement of the Secretary of the Treasury, comprising the period from the organization of the Government to August 1, 1862, presents the following results:

War Department Expenditures$298,376,549 Navy Department Expenditures$14,605,777 Civil and Miscellaneous$15,766,503 Total$328,748,830 Outstanding requisitions$18,524,128 Total expenditures$347,272,958 Total receipts$302,482,096 Deficient Treasury notes authorized$16,755,165 Deficient Treasury notes to be provided $28,035,697 Total$44,790,862 The receipts were derived as follows:

Customs$1,437,399 War-tax10,539,910 Miscellaneous1,974,769 $13,952,079 Loans, bonds, February, 1861 15,000,000 Bonds, August, 186122,613,346 Call certificates, April, 186137,515,200 Treasury notes, April, 186122,799,900 Demand notes, August, 1861187,130,670 One and two dollar notes846,900 Due banks2,645,000$288,551,016 Total receipts$302,503,096 [pg 486]

Such was the result presented by the Treasury of a Government that had been in existence only eighteen months. It commenced that existence without a treasury, and, without the sinews and the munitions of war, was in less than two months invaded on every side by an implacable foe. Its ways and means consisted in loans and taxes, and to these it resorted. On February 28th I was authorized by Congress to borrow, at any time within twelve months, fifteen million dollars, or less, as might be needed. It was to be applied to the payment of appropriations for the support of the Government, and for the public defense. Certificates of stock or bonds, payable in ten years at eight per cent. interest, were issued. For the payment of the interest and princ.i.p.al of this loan a tax or duty of one eighth of one per cent. per pound was laid on all cotton exported. On March 9th an issue of one million dollars in Treasury notes of fifty dollars and upward was authorized, payable in one year from date, at 3.65 per cent. interest, and receivable for all public debts except the export duty on cotton. A reissue was authorized for a year. On May 16th a loan of fifty million dollars in bonds, payable after twenty years at eight per cent. interest, was authorized. The bonds were ”to be sold for specie, military stores, or for the proceeds of sales of raw produce or manufactured articles, to be paid in the form of specie or with foreign bills of exchange.” The bonds could not be issued in fractional parts of a hundred dollars, or be exchanged for Treasury notes or the notes of any bank, corporation, or individual. In lieu of any amount of these bonds, not exceeding twenty million dollars, an equal amount of Treasury notes, without interest, in denominations of five dollars and upward, was authorized to be issued. These notes were payable in two years in specie, and were receivable for all debts or taxes except the export duty on cotton. They were also convertible into bonds payable in ten years at eight per cent. interest. On August 19th another issue of Treasury notes, amounting with those then issued to one hundred million dollars, was authorized. They were of the denominations of five dollars and upward. They were receivable for the war-tax and all other public dues except the export duty on cotton. These notes were convertible into twenty-year bonds, bearing [pg 487] eight per cent. interest, of which the issue was limited to one hundred million dollars. Thirty millions were to be a subst.i.tute for the same amount, authorized by the act of May 16, 1861. These bonds could be exchanged for specie, military and naval stores, or for the proceeds of raw produce and manufactured articles. On December 19th ten million dollars in Treasury notes were issued to pay the advance of the banks. On December 24th an additional issue of fifty millions of Treasury notes like those of the act of August 19th was authorized. An additional issue of thirty millions of bonds was also authorized. On April 12, 1862, an issue of Treasury notes, certificates of stock and bonds, as the public necessities might require, to the amount of two hundred and fifteen millions, was authorized. Of these, fifty millions in Treasury notes were issued without reserve, ten millions in Treasury notes retained as a reserve fund to pay any sudden or unexpected call for deposits, and one hundred and sixty-five millions certificates of stock or bonds. Bonds to the amount of fifty million dollars, payable in ten years at six per cent. interest, were authorized and made exchangeable for any of the above Treasury notes. All these notes and bonds were subject to the same conditions as those of the acts of August 19 and December 24, 1861. On April 17th five millions of Treasury notes were authorized to be issued in denominations of one and two dollars, which were receivable for all public dues except the cotton duty. An amount of Treasury notes bearing interest at two cents per day on each hundred dollars, as a subst.i.tute for as much of the one hundred and sixty-five millions of bonds authorized, was also authorized to be issued. On September 19, 1862, three million five hundred thousand dollars in bonds was authorized to be issued to meet a contract for six iron-clad vessels of war. On September 23, 1862, the amount of Treasury notes under the denomination of five dollars was increased from five million to ten million dollars, and a further issue of bonds or certificates of stock, to the amount of fifty million dollars, was authorized.

On March 23, 1863, an effort was made to remove from circulation some of the issues of Treasury notes by funding them. For this purpose it was provided that all Treasury notes, not [pg 488] bearing interest, issued prior to December, 1862, should be fundable in eight per cent. bonds or stock during the ensuing thirty days, and during the succeeding three months in seven per cent. bonds or stock, after which they ceased to be fundable. All Treasury notes not bearing interest, and issued after December 1, 1862, until ten days after the pa.s.sage of the act, were made fundable in seven per cent. bonds or stock during the ensuing four months, and afterward only in four per cent. thirty years bonds. Call certificates were made fundable in thirty years bonds at eight per cent., and all outstanding on the ensuing July 1st were deemed bonds at six per cent., payable in thirty years. A monthly issue of Treasury notes, without interest, to the amount of fifty million dollars, was also authorized. These were made fundable during the first year of their issue in six per cent. thirty years bonds, and after the expiration of the year in four per cent. thirty years bonds. The further issue of call certificates was suspended; but Treasury notes fundable in the six per cent. bonds might be converted, at the pleasure of the holder, into such certificates at five per cent. interest, which were reconvertible into like notes within six months, or afterward exchanged for thirty years six per cent. bonds. Treasury notes fundable in four per cent. bonds were convertible in like manner at four per cent. All disposable means in the Treasury were to be applied to the purchase of Treasury notes, bearing no interest, until the amount in circulation did not exceed one hundred and seventy-five millions. The issue of five million dollars, in notes of two dollars, one dollar, and fifty cents, was also authorized. It was further provided in this act that six per cent. bonds, as above mentioned, might be sold to any of the States for Treasury notes, and, being guaranteed by any of the States, they might be used to purchase Treasury notes. The whole amount of such bonds could not exceed two hundred million dollars. Treasury notes so purchased were not to be reissued. The issue of six per cent. coupon bonds to the amount of one hundred million dollars, which were to be applied only to the absorption of Treasury notes, was also authorized. The coupons were payable either in the currency in which interest on other bonds was paid, or in cotton certificates [pg 489] pledging the Government to pay the same in cotton of New Orleans middling quality, delivered at the rate of eight pence sterling per pound.

An important measure was adopted on February 17, 1864, the object of which was to reduce the currency and to authorize a new issue of notes and bonds. All Treasury notes above the denomination of five dollars, and not bearing interest, were, if offered within a short period, made fundable in registered twenty years bonds at four per cent. At the same time a new issue of Treasury notes was authorized, and made receivable for all public dues, except customs duties, at the rate of two dollars for three of the old. The issue of other Treasury notes, after the 1st of the ensuing April, was prohibited.

To pay the expenses of the Government an issue of five hundred million dollars in six per cent. bonds was authorized. For the payment of interest the receipts of the export and import duties, payable in specie, were pledged.

A review of this statement of the legislation of Congress will clearly present the financial system of the Government. The first action of the Provisional Congress was confined to the adoption of a tariff law, and an act for a loan of fifteen million dollars, with a pledge of a small export duty on cotton, to provide for the redemption of the debt. At the next session, after the commencement of the war, provision was made for the issue of twenty million dollars in Treasury notes, and for borrowing thirty million dollars in bonds. At the same time the tariff was revised, and preparatory measures taken for the levy of internal taxes. After the purpose of subjugation became manifest by the action of the Congress of the United States, early in July, 1861, and the certainty of a long war was demonstrated, there arose the necessity that a financial system should be devised on a basis sufficiently large for the vast proportions of the approaching contest. The plan then adopted was founded on the theory of issuing Treasury notes, convertible at the pleasure of the holder into eight per cent. bonds, with the interest payable in coin. It was a.s.sumed that any tendency to depreciation, which might arise from the over-issue of the currency, would be checked by the constant exercise of the holder's right [pg 490] to fund the notes at a liberal interest, payable in specie. The success of this system depended on the ability of the Government constantly to pay the interest in specie. The measures, therefore, adopted to secure that payment consisted in the levy of an internal tax, termed a war tax, and the appropriation of the revenue from imports.

The first operation of this plan was quite successful. The interest was paid from the reserve of coin existing in the country, and experience sustained the expectations of those who devised the system.

Wheat, in the beginning of the year 1862, was selling at one dollar and thirty cents per bushel, thus but little exceeding its average price in time of peace. The other agricultural products of the country were at similarly moderate rates, thus indicating that there was no excess of circulation. At the same time the premium on coin had reached about twenty per cent. But it had become apparent that the commerce of our country was threatened with permanent suspension by reason of the conduct of neutral nations, who virtually gave aid to the United States Government by sanctioning its declaration of a blockade. These neutral nations treated our invasion by our former limited and special agent as though it were the attempt of a sovereign to suppress a rebellion against lawful authority. This exceptional cause heightened the premium on specie, because it indicated the exhaustion of our reserve, without the possibility of renewing the supply.

At the inauguration of the permanent Government, in February, 1862, a popular aversion to internal taxation had been so strongly manifested as to indicate its partial failure. This will be further explained presently in our statement of the system of taxation.

Under all these circ.u.mstances the effort was made to avoid the increase in the volume of notes in circulation, by offering inducements to voluntary funding. The measures adopted for that purpose were but partially successful. Meanwhile the intervening exigencies from the fortunes of war permitted no delay. The issues of Treasury notes were increased until, in December, 1863, the currency in circulation amounted to more [pg 491] than six hundred million dollars, or more than threefold the amount required by the business of the country. The evil effects of this financial condition were but too apparent. In addition to the difficulty presented to the necessary operations of the Government, and the efficient conduct of the war, the most deplorable of all its results was, undoubtedly, its corrupting influence on the morals of the people. The possession of large amounts of Treasury notes led to a desire for investment; and, with a constantly increasing volume of currency, there was an equally constant increase of price in all objects of investment. This effect stimulated purchase by the apparent certainty of profit, and a spirit of speculation was thus fostered, which had so debasing an influence and such ruinous consequences that it became our highest duty to remove the cause by prompt and stringent measures.

I therefore recommended to Congress, in December, 1863, the compulsory reduction of the currency to the amount required by the business of the country, accompanied by a pledge that, under no stress of circ.u.mstances, would the amount be increased. I stated that, if the currency was not greatly and promptly reduced, the existing scale of inflated prices would not only continue, but, by the very fact of the large amounts thus made requisite in the conduct of the war, these prices would reach rates still more extravagant, and the whole system would fall under its own weight, rendering the redemption of the debt impossible, and destroying its value in the hands of the holder. If, on the contrary, a funded debt, with interest secured by adequate taxation, could be subst.i.tuted for the outstanding currency, its entire amount would be made available to the holder, and the Government would be in a condition, beyond the reach of any probable contingency, to prosecute the war to a successful issue.

This recommendation was followed by the pa.s.sage of the act of February 17, 1864, above mentioned. One of its features is the tax levied on the circulation. Regarding the Government when contracting a debt as the agent of the people, its debt is their debt. As the currency was held exclusively by ourselves, it was obvious that, if each person, held Treasury [pg 492] notes in exact proportion to the valuation of his whole estate, each would in fact owe himself the amount of the notes held by him; and, were it possible to distribute the currency among the people in this exact proportion, a tax levied on the currency alone, to an amount sufficient to reduce it to its proper limits, would afford the best of all remedies. Under such circ.u.mstances, the notes remaining in the hands of each holder after the payment of his tax would be worth quite as much as the whole sum previously held, for it would have an equal purchasing capacity.

After this law had been in operation for one year, it was manifest that it had the desired effect of withdrawing from circulation the large excess of Treasury notes which had been issued. On July 1, 1864, the outstanding amount was estimated at two hundred and thirty million dollars. The estimate of the amount funded under this act, about this time, was three hundred million dollars, while new notes were authorized to be issued to the extent of two thirds of the sum received under its provisions. The chief difficulty apprehended in connection with our finances, up to the close of the war, resulted from the depreciation of our Treasury notes, which was to be attributed to the increasing redundancy in amount and the diminis.h.i.+ng confidence in their ultimate redemption.

The financial condition of the Government, near its close, is very correctly represented in the report of the Treasury Department. The total receipts of the Treasury for the two quarters ending on September 30, 1864, amounted to $415,191,550, which sum, added to the balance, $308,282,722, that remained in the Treasury on April 1, 1864, formed a total of $723,474,272. Of this total, not far from half, that is to say, $342,560,327, were applied to the extinction of the public debt; while the total expenditures were $272,378,505, leaving a balance in the Treasury on October 1, 1864, of $108,435,440. The sources from which this revenue was derived were as follows:

Four per cent. registered bonds, act of February 17, 1864$13,363,500 Six per cent. bonds, $500,000,000 loan, act of February 17, 1864 14,481,050 Four per cent. call certificates, act of February 17, 186420,978,100 Tax on old issue of certificates redeemed$14,440,566 Repayments by disbursing officers20,115,830 Treasury notes, act of February 17, 1864277,576,950 War-tax42,294,314 Sequestrations1,338,732 Customs50,004 Export duty4,320 Coin seized by the Secretary of War1,653,200 Premium on loans4,822,249 Soldiers' tax908,622 [pg 493]