Mr. Valentine B. Horton of Ohio was opposed to giving the legal- tender quality to government paper. He said "the country was never so wealthy as to-day; never was so little due to foreign countries; never were the people so free from embarra.s.sment. The one drawback is that the Treasury wants money to an immense amount." He believed that an appeal to the capitalists would call forth "gold in the utmost abundance." To pa.s.s the legal-tender bill would, in his judgment, be "a legislative declaration that the administration is not equal to the occasion for which it was elected." He thought "the time for oracular utterances about a great movement," by which bankers had been inspired with undue hope, had pa.s.sed by, and that something practical and actual would soon be accomplished.

Mr. John B. Alley supported the bill by arguments which came from his own wide experience in business. The choice, he said, was between notes of the government and "an irredeemable bank currency, a great deal of which will be found, as it was after the war of 1812, utterly worthless."

Mr. Charles W. Walton of Maine spoke briefly but ably on the const.i.tutional power of Congress to pa.s.s the bill. He contended that the authority to declare a legal-tender "was an implied and not a direct power;" that, admitting it to belong to the Government, it exists "without limitation." The question before the House, therefore, is "one of expediency only," and on that ground he earnestly supported the measure.

Mr. Sh.e.l.labarger of Ohio answered the "charges of bad faith and injustice" which had been brought against the bill by its opponents.

The cry of ruin to the country he compared with similar fears for England on the part of her economists, and showed how, in every case, they had been disproved by the rising power and growing wealth of that kingdom. He said the legal-tender notes would be "borne up by all the faith and all the property of the people, and they will have all the value which that faith untarnished and that property inestimable can given them."

Mr. John Hickman of Pennsylvania, having no doubt as to the power of Congress to pa.s.s the bill, supported it as a governmental necessity.

MR. FESSENDEN OPPOSES LEGAL-TENDER.

The debate in the House was able and spirited throughout. Judging by the tone and number of the Republicans who spoke against the bill, a serious party division seemed to be impending. The measure came to a vote on the 6th of February, the interest in the discussion continuing to the last. Mr. Owen Lovejoy sought occasion to give the measure a parting malediction, declared that "there is no precipice, no chasm, no yawning bottomless gulf before this nation, so terrible, so appalling, so ruinous, as the bill before the House," and Mr. Roscoe Conkling sought the floor to say that he concurred "in every word" Mr. Lovejoy had spoken. Mr. Conkling said the debate had been allowed to close "without pretext of solid argument by any member in favor of the const.i.tutionality of the one feature of the bill."

The essential difference between the plan of the minority and that of the committee had reference to the legal-tender clause. In fact the other details of the Loan Bill could have been agreed upon in a single day's discussion, and the delay was occasioned solely by the one feature of legal-tender. On subst.i.tuting the measure of the minority the vote was 55 yeas to 95 nays. The bill was then pa.s.sed by a vote of 93 to 59. The yeas were all Republican. Among the nays--princ.i.p.ally Democrats--were found some of the ablest and most influential members of the Republican party. Valentine B.

Horton of Ohio, Justin S. Morrill of Vermont, Roscoe Conkling, F.

A. Conkling, and Theodore M. Pomeroy of New York, Albert G. Porter of Indiana, Owen Lovejoy of Illinois, William H. Wadsworth of Kentucky, Benjamin F. Thomas of Ma.s.sachusetts, and Edward H. Rollins of New Hampshire, were conspicuous for their hostility to the legal- tender clause.

The Senate received the bill on the next day, and on the 10th it was reported from the Finance Committee for immediate action. Mr.

Fessenden explained the amendments which the committee had embodied in the House Bill. In the first section they provided that the interest on the national debt should be paid in coin. Upon this point Mr. Fessenden considered that the public credit, in large degree, depended. As to the legal-tender feature of the notes, he could not make up his mind to support it. "Will your legal-tender clause," he inquired, "make your notes any better? Do you imagine that because you force people to take these notes they are to be worth the money, and that no injury is to follow? What is the consequence? Does not property rise? You say you are injuring the soldier if you compel him to take a note without its being a legal-tender; but will not the sutler put as much more on his goods?

And if the soldier sends the notes to his wife to be pa.s.sed at a country store for necessaries for his family, what will be the result? The goods that are sold are purchased in New York; the price is put on in New York; a profit is added in the country; and thus the soldier loses just as much. You are not saving any thing for any body."

Mr. Fessenden then inquired, "What do we offer without the legal- tender clause? We are offering notes, with the interest secured beyond a question if the amendments proposed by the Committee on Finance of the Senate are adopted, based on the national faith, and with the power to deposit and receive five per cent. interest in any sub-treasury, and the power of the government to sell the stock at any price, to meet whatever it may be necessary to meet.

Will notes of this kind stand better when going out, if you put the confession upon their face, that they are discarded by you, and that you know they ought not to be received, and would not be, unless their reception is compelled by legal enactment?"

The argument against this view, according to Mr. Fessenden, "is simply that the banks will not take the notes unless they are made a legal-tender, and therefore they will be discredited. It was thus reduced to a contest between the government and the banks; and the question is whether the banks have the will and the power to discredit the notes of the United-States Treasury." With all his objections to the legal-tender feature,--and they were very grave,--Mr. Fessenden intimated his willingness to vote for it if it were demonstrated to be a necessity. On the const.i.tutional question involved he did not touch. He preferred, he said, "to have his own mind uninstructed" upon that aspect of the case.

In ill.u.s.tration of the doubt and diversity of opinion prevailing, Mr. Fessenden stated that on a certain day he was advised very strongly by a leading financial man that he must at all events oppose the legal-tender clause, which he described as utterly destructive. On the same day he received a note from another friend, a.s.suring him that the legal-tender bill was an absolute necessity to the government and the people. The next day the first gentleman telegraphed that he had changed his mind, and now thought the legal-tender bill peremptorily demanded by public exigency.

On the ensuing day the second gentleman wrote that he had changed his mind, and now saw clearly that the legal-tender bill would ruin the country. There can be no harm in stating that the authors of these grotesque contradictions were Mr. James Gallatin and Mr. Morris Ketchum of New York.

MR. COLLAMER AND MR. SHERMAN.

Mr. Collamer of Vermont followed Mr. Fessenden in an exhaustive argument against the bill as a violation of the Const.i.tution. He believed "in the power of the government to sustain itself in the strife physically and pecuniarily." He was not willing to say to a man," Here is my note: if I do not pay it, you must steal the amount from the first man you come to, and give him this note in payment." He would not be governed in this matter, as Mr. Fessenden intimated he might be, "by necessity." He had taken an oath to support the Const.i.tution, and he believed this bill violated it.

He "would not overthrow the Const.i.tution in the Senate Chamber while the rebels are endeavoring to overthrow it by war."

Senator Wilson looked upon the contest as one "between the men who speculate in stocks, and the productive, toiling men of the country."

He believed "the sentiment of the nation approaches unanimity in favor of this legal-tender clause." He had received letters from large commercial houses in Ma.s.sachusetts, representing millions of capital, and "they declare that they do not know a merchant in the city of Boston engaged in active business who is not for the legal- tender bill."

Senator Sherman of Ohio urged the adoption of the measure, because "all the organs of financial opinion in this country agree that there is a majority" for it; and he cited the New-York Chamber of Commerce, the Committee on Public Safety in New York, and the Chambers of Commerce of Boston and Philadelphia, as taking that ground. He proceeded "to show the necessity of it from reason."

He stated that the government must "raise and pay out of the Treasury of the United States before the first day of July next, according to the estimate of the Committee of Ways and Means, the sum of $343,235,000. Of this sum $100,000,000 is now due and payable to soldiers, contractors, to the men who have furnished provisions and clothing for the army; to officers, judges, and civil magistrates."

Mr. Sherman argued that "a question of hard necessity presses upon the government. This money cannot be obtained from the banks.

With a patriotic feeling not usually attributed to money corporations, the banks have already exhausted their means. The aggregate capital of the banks of the three princ.i.p.al cities of the United States is but $105,000,000, and they have taken more than their capital in bonds of the United States." It was, therefore, idle to look to the banks for relief. "They have," continued the senator, "already tied up their whole capital in the public securities. They ask this currency to enable them to a.s.sist further in carrying on the government. Among others, the cashier of the Bank of Commerce, the largest bank corporation in the United States and one that has done much to sustain the government, appeared before the Committee on Finance, and stated explicitly that his bank, as well as other banks of New York, could not further aid the government, unless its currency was stamped by, and invested with, the legal form and authority of lawful money, which they could pay to others as well as receive themselves."

Senator James A. Bayard of Delaware argued that the proposed measure violated the Const.i.tution. "No one," said he, "can deny the fact that in the contracts between man and man, and in government contracts to pay money, the obligation is to pay intrinsic value.

If you violate that by this bill, which you certainly do, how can you expect that the faith of the community will be given to the law which you now pa.s.s, in which you say that you will pay hereafter the interest on your debt in coin? Why should they give credit to that declaration? If you can violate the Const.i.tution of the United States, in the face of your oaths, in the face of its palpable provision, what security do you offer to the lender of money?"

Senator Sumner did not join his colleague in enthusiastic support of the bill. He was indeed much troubled by its provisions. "Is it necessary," he inquired, "to incur all the unquestionable evils of inconvertible paper, forced into circulation by Act of Congress, to suffer the stain upon our national faith, to bear the stigma of a seeming repudiation, to lose for the present that credit which in itself is a treasury, and to teach debtors everywhere that contracts may be varied at the will of the stronger? Surely there is much in these inquiries which may make us pause. If our country were poor or feeble, without population and without resources; if it were already drained by a long war; if the enemy had succeeded in depriving us of the means of livelihood,--then we should not even pause. But our country is rich and powerful, with a numerous population, busy, honest, and determined, and with unparalleled resources of all kinds, agricultural, mineral, industrial, and commercial. It is yet undrained by the war in which we are engaged, nor has the enemy succeeded in depriving us of any of the means of livelihood." But he concluded, "whatever may be the national resources, they are not now within reach except by summary process."

He consented "reluctantly, painfully, that the process should issue." He could not however "give such a vote without warning the government against the danger of such an experiment. The medicine of the Const.i.tution must not become its daily bread."

SENATE VOTES ON LEGAL-TENDER.

The bill came to a vote in the Senate on the 13th of February.

The government exigency was so pressing that the Senate discussion was limited to four days. On the motion of Mr. Collamer to strike out the legal-tender clause, the vote stood 17 yeas to 23 nays.

Anthony of Rhode Island, Collamer and Foot of Vermont, Fessenden of Maine, King of New York, Cowan of Pennsylvania, Foster of Connecticut, and Willey of Virginia, among the Republicans, voted to strike out. The vote to retain the legal-tender feature was Republican, with the exception of Garrett Davis of Kentucky, McDougall of California, Rice of Minnesota, and Wilson of Missouri.

This question being settled, the bill, with the legal-tender clause embodied, pa.s.sed by a vote fo 30 to 7. Mr. Anthony of Rhode Island stated that, having voted against the legal-tender provision, he "could not take the responsibility of voting against the only measure which is proposed by the government, and which has already pa.s.sed the House of Representatives." Three Republicans, Collamer, Cowan, and King, and four Democrats, Kennedy, Pearce, Powell, and Saulsbury, were the senators who voted against the bill on its final pa.s.sage.

The bill was returned to the House of Representatives the next day.

The Senate amendments were taken up on the 19th. Mr. Spaulding objected to them generally, and especially to the provisions for selling the bonds at the market price and for paying the interest in coin. Mr. Pomeroy of New York advocated concurrence in the amendments of the Senate, as did Mr. Morrill of Vermont. Upon the amendment to pay interest in coin, the House divided, with 88 ayes to 56 noes. Upon the clause allowing the secretary to sell bonds at the market value, there were 72 ayes to 66 noes. A conference on the points of difference between the two Houses was managed by Senators Fessenden, Sherman, and Carlile, and Representatives Stevens, Horton, and Sedgwick. The report of the Conferees was agreed to in both Houses, and the Act was approved and became a law on the 25th of February. Its leading provisions were for the issue of legal-tender notes, on which the debate chiefly turned, and of coupon or registered bonds not to exceed $500,000,000 in the aggregate, bearing six per cent. interest, redeemable at the pleasure of the United States after five years, and payable twenty years after date. The bonds were to be sold at their market value for coin or Treasury notes, and the notes to be exchangeable into them in sums of fifty dollars, or any multiple of fifty. These securities became widely known and popular as the five-twenties of 1862. The fourth section allowed deposits of United-States notes with designated depositories to draw interest at five per cent., and to be paid after ten days' notice, but the total of such deposits was not to exceed $25,000,000 at any time. By the fifth section, duties on imported goods were required to be paid in coin, and the proceeds were pledged, first, to the payment in coin of the interest on the bonds of the United States; and second, to a sinking-fund of one per cent. of the entire debt for its ultimate payment.

Certificates of indebtedness were authorized by Act of Congress pa.s.sed without debate and approved on the first day of March.

These could be granted to any creditor whose claim had been audited, and they drew six per cent. interest, payable at first in coin, but by Act of March 3, 1863, lawful money was subst.i.tuted for interest. By Act of March 17, 1862, these certificates could be given in discharge of checks drawn by disbursing officers, if the holders of the latter chose to accept them. The secretary was clothed with power by the Act of March 17, 1862, to buy coin with any bonds or notes on such terms as he might deem advantageous.

The same Act gave legal-tender value to the demand notes previously authorized. The limitation upon temporary deposits was also raised to $50,000,000.

Mr. Chase, by a communication of June 7 (1862), asked for a further issue of legal-tender notes to the amount of $150,000,000, and he urged that the limit of five dollars be removed, and denominations as low as a single dollar be permitted. He declared that it was impossible to obtain coin necessary to pay the soldiers, and that the plan proposed would remove from disbursing officers the temptation to exchange coin for small bank notes. A reserve of one-third of the temporary deposits would take $34,000,000, and the replacement of the demand notes $56,500,000 more, so that for immediate use the Treasury would get only $59,500,000 of the sum asked for. Mr.

Spaulding of New York on the 17th of June presented the measure as reported from the Ways and Means Committee. He argued that this form of loan was "so popular with the people and so advantageous to the government, that it should be extended so far as it could be done safely." Objections such as were offered to the original policy were presented to the additional notes. It was already suggested to authorize notes for fractions of a dollar, but the majority decided against it. The bill pa.s.sed the House of Representatives on the 24th of June. In the Senate, Mr. Sherman of Ohio attempted to add a clause for the taxation of the circulation of banks, but it was not received with favor. With certain amendments the bill pa.s.sed the Senate on the 2d of July. On a disagreement which ensued, the conferees were Senators Fessenden, Sherman, and Wright, and Representatives Stevens, Spaulding, and Phelps of Missouri. By their action the volume of notes of denominations less than five dollars was restricted to $35,000,000, and the reserve for meeting deposits was fixed at $75,000,000. While exchangeable into six per cent. bonds, the notes might also be paid in coin under the direction of the Secretary of the Treasury. The report was accepted by the Senate on the 7th of July, and by the House on the 8th. It became a law by the President's approval on the 11th of July.

SECRETARY CHASE ON THE BANKS.

On the 14th of July, Secretary Chase called the attention of Congress to the great evils arising from the issue by non specie-paying banks and unauthorized persons of depreciated currency, and the consequent disappearance of small coin. As a remedy an Act was pa.s.sed, and approved July 17, for the use of postage and other stamps in payment of fractional parts of a dollar. These stamps were made exchangeable by a.s.sistant treasurers for United-States notes in sums not less than five dollars. Banks and persons were forbidden, from the first day of the ensuing August, to make or issue any note or token for a less sum than one dollar, intended to be used as money, under the penalty of a fine not exceeding $500, or imprisonment not exceeding six months, or both. "Shinplasters"

had become almost like the frogs of Egypt for mult.i.tude. They were in every man's hand and were of all degrees of value. They were sometimes issued for purposes of fraud. Silver had become lost to view, and business houses resorted to the use of their own notes as a convenience. The government stamps were not well adapted to circulate as currency, and they soon gave way to notes of handsome design which came into universal use as the "small change" of the country.

The proper order of the leading measures of finance has always been a subject of contention. Grave differences of opinion exist, even to this day, concerning the necessity and expediency of the legal- tender provision. The judgment of many whose financial sagacity is ent.i.tled to respect is, that if the internal tax had been first levied, and the policy adopted of drawing directly upon the banks from the Treasury for the amounts of any loans in their hands, the resort by the government to irredeemable paper might at least have been postponed and possibly prevented. The premium on gold became the measure of the depreciation of the government credit, and practically such premiums were the charge made for every loan negotiated. In his report of December, 1862, Secretary Chase justified the legal-tender policy. He explained that by the suspension of specie payments the banks had rendered their currency undesirable for government operations, and consequently no course other than that adopted was open. Mr. Chase declared that the measures of general legislation had worked well. "For the fiscal year ending with June," he said, "every audited and settled claim on the government and every quartermaster's check for supplies furnished, which had reached the Treasury, had been met." For the subsequent months, the secretary "was enabled to provide, if not fully, yet almost fully, for the constantly increasing disburs.e.m.e.nts."

The political effects of the legal-tender bill were of large consequence to the Administration and to the successful conduct of the war. If it had been practicable to adhere rigidly to the specie standard, the national expenditure might have been materially reduced; but the exactions of the war would have been all the time grating on the nerves of the people and oppressing them with remorseless taxation. Added to the discouragement caused by our military reverses, a heavy financial burden might have proved disastrous. The Administration narrowly escaped a damaging defeat in 1862, and but for the relief to business which came from the circulation of legal-tender notes, the political struggle might have been hopeless. But as trade revived under the stimulus of an expanding circulation, as the market for every species of product was constantly enlarging and prices were steadily rising, the support of the war policy became a far more cheerful duty to the ma.s.s of our people.

This condition of affairs doubtless carried with it many elements of demoralization, but the engagement of the people in schemes of money-making proved a great support to the war policy of the government. We saw the reproduction among us of the same causes and the same effects which prevailed in England during her prolonged contest with Napoleon. Money was superabundant, speculation was rife, the government was a lavish buyer, a prodigal consumer.

Every man who could work was employed at high wages; every man who had commodities to sell was sure of high prices. The whole community came to regard the prevalent prosperity as the outgrowth of the war. The ranks of the army could be filled by paying extravagant bounty after the ardor of volunteering was past, and the hardship of the struggle was thus in large measure concealed if not abated.

Considerate men knew that a day of reckoning would come, but they believed it would be postponed until after the war was ended and the Union victorious.

The policy of the legal-tender measure cannot therefore be properly determined if we exclude from view that which may well be termed its political and moral influence upon the ma.s.s of our people. It was this which subsequently gave to that form of currency a strong hold upon the minds of many who fancied that its stimulating effect upon business and trade could be reproduced under utterly different circ.u.mstances. Argument and experience have demonstrated the fallacy of this conception, and averted the evils which might have flowed from it. But in the judgment of a large and intelligent majority of those who were contemporary with the war and gave careful study to its progress, the legal-tender bill was a most effective and powerful auxiliary in its successful prosecution.

THE INTERNAL-REVENUE SYSTEM.

Grateful as was the relief to the people from legal-tender notes, it was apparent to Congress that a government cannot, any more than an individual, maintain a state of solvency by the continuous issuing of irredeemable paper. Money must not merely be promised, it must be paid. The Government therefore required a strong, efficient system of taxation--one that would promptly return large sums to the Treasury. From customs, an increasing revenue was already enriching the Government vaults, but the amount derivable from that source was limited by the ability of the people to consume foreign goods, and wise economists did not desire an enlarged revenue the collection of which was at war with so many domestic interests. The country therefore turned by common instinct to a system of internal duties,--to incomes, to excise, to stamps. In the extra session of the preceding year, Congress had, by the Act of August 5, 1861, laid the foundation for a system of internal revenue by providing for a direct tax of twenty millions of dollars on the real estate of the country, and for an income tax of three per cent. on all incomes in excess of eight hundred dollars per annum. But the appointment of a.s.sessors and collectors under the bill had been postponed "until after the second Tuesday of February, 1862," which was practically remanding the whole subject to the further consideration of Congress before any man should be asked to pay a dollar of tax under the law. The intervening months had not decreased but had on the contrary largely developed the necessities of the National Treasury, and enhanced the necessity of a stable revenue system. The exigency had become so great that Congress was compelled for the first time in our history, to resort to the issue of government notes as a legal-tender currency.

Promptness and decision were essential to the preservation of the National credit. The sources, the extent, the limitations of the taxing power were closely examined by Secretary Chase in his report and the subject was remanded to Congress for determination.

The Const.i.tution gives to Congress to power to levy imposts, and prohibits it to the States. It gives also to Congress the power to levy internal taxes and excises, leaving to the States the right to do the same. It is one of the traditions of the Convention which met in Philadelphia in 1787 to frame the Federal Const.i.tution, that Mr. Hamilton remarked in a conference of its leading members that if the power to levy impost and excise should be given to the new government, it would prove strong and successful. If the power were not to be given he did not desire to waste his time in repeating the failure of the old Confederation, and should return at once to New York. It was undoubtedly his influence which secured the wide and absolute field of taxation to the General Government. He well knew that direct taxes are onerous, and as the majority insisted on levying them in proportion to population, as in the old Confederation, their use as a resource to the General Government was practically nullified. Such a system involved the absurdity that men taken _per capita_ average the same in respect to wealth, and that one hundred thousand people in New York should pay no more tax than the same number in Arkansas. Statesmen and financiers saw from the first that the direct tax clause in the Const.i.tution would be valuable only in forcing the use of the excise. But for the dread of this, the States would not have yielded all the sources of indirect taxation to the National Government.

When appointed Secretary of the Treasury, Mr. Hamilton insisted upon the prompt levy of excises. He induced the first Congress to lay a tax on all distilled spirits. If made from mola.s.ses or sugar or other foreign substance, the tax should be from eleven to thirty cents per gallon according to the percentage above or below proof.

If made from domestic products, the tax should be from nine to twenty-five cents per gallon. The first was practically a tax on rum, the second on whiskey. This excise was followed in subsequent years by duties on carriages, on snuff, on property sold at auction, on refined sugar, and by the sale of stamps. Other articles were in after years added to the list, and to aid the Treasury during the period of the second war with Great Britain, a heavy imposition of internal duties was resorted to as the most prompt and efficient mode of replenishing the hard pressed Treasury.

THE INTERNAL-REVENUE SYSTEM.

The excise was from the first unpopular. The men who insisted that "black quart-bottles" should be admitted free of duty when the first tariff bill was pa.s.sed, did not relish the levying of a heavy tax on the whiskey that was to fill them. The exciseman was to their view precisely what Dr. Johnson had defined him in his dictionary: "an odious wretch, employed to collect an unjust tax."

Revolutionary proceedings had been inaugurated by resistance to a tax on tea. But tea at that day was looked upon as a luxury in which only a few could indulge, while whiskey was regarded as a necessity, of universal consumption. Resistance went so far as to organize an insurrection in Western Pennsylvania against the official authority which attempted to collect the tax. The outbreak was promptly suppressed by the power of the General Government but the result of the agitation was a deep-seated prejudice against the Federal party. Pennsylvania sympathized with the more liberal views of Jefferson, and in the Presidential election of 1796 gave him fourteen of her fifteen electoral votes. John Adams received the other vote, and as he was chosen by a majority of one, his Pennsylvania support, small as it was, proved timely and valuable.

Resistance to internal duties was tried by legal methods. A heavy duty had been laid on carriages--two dollars per year for those of simplest form and fifteen dollars for the most costly. The tax applied to all carriages for the conveyance of persons, whether kept for private use or for public hire. One Daniel Lawrence Hylton of Virginia resisted the payment of the tax and the case was ultimately heard before the Supreme Court in the February term of 1796. Mr. Hamilton who had resigned from the Treasury Department the preceding year, argued the case for the Government in conjunction with the Attorney-General, Charles Lee. Mr. Campbell, Attorney for the Virginia District and Mr. Ingersoll, the Attorney-General of Pennsylvania, appeared for the plaintiff. The case turned wholly upon the point whether the tax, on carriages kept for private use, was a direct tax. If not a direct tax, it was admitted to be properly levied according to that clause in the Const.i.tution which declares that "all duties, imposts, and excises shall be uniform throughout the United States." If a direct tax it was wrongfully levied because the Const.i.tution declares that "no capitation or other direct tax shall be laid unless in proportion to the census or enumeration of the inhabitants of the United States."