CHAPTER V

THE GREENBACKS

THE GREENBACK ISSUES

[8]The greenbacks were an outgrowth of the Civil War. Soon after the opening of the struggle the Secretary of the Treasury negotiated a loan of $150,000,000 with Eastern banks. Partly because of Confederate successes and partly because of the failure of Secretary Chase to adopt a firm policy of loans supported by taxation, public credit greatly declined, and Government bonds became almost unsaleable. The outlook became alarming and depositors withdrew gold from the New York banks in such large amounts that specie payments were suspended, December 30, 1861. In February, 1862, Congress provided for the issue of $150,000,000 in United States notes or greenbacks. Bond sales proceeded slowly and a second issue of $150,000,000 of notes was authorised in July of the same year. As a result of "military necessity" a third issue of $100,000,000 was authorised January 17, 1863, and temporarily increased March 3 to $150,000,000. Provision was made for the reissue of the greenbacks and $400,000,000 were outstanding at the close of the war.

THE FLUCTUATING PREMIUM ON GOLD

Depreciation of the greenbacks occurred at once and the value of gold as expressed in greenbacks was subject to almost constant change. During the year 1862 the premium varied from 2 to 32; in 1863 from 25 to 60; and in 1864 from 55 to 185. Among the most important political and economic factors which caused these fluctuations may be mentioned:

(1) The increase in the amount of the greenbacks. Each new issue was reflected in a rise in the premium.

(2) The condition of the treasury. The annual reports of the Secretary of the Treasury were anxiously awaited and their appearance caused a rise or fall of the premium according as the condition of the finances seemed gloomy or hopeful.

(3) Ability of the Government to borrow. The fate of a loan indicated public confidence or distrust.

(4) Changes in the officials of the treasury department. Secretary Chase's resignation, July 1, 1864, depressed the currency decidedly.

(5) War news. Every victory raised the price of currency and every defeat depressed it.

From 1862 to 1865 the premium on gold and the median of relative prices correspond so well that one cannot resist the conclusion that these changes were mainly due to a common cause, which can hardly be other than the varying esteem in which the notes of the Government that constituted the standard money of the country were held. If this conclusion be accepted, it follows that the suspension of specie payments and the legal-tender acts must be held almost entirely responsible for all the far-reaching economic disturbances following from the price upheaval which it is our task now to trace in detail.

THE EFFECTS OF GREENBACKS UPON WAGES

Statistical evidence supports unequivocally the common theory that persons whose incomes are derived from wages suffer seriously from a depreciation of the currency. The confirmation seems particularly striking when the conditions other than monetary affecting the labour market are taken into consideration. American workingmen are intelligent and keenly alive to their interests. There are probably few districts where custom plays a smaller and competition a larger role in determining wages than in the Northern States. While labor organisations had not yet attained their present power, manual laborers did not fail to avail themselves of the help of concerted action in the attempt to secure more pay. Strikes were frequent. All these facts favored a speedy readjustment of money wages to correspond with changed prices. But more than all else, a very considerable part of the labor supply was withdrawn from the market into the army and navy. In 1864 and 1865 about one million of men seem to have been enrolled. About one-seventh of the labor supply withdrew from the market. But despite all these favoring circumstances, the men who stayed at home did not succeed in obtaining an advance in pay at all commensurate with the increase in living expenses. Women on the whole succeeded less well than men in the struggle to readjust money wages to the increased cost of living.

It is sometimes argued that the withdrawal of laborers from industrial life was the chief cause of the price disturbances of the war period. This withdrawal, it is said, caused the advance of wages, and greater cost of labor led to the rise of prices. The baselessness of this view is shown by two well established facts--first, that the advance of wages was later than the advance of prices, and second, that wages continued to rise in 1866 after the volunteer armies had been disbanded and the men gone back to work.

Wage-earners, however, seem to have been more fully employed during the war than in common times of prosperity. Of course, the enlistment of so many thousands of the most efficient workers made places for many who might otherwise have found it difficult to secure work. Moreover, the paper currency itself tended to obtain full employment for the laborer, for the very reason that it diminished his real income. In the distribution of what Marshall has termed the "national dividend" a diminution of the proportion received by the laborer must have been accompanied by an increase in the share of some one else. Nor is it difficult to determine who this person was. The beneficiary was the active employer, who found that the money wages, interest, and rent he had to pay increased less rapidly than the money prices of his products. The difference between the increase of receipts and the increase of expenses swelled his profits. Of course, the possibility of making high profits provided an incentive for employing as many hands as possible.

After an examination of the change in the condition of the great mass of wage-earners, it may seem surprising that few complaints were heard from them of unusual privations. This silence may be due in part to the fact that a considerable increase of money income produces in the minds of many a fatuous feeling of prosperity, even though it be more than offset by an increase of prices. But doubtless the chief reason is to be found in the absorption of public interest in the events of the war. The people both of the South and North were so vitally concerned with the struggle that they bore without murmuring the hardships it entailed of whatever kind. Government taxation that under other circumstances might have been felt to be intolerable was submitted to with cheerfulness. The paper currency imposed upon wage-earners a heavier tax--amounting to confiscation of perhaps a fifth or a sixth of real incomes. But the workingmen of the North were receiving considerably more than a bare subsistence minimum before the war, and reduction of consumption was possible without producing serious want. Accordingly the currency tax, like the tariff and the internal revenue duties, was accepted as a necessary sacrifice to the common cause and paid without protest by severe retrenchment.

RENT

URBAN RENTS

In studying the influence of depreciation upon rent, it is necessary to use that term in its popular rather than in its scientific sense. This fact is less to be lamented, because the theorist himself admits that the distinction becomes sadly blurred when he attempts to deal with short intervals of time. Capital once invested in improvements can seldom be withdrawn rapidly. In "the short run," therefore, it is practically a part of the land, and the return to it follows the analogy of rent rather than of interest.

The renting landlord found that the degree in which he was affected by the fluctuations in the value of the paper money depended largely upon the terms of the contract into which he had entered. It is clear from a careful examination that the landlord who before suspension had leased his property for a considerable period without opportunity for revaluation must have suffered severely if paid in greenbacks. The number of "dollars" received as rental might be the same in 1865 as in 1860, but their purchasing power was less than one-half as great. Somewhat less hard was the situation of the landlord who had let his property for but one or two years. At the expiration of the leases he had opportunities to make new contracts with the tenants.

In his capacity as special commissioner of the revenue, Mr. David A. Wells devoted some attention to the rise of rent. His report for December, 1866, says:

The average advance in the rents of houses occupied by mechanics and laborers in the great manufacturing centres of the country is estimated to have been about 90 per cent.; in some sections, however, a much greater advance has been experienced, as for example, at Pittsburgh, where 200 per cent. and upward is reported. In many of the rural districts, on the other hand, the advance has been much less. Mr. Wells later modified this estimate somewhat.

The advance in rents was greater in cities than in minor towns. In some cities--_e. g._, Cincinnati and Louisville--owners of workingmen's tenements appear to have been able to increase their money incomes rather more rapidly than prices advanced, but in Boston, Philadelphia, St. Louis, and in smaller towns, their money incomes appear to have increased more slowly than living expenses. These conclusions rest, however, on a narrow statistical basis.

FARM RENTS

The rural landowner suffered serious injury from the paper currency when he let his land for a money rent. But renting farms for a fixed sum of money has always been less common in the United States than renting for a definite share of the products. It is probable that at the time of the Civil War more than three-quarters of the rented farms were let "on shares." Inasmuch as no money payments entered into such arrangements, the pecuniary relations of landlord and tenant were not directly affected by the change in the monetary standard. Farm owners who had let their places on these conditions escaped the direct losses that weighed so heavily on the recipients of money rents. But even they did not avoid all loss. For the price of agricultural products for the greater part of the war period lagged considerably behind the price of other goods. This difference, of course, meant loss to men whose incomes were paid in bushels of grain.

INTEREST AND LOAN CAPITAL

THE PROBLEM OF LENDERS AND BORROWERS OF CAPITAL

The task of ascertaining the effect of the greenback issues upon the situation of lenders and borrowers of capital is in one respect more simple and in another respect more complex than the task of dealing with wage-earners. It is simpler in that there are not different grades of capital to be considered like the different grades of labor. But it is more complex in that the capitalist must be considered not only as the recipient of a money income, as is the laborer, but also as the possessor of certain property that may be affected by changes in the standard money.

The problem is further complicated by the fact that the relative importance of these two items--rate of interest and value of principal--is not the same in all cases. Whether a lender is affected more by the one item or the other depends upon what he intends to do with his property at the expiration of existing contracts. A widow left in 1860 with an estate of say $10,000, who expected to keep this sum constantly at interest and to find new borrowers as soon as the old loans were paid, could neglect everything but the net rate of interest received. On the other hand, if this estate had been left to a youth of twenty who intended to invest his property in some business after a few years, the rate of interest would be of relatively less importance to him than the purchasing power of the principal when the time came to set up for himself.

Of course, the same difference exists in the case of different borrowers. Those borrowers who expected to renew old loans on maturity would have to consider little beyond the interest demanded by lenders, while borrowers who expected to pay off the loans out of the proceeds of their ventures would be interested primarily in the amount of goods that would sell for sufficient money to make up the principal.

Although these two classes of cases are by no means independent of each other, the following discussion will be rendered clearer by observing the broad difference between them. Accordingly, attention will first be directed to the effect of the price fluctuations upon the purchasing power of the principal of loans, and afterward to changes in the rate of interest.

PURCHASING POWER OF THE PRINCIPAL OF LOANS

Most persons who made loans in the earlier part of the Civil War and were repaid in greenbacks must have suffered heavy losses from the smaller purchasing power of the principal when it was returned to them. But while this general fact is clear, it is difficult to make a quantitative statement of the degree of the loss that will be even tolerably satisfactory.

In the case of almost all loans made before the middle of 1864 and repaid prior to 1866, the creditor found that the sum returned to him had a purchasing power much less than the purchasing power that had been transferred to the borrower when the loan was made. This decline varied from 1 to more than 50 per cent. On loans made in the middle of 1864 or later, on the contrary, the creditor gained as a rule. In the case of loans made in January, 1865, and repaid six months later, the increase in purchasing power was over 40 per cent.

THE RATE OF INTEREST

In turning to study the fortunes of men who have no thought of employing their capital for themselves, but expect to seek new borrowers as rapidly as old loans are repaid, one finds it necessary to distinguish between cases where loans have been made for short and for long terms; between the cases, that is, where there is and where there is not an opportunity to make a new contract regarding the rate of interest. The latter cases may be dismissed with a word. The capitalist who lent $10,000 for five years in April, 1862, at 6 per cent. interest, would be in relatively the same position as the workingman who received no advance in money wages; while his money income remained the same, the rise of prices would decrease his real income in 1864 and 1865 by about one-half. Of course, this loss to the creditor is a gain to the debtor; for to the business man using borrowed capital the advance of prices means that he can raise his interest money by selling a smaller proportion of his output.

More interesting is the case of loans maturing and made afresh during the period under examination. The important question is: How far did the lender secure compensation for the diminished purchasing power of the money in which he was paid by contracting for a higher rate of interest?

The advance in the rate of interest was comparatively small--much too small to compensate for the increased cost of living. While prices rose approximately 85 per cent. and money wages somewhat less than 60 per cent. during the years 1860-65, rates of interest on call and time loans increased less than 15 per cent. during the same period.

The conclusion is not only that persons who derived their income from capital lent at interest for short terms were injured by the issues of the greenbacks, but also that their injuries were more serious than those suffered by wage-earners.

To explain this state of affairs is not easy. The first reason that suggests itself to the mind considering the problem is that both lenders and borrowers failed to foresee the changes that would take place in the purchasing power of money between the dates when loans were made and repaid. No doubt there is much force in this explanation. If, for instance, men arranging for loans in April, 1862, to be repaid a year later, had known that in the meantime the purchasing power of money would decline 30 per cent., they would have agreed upon a very high rate of interest. Men able to discern the future course of prices would not have lent money at the ordinary rates, and if the rates prevailing in the New York market throughout all 1862 and 1863 were less than 7 per cent., it must have been because the extraordinary rise of prices was not foreseen by borrowers and lenders.

Nor is it surprising that business men failed to see what was coming; for the course of prices depended chiefly upon the valuation set upon the greenbacks, and this valuation, in turn, depended chiefly upon the state of the finances and the fortunes of war--matters that no one could foresee with certainty. Indeed, there was much of the time a very general disposition to take an unwarrantedly optimistic view of the military situation and the chances of an early peace. Many members of the business community seem to have felt that the premium on gold was artificial and must soon drop, that prices were inflated and must collapse. To the extent that such views prevailed borrowers would be cautious about making engagements to repay money in a future that might well present a lower range of prices, and lenders would expect a gain instead of a loss from the changes in the purchasing power of money.

But the full explanation of the slight advance in interest cannot be found in this inability to foresee the future--at least not without further analysis of what consequences such inability entailed. Workingmen are commonly credited with less foresight than capitalists, and nevertheless they seem, according to the figures, to have succeeded better in making bargains with employers of labour than did lenders with employers of capital. The explanation of this less success seems to be found in the difference between the way in which depreciation affected what the capitalist and the laborer had to offer in return for interest and wages. There is no reason for assuming that an artisan who changed employers during the war would render less efficient service in his new than in his old position, or that a landlord who changed tenants had less advantages to put at the disposal of the incoming lessee. In both these cases the good offered to the active business man remained substantially the same, and it may safely be assumed that, other things being equal, this business man could afford to give quite as much for the labor and the land after as before suspension. From the business man's point of view, therefore, there seems to have been room for a doubling of money wages and rent when the purchasing power of money had fallen one-half. But in the case of the borrower of capital the like was not true. The thousand dollars which Mr. A offered him in 1865 was not, like the labour of John Smith or the farm of Mr. B, as efficient for his purposes as it would have been five years before. For, with the thousand dollars he could not purchase anything like the same amount of machinery, material, or labor. And since the same nominal amount of capital was of less efficiency in the hands of the borrower, he could not without loss to himself increase the interest which he paid for new loans in proportion to the decline in the purchasing power of money, as he could increase the wages of laborers or the rent for land.

It should also be pointed out that on one important class of loans capitalists suffered comparatively little even during the war. Interest on many forms of Government bonds was paid in gold. Capitalists who invested their means in these securities consequently received an income of almost unvarying specie value. If the person who made these investments were an American, he would be able to sell his gold-interest money at a high premium, but he would also have to pay correspondingly high prices for commodities, so that upon the whole his position would not be greatly different from that of the foreign investor. That such opportunities for investment as these securities offered should exist when men were most of the time loaning money for short terms at 7 per cent. or less, is perhaps the most emphatic proof that could be offered of the inability of the public to foresee what the future had in store.

PROFITS

Laborers, landlords, and lending capitalists are all alike in that the amount of remuneration received by them for the aid which they render to production is commonly fixed in advance by agreement, and is not immediately affected by the profitableness or unprofitableness of the undertaking. It remains to examine the economic fortunes of those men whose money incomes are made up by the sums left over in any business after all the stipulated expenses have been met.

A very important part of the solution of the problem of profits has already been contributed by the preceding studies of wages, rent, and interest. The evidence has been found to support the conclusion that in almost all cases the sums of money wages, rent, and interest received by laborers, landlords, and capitalists increased much less rapidly than did the general price level. If the wording of this conclusion be reversed--the prices of products rose more rapidly than wages, rent, or interest--we come at once to the proposition that as a rule profits must have increased more rapidly than prices. For, if the sums paid to all the other co-operating parties were increased in just the same ratio as the prices of the articles sold, it would follow that, other things remaining the same, money profits also would increase in the same ratio. But if, while prices doubled, the payments to labourers, landlords, and capitalists increased in any ratio less than 100 per cent., the sums of money left for the residual claimants must have more than doubled. In other words, the effect of the depreciation of the paper currency upon the distribution of wealth may be summed up in the proposition: The shares of wage-earners, landowners, and lenders in the national dividend were diminished and the share of residual claimants was increased.

Two other general propositions respecting profits are suggested. First, other things being equal, profits varied inversely as the average wage per day paid to employees. This conclusion follows directly from the fact that the money wages of men earning $1-$1.49 per day before the perturbation of prices increased in higher ratio than those of men earning $1.50-$1.99; that the wages of the latter class increased more than the wages of men in the next higher wage class, etc. Second, other things being equal, profits varied directly as the complexity of the business organization. By this proposition is meant, for example, that a farmer who paid money rent, used borrowed capital, and employed hired labourers, made a higher percentage of profits than a farmer of whom any one of these suppositions did not hold true. If, as has been argued, the increase of profits was made at the expense of laborers, landlords, and capitalists, it follows that that _entrepreneur_ fared best whose contracts enabled him to exploit the largest number of these other persons.

PROFITS IN AGRICULTURE

The farmers of the loyal states were among the unfortunate producers whose products rose in price less than the majority of other articles, and from this standpoint they were losers rather than gainers by the paper currency. Of course, it is possible that the farmer's loss from this inequality of price fluctuations might be more than offset by his gains at the expense of labourers, landlord, and lending capitalist. But there is good reason for believing that the increase of the _entrepreneur's_ profits in the latter fashion was less in farming than in any other important industry. This conclusion seems to follow from the proposition that, other things being equal, profits varied directly as the complexity of business organization. The American farmers of the Civil War were in a large proportion of cases their own landlords, capitalists, and laborers. So far as this was true, they had few important pecuniary contracts with other persons of which they could take advantage by paying in depreciated dollars. Of those farmers who hired labor very many paid wages partly in board and lodging--an arrangement which threw a considerable part of the increased cost of living upon them instead of upon their employees. Finally, the renting farmer probably gained less on the average from the contract with his landlord than tenants of any other class, because in a majority of cases the rent was not a sum of money, but a share of the produce. While, then, the general effect of the paper standard was in the direction of increasing profits, it seems very doubtful whether farmers as a whole did not lose more than they gained because of the price disturbances.

STATISTICAL EVIDENCE REGARDING PROFITS

It would be highly desirable to test our general conclusions by means of direct information regarding profits made in various branches of trade, but the data available for such a purpose are very meager. What scraps of information are available, however, support the view that profits were uncommonly large. Mr. David A. Wells, for example, in his reports as special commissioner of the revenue, has stories of "most anomalous and extraordinary" profits that were realized in the paper, woolen, pig-iron, and salt industries. A more general indication of the profitableness of business is afforded by the remark in the annual circular of Dun's Mercantile Agency for 1864, that "it is generally conceded that the average profits on trade range from 12 to 15 per cent."

But the most important piece of evidence is found in the statistics of failures compiled by the same agency. The following table shows Dun's report of the number of bankruptcies and the amount of liabilities in the loyal States from the panic year 1857 to the end of the war:

_Year_ _Number_ _Liabilities_

1857 4,257 $265,500,000 1858 3,113 73,600,000 1859 2,959 51,300,000 1860 2,733 61,700,000 1861 5,935 $178,600,000 1862 1,652 23,000,000 1863 495 7,900,000 1864 510 8,600,000 1865 500 17,600,000

The very great decrease both in the number and the liabilities of firms that failed is the best proof that almost all business enterprises were "making money."

From one point of view the small number of failures is surprising. An unstable currency is generally held to make business unsafe, and seldom has the standard money of a mercantile community proven so unstable, undergone such violent fluctuations in so short a time, as in the United States during the Civil War. Yet, instead of being extremely hazardous, business seems from the statistics of failures to have been more than usually safe.

The explanation of the anomaly seems to be that the very extremity of the danger proved a safeguard. Business men realized that the inflation of prices was due to the depreciation of the currency, and that when the war was over gold would fall and prices follow. They realized very clearly the necessity of taking precautions against being caught in a position where a sudden decline of prices would ruin them. They did this by curtailing credits. So long as prices continued to rise such precautions were really not needed by the man in active business except, in so far as he was a creditor of other men; but when prices commenced to fall prudence had its reward. Such a sudden and violent drop of prices as occurred between January and July, 1865, would have brought a financial revulsion of a most serious character upon a business community under ordinary circumstances. But so well had the change been prepared for, that the number of failures was actually less than it had been in the preceding year of rapidly rising prices.

The whole situation can hardly be explained better than it was by a New York business man writing in _Harper's Monthly Magazine_: "When the war ended," he said, "we all knew we should have a panic. Some of us, like Mr. Hoar, expected that greenbacks and volunteers would be disbanded together. Others expected gold to fall to 101 or 102 in a few days. Others saw a collapse of manufacturing industry, owing to the cessation of Government purchases. But we all knew a 'crisis' was coming, and having set our houses in order accordingly, the 'crisis' of course never came."

THE PRODUCTION AND CONSUMPTION OF WEALTH

PRODUCTION

What influence did the greenback currency have as one of the many factors that affected the production of wealth? In the first place, the paper standard was responsible in large measure for the feeling of "prosperity" that seems from all the evidence to have characterized the public's frame of mind. Almost every owner of property found that the price of his possessions had increased, and almost every wage-earner found that his pay was advanced. Strive as people may to emancipate themselves from the feeling that a dollar represents a fixed quantity of desirable things, it is very difficult for them to resist a pleasurable sensation when the money value of their property rises or their incomes increase. They are almost certain to feel cheerful over the larger sums that they can spend, even though the amount of commodities the larger sums will buy is decreased. Habit is too strong for arithmetic.

But, more than this, "business" in the common meaning of the word was unusually profitable during the war. The "residual claimant" is in most enterprises the active business man, and, as has been shown, his money income did as a rule rise more rapidly than the cost of living. In other words, "business" was, in reality as well as in appearance, rendered more profitable by the greenbacks. There is therefore no error in saying that the business of the country enjoyed unwonted prosperity during the war. And it may be added that the active business man is probably a more potent factor in determining the community's feeling about "good times" and "bad times" than is the workingman, the landlord, or the lending capitalist.

The effect of high profits, however, is not limited to producing a cheerful frame of mind among business men. Under ordinary circumstances one would say that when the great majority of men already in business are "making money" with more than usual rapidity they will be inclined to enlarge their operations, that others will be inclined to enter the field, and that thus the production of wealth will be stimulated. But the circumstances of the war period were not ordinary and this conclusion cannot be accepted without serious modifications.

1. It has been shown that business men realised the precariousness of all operations that depended for their success upon the future course of prices--and nearly all operations that involved any considerable time for their consummation were thus dependent. So far did this disposition prevail that it produced a marked curtailment in the use of credit. The prudent man might be willing to push his business as far as possible with the means at his own disposal, but he showed a disinclination to borrow for the purpose. Thus the uncertainty which all men felt about the future in a large measure counteracted the influence of high profits in increasing production.

2. The foregoing consideration of course weighed most heavily in the minds of cautious men. But not all business men are cautious. Among many the chance of winning large profits in case of success is sufficient to induce them to undertake heavy risks of loss. On the whole, Americans seem to display a decided propensity toward speculative ventures and are not easily deterred by having to take chances. To men of this type it seems that the business opportunities offered by the fluctuating currency would make a strong appeal. But, while the force of this observation may be admitted, it does not necessitate a reconsideration of the conclusion that the instability of prices tended to diminish the production of wealth. For in a time of great price fluctuations the possibilities of making fortunes rapidly are much greater in trade than in agriculture, mining, or manufactures. Every rise and fall in quotations holds out an alluring promise of quick gain to the man who believes in his shrewdness and good fortune, and who does not hesitate to take chances. The probable profits of productive industry in the narrower sense might be larger than common, but this would not attract investors in large numbers if the probable profits of trading were larger yet; and such seems clearly to have been the case during the war when the paper currency offered such brilliant possibilities to fortunate speculators in gold, in stocks, or in commodities. Instead, then, of the greenbacks being credited with stimulating the production of wealth, they must be charged with offering inducements to abandon agriculture and manufactures for the more speculative forms of trade.

This tendency of the times did not escape observation. On the contrary, it was often remarked and lamented in terms that seem exaggerated. Hugh McCulloch, for instance, in his report as Secretary of the Treasury for 1865, said:

There are no indications of real and permanent prosperity ... in the splendid fortunes reported to be made by skilful manipulations at the gold room or the stock board; no evidences of increasing wealth in the facts that railroads and steamboats are crowded with passengers, and hotels with guests; that cities are full to overflowing, and rents and the necessities of life, as well as luxuries, are daily advancing. All these things prove rather ... that the number of non-producers is increasing, and that productive industry is being diminished.

In one of his reports as special commissioner of the revenue, Mr. Wells said:

During the last few years large numbers of our population, under the influence and example of high profits realized in trading during the period of monetary expansion, have abandoned employments directly productive of national wealth, and sought employments connected with commerce, trading, or speculation. As a consequence we everywhere find large additions to the population of our commercial cities, an increase in the number and cost of the buildings devoted to banking, brokerage, insurance, commission business, and agencies of all kinds, the spirit of trading and speculating pervading the whole community, as distinguished from the spirit of production.

Within the period under review, then, it seems very doubtful whether the high profits had their usual effect of leading to a larger production of raw materials or to an increase in manufactures. The prudent man hesitated to expand his undertakings because of the instability of the inflated level of prices; the man with a turn for speculative ventures found more alluring opportunities in trade.

CONSUMPTION

No one can read contemporary comments on American social life of the later years of the war without being impressed by the charges of extravagance made against the people of the North. Newspapers and pulpits were at one in denouncing the sinful waste that, they declared, was increasing at a most alarming rate. The "shoddy aristocracy" with its ostentatious display of wealth became a stock subject for cartoonists at home, and earned a well-merited reputation for vulgarity abroad.

In trying to account for this unpleasant phase of social development, men usually laid the blame upon the paper standard. High prices were said to make every one feel suddenly richer and so to tempt every one to adopt a more lavish style of living than his former wont. Thus the view gained general credence that the greenbacks were ultimately responsible for a great increase in the consumption of wealth.

However, such a view regarding the consumption of wealth can be but partially true. The enormous profits of _entrepreneurs_ made possible the rapid accumulation of an unusual number of fortunes, and the families thus lifted into sudden affluence enjoyed spending their money in the ostentatious fashion characteristic of the newly rich. It is therefore true that the monetary situation was largely responsible for the appearance of a considerable class of persons--of whom the fortunate speculator and the army contractor are typical--who plunged into the recklessly extravagant habits that called down upon their heads the condemnation of the popular moralist.

But if the greenbacks were in the last resort a chief cause of the increased consumption of articles of luxury by families whom they had aided in enriching, they were not less truly a cause of restricted consumption by a much larger class of humbler folk. The laboring man whose money wages increased but one-half, while the cost of living doubled, could not continue to provide for his family's wants so fully as before. He was forced to practise economies--to wear his old clothing longer, to use less coffee and less sugar, to substitute cheaper for better qualities in every line of expenditure where possible. Similar retrenchment of living expenses must have been practised by the families of many owners of land and lenders of capital. In other words, the war time fortunes resulted in a very large measure from the mere transfer of wealth from a wide circle of persons to the relatively small number of residual claimants to the proceeds of business enterprises. The enlarged consumption of wealth which the paper currency made possible for the fortunate few was therefore contrasted with a diminished consumption on the part of the unfortunate many on whose slender means the greenbacks levied contributions for the benefit of their employers.

That the diminished consumption of wealth by large numbers of poor people escaped general notice, while the extravagance of the newly rich attracted so much attention, need not shake one's confidence in the validity of these conclusions. The purchase of a fast trotting-horse by a Government contractor, and the elaborateness of his wife's gowns and jewelry, are much more conspicuous facts than the petty economies practised by his employees. The same trait that leads fortunate people to flaunt their material prosperity in the eyes of the world leads the unfortunate to conceal their small privations. Even an attentive observer may fail to notice that the wives of workingmen are still wearing their last year's dresses and that the children are running barefoot longer than usual.

But though the newspapers were not full of comments on the enforced economies of the mass of the population, wholesale dealers in staple articles of food and clothing noticed a decrease in sales. In reviewing the trade situation in September, 1864. when real wages were near their lowest ebb, Hunt's _Merchants' Magazine_ remarked that "the rise in the prices of commodities has ... outrun the power of consumption and the fall trade has been almost at a stand. Those articles such as coffee, sugar, low grade goods, which form the staple products of the great mass of the people in moderate circumstances, have reached such high rates that the decline in consumption is very marked, amounting almost to a stagnation of the fall trade." The consumption of many articles of luxury increased very greatly, while the consumption of many staple articles declined.

THE GREENBACKS AND THE COST OF THE CIVIL WAR

The reader who goes back to the debates upon the legal-tender bills will find that most of the unfortunate consequences that followed their enactment were foretold in Congress--the decline of real wages, the injury done creditors, the uncertainty of prices that hampered legitimate business and fostered speculation. But a majority of this Congress were ready to subject the community to such ills because they believed that the relief of the treasury from its embarrassments was of more importance than the maintenance of a relatively stable monetary standard.

GREENBACKS AND EXPENDITURES

What effect had the greenbacks upon the amount of expenditures incurred? Few questions raised by the legal-tender acts have attracted more attention than this. Even while the first legal-tender bill was being considered its critics declared that if made a law it would increase the cost of waging the war by causing an advance in the prices of articles that the Government had to buy. As the war went on the soundness of this view became apparent.

When the war was over and the divers reasons that had deterred many men from criticizing the financial policy of the government were removed, competent writers began to express similar views with freedom. For example, Mr. C. P. Williams put the increase of debt at one-third to two-fifths; S. T. Spear, at a billion dollars; L. H. Courtney, an English critic, at nearly $900,000,000. Of later discussions that of H. C. Adams has attracted the most attention. He estimated that of the gross receipts from debts created between January 1, 1862, and September 30, 1865, amounting to $2,565,000,000 the gold value was but $1,695,000,000--a difference of $870,000,000 between value received and obligations incurred.

A detailed consideration of the elements that enter the problem would seem to warrant a reduction of the estimates given to $791,000,000. It is hardly necessary to insist strenuously that this is but a very rough estimate.

THE GREENBACKS AND RECEIPTS

The total increase of receipts was approximately $174,000,000, as shown in the following table:

(In millions of dollars)

_1862_ _Fiscal Year_ _1866_ _(Six Months) 1863 1864 1865 (Two Months)_

Current receipts: From customs 33.5 69.1 102.3 84.9 31.3 From sales of public lands .1 .2 .6 1.0 .1 From direct tax 1.8 1.5 .5 1.2 .0 From miscellaneous sources .5 3.0 47.5 33.0 12.3 From internal revenue ... 37.6 109.7 209.5 64.4 ---- ----- ----- ----- ----- 35.9 111.4 260.6 329.6 108.1 Estimated actual increase 0 10 39 106 19

The caution is hardly necessary that the above results are to be accepted subject also to a wide margin of error.

There were other financial consequences of the shift from the specie to the paper standard, however, that were not unimportant, though they were indirect and difficult to gauge. Two of the most prominent must be indicated.

1. It is probable that not a little of the lavishness with which public funds were appropriated by Congress during the war can be traced to the paper-money policy.

2. If the paper currency tempted the Government to reckless expenditures, it also predisposed the people to submit more willingly to heavy taxation. It has been remarked several times that the advance of money wages and of money prices made most people feel wealthier, and, feeling wealthier, they were less inclined to grumble over the taxes.

While these indirect effects of the paper currency on expenditures and receipts could not by any system of bookkeeping be brought to definite quantitative statement, it is probable that their net result was unfavorable to the treasury.

CONTRACTION AND INFLATION OF THE LEGAL TENDERS[9]

The policy of a permanent currency of government legal-tender paper at the close of the Civil War was unknown. Upwards of four hundred million notes of the United States were, it is true, in circulation at the return of peace. There were doubtless many individuals who approved the continuance of exactly this form of currency. But no such proposition had been advanced by any public man of influence or by any political organization. That the resort to legal-tender powers was an evil justified only by extreme emergency, and that the circulation of government notes in any form was a purely temporary measure, were the unanimous convictions of the statesmen who contrived the system. The logical inference that these Government notes would be paid off and cancelled, as soon as the war deficiency had ended, was publicly accepted.

Such was the theory and purpose of the public men through whom the Legal-Tender Act was constructed and applied. Nor is the general position of our statesmen, at the close of the Civil War, any more obscure than their original position. The first financial resolution adopted by Congress, in December, 1865, was an explicit promise to retire the legal tenders. The first legislation of that Congress gave discretionary powers to the Secretary of the Treasury for continuous contraction. Very few legislative victories are won without at least a temporary popular endorsement, and the votes of December, 1865, and of March, 1866, were no exceptions. But the popular approval of contraction in that year, exception as it was to all our subsequent legislation, is readily enough explained. Public opinion, when the war ended, was governed by impatience with inflated prices; inflation far beyond the European level, and properly ascribed to the condition of the currency. The cost of living reached during 1865 the highest point recorded in this country's history. From 1860 to 1865, inclusive, the average of European prices rose only 4 to 6 per cent.; average prices in the United States advanced, in the same period, no less than 116 per cent. With flour at $16 a barrel, butter at 55 cents a pound, coal at $10 a ton, and wages and salaries advanced since 1860 hardly one-third as far as prices, the demand for currency reform obtained ready endorsement from the people.

This popular sentiment was further strengthened by the Administration's attitude at the opening of Lincoln's second term. Mr. McCulloch's first official Treasury report, dated December 4, 1865, took positive ground for the reduction of the legal-tender debt. He asked authority to issue bonds in his discretion, at 6 per cent. or less, "for the purpose of retiring not only the compound interest notes, but the United States notes."

Two weeks after the publication of this report, on December 18, 1865, the House of Representatives resolved, by a vote of 144 to 6,

that this house cordially concurs in the view 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 this country will permit; and we hereby pledge co-operative action to this end as speedily as practicable.

This resolution of 1865, however, marked the climax of the movement. Never thereafter did the policy of retiring the legal-tender notes even approach success. The truth is, that the inflated prices had begun already, during the three months after the resolution of December, to recede. This was inevitable, from the very nature of the previous expansion; and it was a welcome movement to consumers. But it necessarily caused some derangement in the plans of trade, and politicians began to ask, when they had to face the fulfilment of their pledge through a formal act of Congress, how the contraction policy would be greeted by producers. The bill, as originally introduced, granted full powers to the Secretary of the Treasury to issue new bonds for the retirement both of interest-bearing and of noninterest-bearing debt. In the spring of 1866 this measure was defeated in the House of Representatives by a vote of 70 to 64. Reconsidered and amended so as to restrict contraction of the legal tenders to $10,000,000 in the first six months and to $4,000,000 per month thereafter, the compromise measure did indeed pass the House by 83 to 53, and the Senate by 32 to 7. But a victory thus won was ominous. Mr. McCulloch himself declared the amended act to be awkward and ineffective. Still more significant was the character of opposition developed in the course of the debate. It had a dozen varying grounds of argument, most of them pretty certain to appeal to popular prejudice later on. Some Congressmen objected to the discretionary powers as revolutionary, and, while conceding Mr. McCulloch's ability and conservatism, pointed out that a very different Treasury Secretary might succeed him. Others pronounced the notion of immediate resumption of specie payments to be "Utopian in the extreme." Much was heard of the comfortable theory that if Congress would "allow things to go on without active interference," the "natural development of events" would automatically bring about resumption. More than one legislator could not understand, "when we have $450,000,000 [debt] bearing no interest, and which need bear no interest, why it is to be taken up and put into bonds." The excellence of a circulating medium "that rests on the property of the whole country, and has for its security the faith and patriotism of the greatest and freest country on the face of the globe," played its usual part in the discussion; so did the argument that "the amount of legal tenders now outstanding is not too much for the present condition of the country." In short, all the arguments which have been made familiar by the twenty subsequent years of controversy, cut a figure in this opening discussion.

As a matter of fact, even the restricted powers of note retirement granted under the law of March, 1866, were revoked within two years. Little or no progress had meantime been made towards resumption of specie payments. The Secretary himself had officially pointed out that two commercial influences must be removed before resumption would be possible; the excessively high prices in the United States and the heavy balance of foreign trade against us. But prices continued above the European level, and, as a consequence, export of merchandise was checked and imports greatly stimulated. The entire gold product of each year in the United States was sent abroad.

Contraction of the inflated currency, even if pursued under the limitations of the Act of 1866, would in time have brought about conditions under which resumption might have been planned. But events outside of the United States now moved in such a way as to turn the entire financial community against the Secretary's policy. Hardly two months after the vote of March came a wholly unexpected crisis in the foreign money markets. The London collapse, precipitated by the Overend-Gurney failure of May, 1866, was in some respects as complete as any in the history of England. It affected every nation with which Great Britain had commercial dealings; not least of all the United States, of whose securities it was estimated that European investors even then held $600,000,000. During three months the Bank of England kept its minimum discount rate at the panic figure of 10 per cent.; the consequent sudden recall of foreign capital put a heavy strain on the American markets.

With the familiar disposition of the trade community to lay the blame for disordered markets on some move of public policy, the Treasury's operations to reduce outstanding notes were made the scapegoat. Politicians with an eye to popularity were quick to catch this drift of public sentiment. Some of them honestly believed that McCulloch's action in the currency was the cause of the trade distress; others, better informed but equally politic, avoided personal declaration of opinion, but characteristically announced that whether the theory was correct or not, the public believed it, and that in deference to the public, currency contraction ought to cease. The usual result ensued. Under the previous question, and without debate, a measure revoking absolutely the Secretary's power of contraction passed the House of Representatives in December, 1867, by a vote of 127 to 32. In the Senate there was an able show of opposition, but it was plainly put on the defensive, and on January 22, 1868, the resolution passed both chambers in its original and final shape.

This was the end of the McCulloch plan. It was the end of all serious debate upon resumption, for at least six years. It was also, and very logically, the beginning of the fiat-money party. The Republicans were forced into open defence of sound financial principles by the very recklessness of their opponents. Helped by the great personal prestige of its candidate, General Grant, the Republican party won a sweeping victory. President Johnson, who was then at open odds with his party, had produced in his Annual Message of December 7, 1868, the extraordinary suggestion that "the 6 per cent. interest now paid by the Government" on its debt "should be applied to the reduction of the principal in semi-annual instalments"; in other words, that the plan of repudiating interest obligations--since adopted, with no agreeable results, by Turkey and Greece--should be formally approved by the United States. This remarkable utterance was first condemned by an overwhelming vote in both House and Senate; next, by an almost equally decisive vote, on March 3, 1869, Congress adopted the Public Credit Act, promising coin redemption of both notes and bonds, solemnly pledging its faith "to make provision, at the earliest practicable period, for the redemption of the United States notes in coin."

The promise was as easily made as the similar pledge of December, 1865; was still more easily broken. No such arrangement was made, nor any serious attempt in that direction, until the matter was forced on the party by the exigency of politics. Not only was no effort made to reduce outstanding legal tenders, but the supply in circulation was heavily increased; rising from $314,704,000 in the middle of 1869 to $346,168,000 in 1872, and two years later, as a result of the Treasury's weak experiments in the panic, to $371,421,000.

This period was congenial to such juggling with public credit and legislative pledges. Socially, financially, and politically, it stands out quite apart from any other decade of the century. Moral sense for a time seemed to have deteriorated in the whole community; it was a sorry audience, at Washington or elsewhere, to which to address appeals for economy, retrenchment, and rigid preservation of the public faith. The Government's financial recklessness was readily imitated by the community at large; debt was the order of the day in the affairs of both. As the period approached its culmination, foreign trade reflected the nature of the situation. Merchandise imports in the fiscal year 1871 rose $84,000,000 over 1870; in 1872 they increased $106,000,000 over 1871. This movement was the familiar warning of an approaching crash; but the warning fell on deaf ears, as it usually does. In 1873 the house of cards collapsed.

The panic of 1873 left the country's financial and commercial structure almost a ruin. It had, however, several ulterior results so valuable that it is not wholly unreasonable to describe the wreck of credit as a blessing in disguise. American prices, long out of joint with the markets of the world, and thoroughly artificial in themselves, were certain to be eventually brought down. This very liquidating process served a useful double purpose; it disclosed the nation's true resources, and it placed the United States on equal footing with the commercial world at large. With the bursting of the bubble of inflated debt and inflated prices, the excessive importations ceased. Simultaneously the export trade, which had halted during 1872, in spite of the continued agricultural expansion, rose to proportions never before approached in our commercial history. In 1874, the balance of foreign trade turned permanently in our favor. By 1876, even the continuous outflow of gold was checked. In short, the two conditions fixed by Hugh McCulloch, ten years before, as indispensable to resumption of specie payments, had now been realized.

Congress was not by any means disposed, however, to seize the opportunity. The first result of the money market crisis in 1873, as in all similar years, was urgent public clamor for more currency. The Supreme Court had decided finally, in 1871, for the constitutionality of the legal tenders; the Secretary of the Treasury, in 1873, had so far yielded to the prevalent excitement as to reissue legal-tender notes already formally retired. The first response of Congress, therefore, was an inflation measure. By a vote of 140 to 102 in the House of Representatives, and of 29 to 24 in the Senate, a law was passed for the permanent increase of the legal-tender currency, by $18,000,000. The Republican party controlled Congress by unusually large majorities; but 60 per cent. of the party's vote in each chamber was cast in favor of the bill. Only the interposition of Grant's Presidential veto prevented this first positive backward step in the direction of fiat money.

It is reasonable to suppose that this curious vote of the Administration party, which occurred in April, 1874, measured the party's political desperation. They were about to receive, in the Congressional elections, the usual chastisement experienced by a dominant party when the people vote in a period of hard times; the inflation act was an anchor thrown desperately to windward. The experiment was in all respects a failure. Even the party's own State conventions failed to say a good word for the inflation bill, and it gained no mitigation of sentence in the November vote.

PASSAGE OF THE RESUMPTION ACT[10]

The Forty-third Congress had three months of existence left to it after the vote of November, 1874. Already defeated overwhelmingly at the polls, it had nothing to risk by a move in sound-money legislation, and possibly much to gain. It used this three-months' period to enact a law of the first importance, not only to the nation, but to the Republican party's future history--a law which must fairly be described, however, under the circumstances of the time, as an expression of death-bed repentance. This was the Specie-Resumption Act, drawn up by a party committee, and submitted to Congress, in December, 1874, by Senator John Sherman. It fixed the date for resumption of specie payments at January 1, 1879, provided for the reduction of legal-tender notes from $382,000,000 to $300,000,000, but made no provision for any further retirement of the notes. It went through Congress on January 7, 1875. It was contended by some that under the Resumption Act of 1875 there could be no reissue of the greenbacks once received into the Treasury. Inflationist successes of 1877-1878 settled this uncertainty, as Congress, May 31, 1878, ordered that there be no further destruction of greenbacks. The amount then outstanding was $346,681,000--the volume of legal tenders still current.

THE STRUGGLE FOR RESUMPTION[11]

The Resumption Act is one of the most curious laws in financial history. It was plain in its requirement that on and after January 1, 1879, the Treasury should "redeem in coin the United States legal-tender notes then outstanding, on their presentation for redemption"; but it left the Treasury to make whatever arrangements it might choose. The law, it is true, conferred ample powers. In order "to prepare and provide for the redemption in this Act authorized or required," it empowered the Secretary of the Treasury "to use any surplus revenues, from time to time, in the Treasury not otherwise appropriated, and to issue, sell, and dispose of bonds of the United States at not less than par in coin." This power was perpetual.

The Law of 1875 involved the double problem of providing for resumption at the stipulated date, and of maintaining it afterward. It is the first of these undertakings, which we shall now sketch. There were, as we have already seen, two influences at work in 1875, which made possible the achievement as it would not have been in 1866. These influences--the shifting of the foreign trade balance in favor of the United States and the subsequent check to gold exports--were factors on which no finance minister could have reckoned. Both in fact developed after the passage of the Resumption Law. But even after allowing for these accidental commercial advantages, the credit for the return to specie payments on January 1, 1879, belongs individually and without dispute to John Sherman.

As one of the authors of the Resumption Act, Mr. Sherman was responsible both for its virtues and its vices. His appointment to the Treasury, therefore, in the Administration under which resumption must by law be carried out, was entirely logical. Yet the practical efficiency of Mr. Sherman, in an administrative office, could not then have been foretold. The Secretary's previous career, though useful and industrious, had been marred by weaknesses which did not promise well. As a legislator, he belonged to the school of compromisers who have indirectly been responsible, in a score of critical emergencies, for the gravest mischief in our history.

But Mr. Sherman was not the first of public men to show that the faults or weakness of a legislator, whose purpose is to obtain enactment of a policy, will sometimes disappear in the administrator, who presses settled policies into execution. As Secretary he was unwavering in pursuit of the resumption goal; practical, resolute, and adroit in the means employed. It was in the face of the repudiation clamor that he declared officially for payment of the Government bonds in gold. Equally distinct was the Secretary's public declaration that the Act of 1875 conferred the power to issue bonds after, as well as before, resumption; another precedent which did invaluable service sixteen years afterward.

To say that Secretary Sherman's management of the Treasury achieved during his time precisely the results proposed, and achieved them promptly, is to concede his administration's practical success. Nor were these results attained through extravagance or waste. In his refunding and resumption operations, Mr. Sherman placed the bonds of the United States on better terms than any of his predecessors.

ARRANGEMENTS FOR RESUMPTION[12]

The Secretary of the Treasury now put the final touches on his arrangements for resumption. Partly by accident and partly through stress of circumstances, the Treasury gold reserve was defined, in later years, at a fixed and arbitrary minimum. The theory adopted by Mr. Sherman, however, in his early operations, was different and undoubtedly better. Following probably the practice of the Bank of England, he fixed his reserve at 40 per cent. of outstanding notes--"the smallest reserve," he wrote to Congress, "upon which resumption could be prudently commenced and successfully maintained." On this basis he held in the Treasury, on December 31, 1878, $114,193,000 gold in excess of outstanding gold certificates, which was a trifle over 40 per cent. of the Government notes then circulating outside the Treasury. Of this gold reserve, $95,500,000 had been obtained through sale of bonds, part of the coin being procured in Europe.

There remained now to be settled only the formal machinery of exchange between the Treasury and outside institutions. If the Treasury had left the banks to pursue unchanged their policy of keeping special gold deposits, the Government reserve would have been at once imperilled. If the banks had continued to present their individual drafts for redemption across the counter of the Sub-Treasury, any timid or blundering banker might have started a general drain of gold. Against these possibilities Mr. Sherman now took measures. He secured the admission of the New York Sub-Treasury as a member of the clearing-house. At New York and Boston the clearing-houses modified their rules, agreed to abolish "gold deposits" after January 1st, and to accept the legal tenders freely in discharge of balances against one another and against the Government. At the same time, the requirement of coin payment of customs duties was revoked, and public officers were directed to receive coin or legal tenders at the payer's option--a move of obvious propriety, since refusal to take notes in payment would merely send the importer to the Treasury's redemption office to convert them into coin. All these preliminaries had been formally and positively settled before the close of 1878. On December 17th, the premium on gold disappeared, for the first time since 1861; on January 1st, specie payments were quietly resumed.

SHOULD THE GREENBACKS BE RETIRED?

[13]Let us now consider for a moment an issue which twenty years ago was urgently pertinent, was in fact the very crux of so-called "currency reform," and which still persists as a live issue in the minds of some of the veteran "reformers" of those days, although the conditions which then gave it point have long since disappeared.

In the middle nineties, when it was estimated that the total gold stock of the entire country was only about 600 million dollars and less than 200 millions of this was in the vaults of the treasury, the Government's fiduciary currency, consisting of 346 millions of greenbacks and 400 millions or more of overvalued silver, presented beyond question a serious menace to the country's monetary standard. It meant that the treasury had outstanding currency obligations payable in gold to the extent of three or four times its own gold holdings, and amounting to far more than all of the gold in the country, including the holdings of the treasury, the banks, and the general public. At that time fluctuations in the trade balance of a single year sometimes almost equalled the treasury's gold holdings in amount, and it was quite conceivable, in fact not improbable, that a sudden unfavorable change in that balance might drain the treasury of all of its gold, and leave the country with a currency standard of depreciated silver or paper. This was the situation which continually menaced Mr. Cleveland's second administration, causing great financial anxiety and forcing the treasury during those years of peace and normal expenditures to borrow 262 million dollars in gold in order to replenish its continually dwindling reserve. Such a situation inevitably led the advocates of monetary legislation in the nineties to place first and foremost among their proposals the necessity of getting rid of the precarious greenback, and most of the plans proposed by bankers' associations, chambers of commerce, and financial experts generally at that time emphasized the urgency of this measure.

WHY RETIREMENT IS NOT IMPORTANT

It sometimes happens that, with the lapse of time and with changed conditions, infirmities, long left untreated, cure themselves, and so it has been with the one-time bothersome greenback. Twenty years ago, when the outstanding greenbacks amounted to twice the gold holdings of the treasury and to much more than half of the country's entire gold stock, there was abundant reason for anxiety on account of their continued circulation. The situation is utterly different to-day. Gold has accumulated in the treasury beyond the wildest "dreams of avarice" of the nineties. From less than 200 millions in the middle nineties the treasury's gold holdings have grown to approximately 1,250 millions to-day, and the estimated gold stock of the country has increased from 600 to more than 1,800 millions, despite the fact that the Director of the Mint in 1907 reduced the estimate for gold in circulation by 135 millions as compared with the basis of previous years.

The greenback has thus become each year a relatively less important element in our currency system, an element of ever less and less potency for harm. Doubtless the absolute amount of outstanding greenbacks has diminished considerably through loss and destruction during fifty years, and is to-day far less than the $346,000,000 issued during the Civil War, which are still carried as an obligation on the Government books....

The greenbacks are less menacing to-day for the further reason that they are being rapidly transformed into small denominations which are absorbed in the general circulation, and which could only with great difficulty be collected in sufficiently large amounts to cause a serious drain upon the treasury through presentation for redemption.... So great and continuous is the demand for notes of small denominations that one may safely predict that in another decade practically all of the greenbacks still in existence will be in small denominations in the pockets of the people.

The "endless chain" with its ineffectual bond issues, the imminence of specie suspension, and the fear of treasury bankruptcy will never again result from the outstanding greenbacks. Their dangers, lurid and nerve-racking though they were twenty years ago, are now only memories.

THE CONFEDERATE CURRENCY[14]

The financial system adopted by the Confederate Government was singularly simple and free from technicalities. It consisted chiefly in the issue of treasury notes enough to meet all the expenses of the Government, and in the present advanced state of the art of printing there was but one difficulty incident to this process; namely, the impossibility of having the notes signed in the Treasury Department, as fast as they were needed. There happened, however, to be several thousand young ladies in Richmond willing to accept light and remunerative employment at their homes, and as it was really a matter of small moment whose name the notes bore, they were given out in sheets to these young ladies, who signed and returned them for a consideration. I shall not undertake to guess how many Confederate treasury notes were issued. Indeed, I am credibly informed by a gentleman who was high in office in the Treasury Department, that even the Secretary himself did not certainly know. It was clearly out of the power of the Government ever to redeem the notes, and whatever may have been the state of affairs within the treasury, nobody outside its precincts ever cared to muddle his head in an attempt to get at exact figures.

We knew only that money was astonishingly abundant. Provisions fell short sometimes, and the supply of clothing was not always as large as we should have liked, but nobody found it difficult to get money enough. It was to be had almost for the asking. And to some extent the abundance of the currency really seemed to atone for its extreme badness. Money was so easily got, and its value was so utterly uncertain, that we were never able to determine what was a fair price for anything. We fell into the habit of paying whatever was asked, knowing that to-morrow we should have to pay more.

Speculation became the easiest and surest thing imaginable. The speculator saw no risks of loss. Every article of merchandise rose in value every day, and to buy anything this week and sell it next was to make an enormous profit quite as a matter of course. So uncertain were prices, or rather so constantly did they tend upward, that when a cargo of cadet gray cloths was brought into Charleston once, an officer in my battery, attending the sale, was able to secure enough of the cloth to make two suits of clothes, without any expense whatever, merely by speculating upon an immediate advance. Naturally enough, speculation soon fell into very bad repute, and the epithet "speculator" came to be considered the most opprobrious in the whole vocabulary of invective. The feeling was universal that the speculators were fattening upon the necessities of the country and the sufferings of the people. Nearly all mercantile business was regarded at least with suspicion, and much of it fell into the hands of people with no reputations to lose, a fact which certainly did not tend to relieve the community in the matter of high prices.

The prices which obtained were almost fabulous, and singularly enough there seemed to be no sort of ratio existing between the values of different articles. I bought coffee at forty dollars and tea at thirty dollars a pound on the same day. My dinner at a hotel cost me twenty dollars, while five dollars gained me a seat in the dress circle of the theatre. I paid one dollar the next morning for a copy of the _Examiner_, but I might have got the _Whig_, _Dispatch_, _Enquirer_, or _Sentinel_, for half that sum. For some wretched tallow candles I paid ten dollars a pound. The utter absence of proportion between these several prices is apparent, and I know of no way of explaining it except upon the theory that the unstable character of the money had superinduced a reckless disregard of all value on the part of both buyers and sellers. A facetious friend used to say prices were so high that nobody could see them, and that they "got mixed for want of supervision." He held, however, that the difference between the old and the new order of things was a trifling one. "Before the war," he said, "I went to market with the money in my pocket, and brought back my purchases in a basket; now I take the money in the basket, and bring the things home in my pocket."

As I was returning to my home after the surrender at Appomattox Court House, a party of us stopped at the residence of a planter for supper, and as the country was full of marauders and horse thieves, deserters from both armies, bent upon indiscriminate plunder, our host set a little black boy to watch our horses while we ate, with instructions to give the alarm if anybody should approach. After supper we dealt liberally with little Sam. Silver and gold we had none, of course, but Confederate money was ours in great abundance, and we bestowed the crisp notes upon the guardian of our horses, to the extent of several hundreds of dollars. A richer person than that little negro I have never seen. Money, even at par, never carried more of happiness with it than did those promises of a dead government to pay. We frankly told Sam that he could buy nothing with the notes, but the information brought no sadness to his simple heart.

"I don' want to buy nothin', master," he replied. "I's gwine to keep dis always."

I fancy his regard for the worthless paper, merely because it was called money, was closely akin to the feeling which had made it circulate among better-informed people than he. Everybody knew, long before the surrender, that these notes never could be redeemed. There was little reason to hope, during the last two years of the war, that the "ratification of a treaty of peace between the Confederate States and the United States," on which the payment was conditioned, would ever come. We knew the paper was worthless, and yet it continued to circulate. It professed to be money, and on the strength of that profession people continued to take it in payment for goods. The amount of it for which the owner of any article would part with his possession was always uncertain. Prices were regulated largely by accident, and were therefore wholly incongruous.

In the winter of 1863-64 Congress became aware of the fact that prices were higher than they should be under a sound currency. If Congress suspected this at any earlier date, there is nothing in the proceedings of that body to indicate it. Now, however, the newspapers were calling attention to an uncommonly ugly phase of the matter, and reminding Congress that what the Government bought with a currency depreciated to less than one per cent. of its face, the Government must some day pay for in gold at par. The lawgivers took the alarm and sat themselves down to devise a remedy for the evil condition of affairs. With that infantile simplicity which characterized nearly all the doings and quite all the financial legislation of the Richmond Congress, it was decided that the very best way to enhance the value of the currency was to depreciate it still further by a declaratory statute, and then to issue a good deal more of it. The act set a day, after which the currency already in circulation should be worth only two-thirds of its face, at which rate it was made convertible into notes of the new issue, which some, at least, of the members of Congress were innocent enough to believe would be worth very nearly their par value. This measure was intended, of course, to compel the funding of the currency, and it had that effect to some extent, without doubt. Much of the old currency remained in circulation, however, even after the new notes were issued. For a time people calculated the discount, in passing and receiving the old paper, but as the new notes showed an undiminished tendency to still further depreciation, there were people, not a few, who spared themselves the trouble of making the distinction.

I am sometimes asked at what time prices attained their highest point in the Confederacy, and I find that memory fails to answer the question satisfactorily. They were about as high as they could be in the fall of 1863, and I should be disposed to fix upon that as the time when the climax was reached, but for my consciousness that the law of constant depreciation was a fixed one throughout the war. The financial condition got steadily worse to the end.

The Government's course in levying a tax in kind, as the only possible way of making the taxation amount to anything, led speedily to the adoption of a similar plan, as far as possible, by the people. A physician would order from his planter friend ten or twenty visits' worth of corn, and the transaction was a perfectly intelligible one to both. The visits would be counted at ante-war rates, and the corn estimated by the same standard. In the early spring of 1865 I wanted a horse, and a friend having one to spare, I sent for the animal, offering to pay whatever the owner should ask for it. He could not fix a price, having literally no standard of value to which he could appeal, but he sent me the horse, writing, in reply to my note:

"Take the horse, and when the war shall be over, if we are both alive and you are able, give me as good a one in return. Don't send any note or due-bill. It might complicate matters if either should die."

A few months later I paid my debt by returning the very horse I had bought. I give this incident merely to show how utterly without financial compass or rudder we were.

How did people manage to live during such a time? I am often asked; and as I look back at the history of those years, I can hardly persuade myself that the problem was solved at all. A large part of the people, however, was in the army, and drew rations from the Government. The country people raised upon their plantations all the necessaries of life, and were generally allowed to keep enough of them to live on, the remainder being taken by the subsistence officers for army use.

In the cities, living was not by any means so easy as in the country. Business was paralyzed, and abundant as money was, it seems almost incredible that city people got enough of it to live on. Very many of them were employed, however, in various capacities, in the arsenals, departments, bureaus, etc., and these were allowed to buy rations at fixed rates, after the post-office clerks in Richmond had brought matters to a crisis by resigning their clerkships to go into the army, because they could not support life on their salaries of nine thousand dollars a year. For the rest, if people had anything to sell, they got enormous prices for it, and could live a while on the proceeds. Above all, a kindly, helpful spirit was developed by the common suffering, and this, without doubt, kept many thousands of people from starvation. Nobody formed any plans or laid by any money for to-morrow or next week or next year, and indeed to most of us there really seemed to be no future. We were not used to think of ourselves as possible survivors of a struggle which was every day perceptibly thinning our ranks. The coming of ultimate failure we saw clearly enough, but the future beyond was a blank.

The reader may find it difficult to believe that with gold at a hundred and twenty-five for one, or 12,400 per cent. premium; when every day made the hopelessness of the struggle more apparent; when our last man was in the field; when the resources of the country were visibly at an end, there were financial theorists who honestly believed that by a mere trick of legislation the currency could be brought back to par. I heard some of these people explain their plan during a two days' stay in Richmond. Gold, they said, is an inconvenient currency always, and nobody wants it, except as a basis. The Government has some gold--several millions in fact--and if Congress will only be bold enough to declare the treasury notes redeemable at par in coin, we shall have no further difficulty with our finances. So long as notes are redeemable in gold at the option of the holder, nobody wants them redeemed.... The gold which the Government holds will suffice to satisfy a few timid ones, and there will be an end of high prices and depreciated currency. I am not jesting. This is, as nearly as I can repeat it, the utterance of a member of the Confederate Congress.

The matter of prices was frequently made a subject for jesting in private, but for the most part it was carefully avoided in the newspapers. As with the accounts of battles in which our arms were not successful, necessary references to the condition of the finances were crowded into a corner, as far out of sight as possible. The _Examiner_, however, on one occasion denounced with some fierceness the charges prevailing in the schools; and I quote a passage from Prof. Sidney H. Owens's reply, which is interesting as a summary of the condition of things in the South at that time:

"The charges made for tuition are about five or six times as high as in 1860. Now, sir, your shoemaker, carpenter, butcher, market man, etc., demand from twenty, to thirty, to forty times as much as in 1860. Will you show me a civilian who is charging only six times the prices charged in 1860, except the teacher only? As to the amassing of fortunes by teachers, spoken of in your article, make your calculations, sir, and you will find that to be almost an absurdity, since they pay from twenty to forty prices for everything used, and are denounced exorbitant and unreasonable in demanding five or six prices for their own labor and skill!"

There were compensations, however. When gold was at 12,000 per cent. premium with us, we had the consolation of knowing that it was in the neighborhood of one hundred above par in New York, and a Richmond paper of September 22, 1864, now before me, fairly chuckles over the high prices prevailing at the North, in a two-line paragraph which says, "Tar is selling in New York at two dollars a pound. It used to cost eighty cents a barrel." That paragraph doubtless made many a five-dollar beefsteak palatable.

FOOTNOTES:

[8] Adapted from Wesley Clair Mitchell, _A History of the Greenbacks_,