Chapter 46

PASSAGE OF THE LEGAL TENDER ACT IN 1862. My Interview with Lincoln About Ohio Appointments--Governmental Expenses Now Aggregating Nearly $2,000,000 Daily--Secretary Chase's Annual Report to Congress in December, 1861--Treasury Notes a Legal Tender in Payment of Public and Private Debts--Beneficial Results from the Passage of the Bill--The War Not a Question of Men, but of Money--Proposed Organization of National Banks--Bank Bills Not Taxed--Local Banks and Their Absorption by the Government--The 1862 Issue of $150,000,000 in "Greenbacks"--Legal Tender Act a Turning Point in Our Financial History--Compensation of Officers of the Government.

About this time I had an interview with Mr. Lincoln which may be of interest. In making the local appointments in Ohio he was naturally governed largely by his strong affinities for old Whig associates in Congress, of one of whom, General Schenck, he was especially fond. I thought some of his appointments in Ohio were not judicious, and concluded I would go to him and make a general complaint of the distribution of these offices. I felt that he failed to consider the fact that the Republican party contained many men who had not belonged to the Whig party. I requested an interview with him which was promptly granted, and called at his office one evening. He was seated in an easy chair and seemed to be in excellent humor. I proceeded to complain of some of his appointments in Ohio and as I progressed the expression of his face gradually changed to one of extreme sadness. He did not say a word, but sank in his chair, placing his feet upon the table, and looking, as I thought, the picture of despair. I proceeded with my complaint until I began mentally to reproach myself for bothering the President of the United States with so unimportant a matter as the choice of persons to fill local offices in Ohio, when the country was in the throes of revolution. Finally I told him I felt ashamed to disturb him with such matters and would not bother him again with them. His face brightened, he sat up in his chair and his whole manner changed, until finally he almost embraced me. He then told me many interesting stories of his short service in Congress and of the men with whom he was brought in contact. The close of the interview was very pleasant and I kept my promise to him about his appointments.

When Congress convened on the 2nd of December, 1861, the financial condition of the government was more alarming than at any other period during the war.

The Secretary of the Treasury had ample and complete authority, given him by the act of July, 1861, to borrow money on the credit of the government, but he could not deal with the system of state banks then existing in the several states. He was forbidden, by the sub-treasury act of 1846, to receive notes of state banks and was required to receive into and pay from the treasury only the coin of the United States; but by the act of August 5, 1861, he was permitted to deposit to the credit of the Treasurer of the United States, in such solvent specie-paying banks, as he might select, any of the moneys obtained from loans, the moneys thus deposited to be withdrawn only for transfer to the regularly authorized depositaries, or for the payment of public dues, including certain notes payable on demand, as he might deem expedient. He had, however, no authority to receive from individuals or banks any money but coin.

The coin received from the Boston, New York, and Philadelphia banks, in payment of their subscriptions to the government loans, to the amount of nearly $150,000,000, had to be sent to every point in the United States to meet public obligations, and, when thus scattered, was not readily returned to the banks, thus exhausting their resources and their ability to loan again.

The demand notes, authorized by the act of July 17, 1861, were also paid out by the treasury; but from time to time were presented for redemption in coin or in payment of customs duties to the exclusion of coin, and thus both the banks and the government were greatly crippled, the banks suspending specie payments on the 30th day of December, 1861.

At this time an army of 500,000 Union soldiers was in the field, and a powerful navy, with vast stores of artillery and ammunition, had been created. In providing for their sustenance, comfort and equipment the government had been obliged to incur expenses far exceeding in magnitude any which had been hitherto known in its history, aggregating nearly $2,000,000 per day.

It was apparent that a radical change in existing laws relating to our currency must be made, or the government would practically be unable to make the current disbursements on account of the war, and the destruction of the Union would be unavoidable, notwithstanding the immense resources of the country which had then hardly been touched.

The annual report of Secretary Chase reached Congress on the 10th of December, having been delayed by the press of business. So much of it as related to the currency was the basis of the long debates that followed. The circulation of the banks of the United States on the 1st of January, 1861, was reported at $202,000,767. Of this $152,000,000, in round numbers, was in the loyal states, including West Virginia, and $50,000,000 in the rebel states, the whole constituting a loan without interest from the people to the banks, costing the latter only the expense of issue and redemption and the interest on the specie kept in hand for the latter purpose. The secretary called especial attention to the organization and nature of these banks, and questioned whether a currency of banks issued by local institutions under state laws was not in fact prohibited by the national constitution. He said:

"Such emissions certainly fall within the spirit, if not within the letter, of the constitutional prohibition of the emission of 'bills of credit' by the states, and of the making by them of anything except gold and silver coin a legal tender in payment of debts. However this may be, it is too clear to be reasonably disputed that Congress, under its constitutional powers to lay taxes, to regulate commerce, and to regulate the value of coin, possesses ample authority to control the credit circulation which enters so largely into the transaction of commerce, and affects in so many ways the value of coin. In the judgment of the secretary, the time has arrived when Congress should exercise this authority."

He described with great force the weakness of the state banking system, and the repeated losses by the people of the United States on account of the failure of such banks. He recommended two plans by either of which he held that these banks might be absorbed, and a national currency be substituted in the place of their issues. One plan proposed the gradual withdrawal from circulation of the notes of private corporations, and the issue in their stead of United States notes, payable in coin on demand, in amounts sufficient for the useful ends of a representative currency. The other proposed a system of national banks authorized to issue notes for circulation under national direction, to be secured as to prompt convertibility into coin by the pledge of United States bonds and other needful regulations. He discussed these two plans at length, but concluded by recommending a system of national banks, the advantages of which would be uniformity in currency, uniformity in security, an effectual safeguard against depreciation, and protection from losses from discounts and exchanges. He expressed the opinion that such notes would give to the government the further advantage of a large demand for government securities, of increased facilities for obtaining the loans required for the war, a reduction of interest, and a participation by the government in the profit of circulation without risking the perils of a great money monopoly. It will be noticed that the secretary nowhere suggested the suspension of coin payments, or making the notes a legal tender in payment of public and private debts, or the redemption in coin of the bank notes to be issued.

These recommendations were referred to the committee of ways and means of the House, and by it to a sub-committee, of which Elbridge G. Spaulding, of New York, was chairman. Undoubtedly we owe to him, more than to any other individual Member, the important and radical changes made in our currency system by the act reported by him to the House and amended in the Senate. Mr. Spaulding perceived the objection to the recommendations of Secretary Chase that they did not provide for any payments but in coin, or call for a suitable provision that the notes when issued should be a legal tender for public and private debts, or for their reissue in case of payment, nor did they provide for the absorption of the demand notes outstanding, which were, on their face, payable on demand, an obligation that could not be ignored without severely impairing the public credit. It was also apparent that the system of national banks proposed by the secretary could not be organized and put in effective force for a year or more, and that in the meantime the state banks would be in a condition of suspension, without coin or the possibility of obtaining it, and, with no effective money which the people were bound to receive, or which the government could receive, it would have been difficult to carry on the operations of the war.

The first bill introduced by Mr. Spaulding, on the 30th of December, met some of these difficulties. It provided for the issue of $50,000,000 treasury notes, payable on demand, the notes to be receivable for all debts and demands due to or by the United States, to be a legal tender in payment of all debts, public or private, within the United States, and exchangeable at their face value, the same as coin, at the treasury of the United States, and the offices of the assistant treasurers in New York, Boston, Philadelphia, St. Louis and Cincinnati, for any of the coupon or registered bonds which the secretary was authorized to issue. It also contained this provision: "Such treasury notes may be reissued from time to time as the exigencies of the public service may require," the first authority ever given for the reissue of treasury notes after redemption.

On the 7th of January, 1862, Mr. Spaulding reported the bill to the House with some important changes, and it soon became the subject of a long and interesting debate. On the 22nd of January, Secretary Chase returned Mr. Spaulding's bill to him and suggested some modifications, referring to the legal tender clause as follows, being his first reference to that clause:

"Regretting exceedingly that it is found necessary to resort to the measure of making fundable notes of the United States a legal tender, but heartily desiring to co-operate with the committee in all measures to meet existing necessities in the most useful and least hurtful to the general interest, I remain," etc.

In a letter to the committee of ways and means, on the 29th of January, the secretary said:

"The condition of the treasury certainly needs immediate action on the subject of affording provision for the expenditures of the government, both expedient and necessary. The general provisions of the bill submitted to me seem to me well adapted to the end proposed. There are, however, some points which may, perhaps, be usefully amended.

"The provision making United States notes a legal tender has doubtless been well considered by the committee, and their conclusion needs no support from any observation of mine. I think it my duty, however, to say, that in respect to this provision my reflections have conducted me to the same conclusion they have reached. It is not unknown to them that I have felt, nor do I wish to conceal that I now feel, a great aversion to making anything but coin a legal tender in payment of debts. I has been my anxious wish to avoid the necessity of such legislation. It is, however, at present impossible, in consequence of the large expenditures entailed by the war, and the suspension of the banks, to procure sufficient coin for disbursements; and it has, therefore, become indispensably necessary that we should resort to the issue of United States notes. . . . Such discrimination should, if possible, be prevented; and the provision making the notes legal tender, in a great measure at least, prevents it, by putting all citizens, in this respect, on the same level, both of rights and duties."

On the 3rd of February the secretary wrote to Mr. Spaulding as follows:

"Mr. Seward said to me on yesterday that you observed to him that my hesitation in coming up to the legal tender proposition embarrassed you, and I am very sorry to observe it, for my anxious wish is to support you in all respects.

"It is true that I came with reluctance to the conclusion that the legal tender clause is a necessity, but I came to it decidedly, and I support it earnestly. I do not hesitate when I have made up my mind, however much regret I may feel over the necessity of the conclusion to which I come."

On the 5th of February the secretary became more urgent, and wrote to Mr. Spaulding the following brief note:

"My Dear Sir:--I make the above extract from a letter received from the collector of New York this morning. It is very important the bill should go through to-day, and through the Senate this week. The public exigencies do not admit of delay.

"Yours truly, "S. P. Chase. "Hon. E. G. Spaulding."

It will thus be perceived that, whatever may have been the constitutional scruples of Secretary Chase in respect to the legal tender clause, he yielded to it under the pressure of necessity, and expressed no dissent from it until, as chief justice, his opinion was delivered in the case of Hepburn vs. Griswold, in the Supreme Court of the United States.

The bill, much modified from the original, passed the House of Representatives by the decided vote of yeas 93, nays 59. As it passed the House it contained authority to issue, on the credit of the United States, United States notes to the amount of $150,000,000, not bearing interest, payable to bearer at the treasury of the United States, at Washington or New York. It provided that $50,000,000 of said notes should be in lieu of the demand treasury notes authorized by the act of July 17, 1861, and that said demand notes should be taken up as rapidly as practicable. It provided that the treasury notes should be receivable in payment of all taxes, duties, imports, excise, debts and demands of all kinds due to the United States, and all debts and demands owing by the United States to individuals, corporations and associations within the United States, and should be lawful money and a legal tender, in payment of all debts, public and private, within the United States.

This bill came to the Senate on the 7th of February. It was followed on the same day by a letter from Secretary Chase to Mr. Fessenden, as follows:

"Sir:--The condition of the treasury requires immediate legislative provision. What you said this morning leads me to think that the bill which passed the House yesterday will hardly be acted upon by the Senate this week. Until that bill shall receive the final action of Congress, it seems advisable to extend the provisions of the former acts, so as to allow the issue of at least $10,000,000 in United States notes, in addition to the $50,000,000 heretofore authorized. I transmit a bill framed with that object, which will, I trust, meet your approval and that of Congress. Immediate action on it is exceedingly desirable."

The request for authority to issue $10,000,000 additional demand notes was immediately granted, and the bill was passed without opposition.

The currency bill was considered in the committee on finance of the Senate, and four important and radical amendments were reported by that committee. These amendments were as follows:

First--That the legal tender notes should be receivable for all claims and demands against the United States, of every kind whatsoever, "_except for interest on bonds and notes, which shall be paid in coin_."

Second--That the secretary might dispose of United States bonds, "at the market value thereof, for coin or treasury notes."

Third--A new section authorizing deposits in the sub-treasuries at five per cent., for not less than thirty days, to the amount of $25,000,0000, for which certificates of deposit might be issued.

Fourth--An additional section, No. 5, "that all duties on imported goods and proceeds of the sale of public lands," etc., should be set apart to pay coin interest on the debt of the United States; and one per cent. for a sinking fund, etc.

It was felt that if no provision was made for the payment of the interest on the bonds in coin, they would depreciate more and more, while such payment would tend, as it did, to maintain them nearer to their specie standard. In order to obtain coin for the payment of interest, provision was made that all duties on imported goods, and the proceeds of the sale of public lands, should be payable in coin and be set apart to pay coin interest on the debt of the United States, and one per cent. for a sinking fund to provide for ultimate redemption of the bonds. These amendments were considered of prime importance. It was felt that the duty on imported goods should not be lessened by any depreciation of our local currency. Such importations were based upon coin values, and the tax levied upon them was properly required to be paid in coin. This security of coin payment enabled the government to sell bonds at a far higher rate than they would have commanded without it, and tended also to limit the depreciation of United States notes. The bill and amendments were reported on the 12th, and became the subject of what was regarded as a very able debate.

There was decided opposition in the Senate to the legal tender clause, headed by Mr. Fessenden. Mr. Collamer, who also was opposed to it, made a motion to strike it out. Upon that subject I made my first lengthy speech in the Senate, a few extracts from which I insert:

"The motion of the Senator from Vermont now for the first time presents to the Senate the only question upon which the members of the committee of finance had any material difference of opinion, and that is, whether the notes provided for in this bill shall be made a legal tender in payment of public and private debts. Upon this point I will commence the argument where the Senator from Maine left it.

"In the first place, I will say, every organ of financial opinion --if that is a correct expression--in this country agrees that there is such a necessity, in case we authorize the issue of demand notes. You commence with the Secretary of the Treasury, who has given this subject the most ample consideration. He declares, not only in his official communications here, but in his private intercourses with the members of the committee, that this clause is indispensably necessary to the security and negotiability of these demand notes. We all know from his antecedents, from his peculiar opinions, that he would probably be the last man among the leading politicians of our country to yield to the necessity of substituting paper money for coin. He has examined this question in all its length and breadth. He is in a position where he feels the necessity. He is a statesman of admitted ability, and distinguished in his high opinion. He informs us that, without this clause, to attempt to circulate as money the proposed amount of demand notes of the United States, will prove a fatal experiment.

"In addition to his opinion, we have the concurring opinion of the Chamber of Commerce of the city of New York. With almost entire unanimity they have passed a resolution on the subject, after full debate and consideration. That resolution has been read by your secretary. You have also the opinion of the committee of public safety of the city of New York, composed of distinguished gentlemen, nearly all of whom are good financiers, who agree fully in the same opinion. I may say the same in regard to the Chambers of Commerce of the city of Boston, of the city of Philadelphia, and of almost every recognized organ of financial opinion in this country. They have said to us, in the most solemn form, that this measure was indispensably necessary to maintain the credit of the government, and to keep these notes anywhere near par. In addition, we have the deliberate judgment and vote of the House of Representatives. After a full debate, in which the constitutionality, expediency and necessity of this measure were discussed, in which all the objections that have been made here, and many more, were urged, the House of Representatives, by a large vote, declared that it was necessary to issue United States notes, and that this clause was indispensable to their negotiation and credit. . . .

"A hard necessity presses the government. $100,000,000 is now due the army, and $250,000,000 more up to July first. The banks of New York, Boston and Philadelphia, have exhausted their capitals in making loans to the government. They have already tied up their capital in your bonds. Among others, Mr. Vail, 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 finance committee, and stated explicitly that the Bank of Commerce, as well as other banks of New York, could aid the government no further, unless your proposed currency was stamped by, and invested with, the attributes of lawful money, which they could pay to others as well as receive themselves.

"Bonds cannot be sold except at a great sacrifice, because there is no money to buy them. As soon as the banks suspended, gold and silver ceased to circulate as money. You cannot sell your bonds for gold and silver, which is the only money that can now be received under the sub-treasury law. This currency made a legal tender was necessary to aid in making further loans. I insisted that the bill was constitutional. The Senator from Vermont has read extracts from the debates in the national convention, and from Story's 'Commentaries,' tending to show that Congress cannot authorize the issue of bills of credit. But I submit to him that this question has been settled by the practice of the government. We issued such bills during the War of 1812, during the war with Mexico, and at the recent session of Congress. We receive them now for our services; we pay them to our soldiers and our creditors. These notes are payable to bearer; they pass from hand to hand as currency; they bear no interest. If the argument of the Senator is true, then all these notes are unauthorized. The Senator admits that when we owe a debt and cannot pay it, we can issue a note. But where does he find the power to issue a note in the constitution? Where does he find the power to prescribe the terms of the note, to make it transferable, receivable for public dues? He draws all these powers as incidents to the power to borrow money. According to his argument, when we pay a soldier a ten dollar demand bill, we borrow ten dollars from the soldier; when I apply to the secretary of the Senate for a month's pay, I loan the United States $250. This certainly is not the view we take of it when we receive the money. On the other hand, we recognize the fact that the government cannot pay us in gold. We receive notes as money. The government ought to give, and has the power to give, to that money, all the sanction, authority, value, necessary and proper, to enable it to borrow money. The power to fix the standard of money, to regulate the medium of exchanges, must necessarily go with, and be incident to, the power to regulate commerce, to borrow money, to coin money, to maintain armies and navies. All these high powers are expressly prohibited to the states and also the incidental power to emit bills of credit, and to make anything but gold and silver a legal tender. But Congress is expressly invested with all these high powers, and, to remove all doubt, is expressly authorized to use all necessary and proper means to carry these powers into effect.

"If you strike out the legal tender clause you do so with the knowledge that these notes will fall dead upon the money market of the world. When you issue demand notes, and announce to the world your purpose not to pay any more gold and silver, you then tender to those who have furnished you provisions and services this paper money. What can they do? They cannot pay their debts with it; they cannot support their families with it, without a depreciation. The whole then depends on the promise of the government to pay at some time not fixed on the note. Justice to our creditors demands that it should be a legal tender; it will then circulate all over the country, and it will be the lifeblood of the whole business of the country, and it will enable capitalists to buy your bonds. The only objection to the measure is that too much may be issued. He did not believe the issue of $150,000,000 would do any harm. It is only a mere temporary expedient. . . .

"I have thus, Mr. president, endeavored to reply to the constitutional argument of the Senator from Vermont. Our arguments must be submitted finally to the arbitration of the courts of the United States. When I feel so strongly the necessity of this measure, I am constrained to assume the power, and refer our authority to exercise it to the courts. I have shown, in reply to the argument of the Senator from Maine, that we must no longer hesitate as to the necessity of this measure. That necessity does exist, and now presses upon us. I rest my vote upon the proposition that this is a necessary and proper measure to furnish a currency--a medium of exchange--to enable the government to borrow money, to maintain an army and support a navy. Believing this, I find ample authority to authorize my vote. We have been taught by recent fearful experience that delay and doubt in this time of revolutionary activity are stagnation and death. I have sworn to raise and support your armies; to provide for and maintain your navy; to borrow money; to uphold your government against all enemies, at home and abroad. That oath is sacred. As a Member of this body, I am armed with high powers for a holy purpose, and I am authorized --nay, required--to vote for all laws necessary and proper for executing these high powers, and to accomplish that purpose. This is not the time when I would limit these powers. Rather than yield to revolutionary force, I would use revolutionary force. Here it is not necessary, for the framers of the constitution did not assume to foresee all the means that might be necessary to maintain the delegated powers of the national government. Regarding this great measure as a necessary and proper one, and within our power to enact, I see plain before me the path of duty, and one that is easy to tread."

The motion to strike out the legal tender clause in the bill was defeated by a vote of yeas 17, nays 22. The amendments proposed by the finance committee were agreed to substantially as reported by the committee. The bill finally passed by a vote of yeas 30, nays 7. The House agreed to the amendment providing for the payment of the interest on bonds and notes in coin, and disagreed to the remaining amendments, and these were referred to a committee of conference, composed of Messrs. Fessenden, Sherman and Carlisle, of West Virginia, of the Senate and Messrs. Stevens, Horton, and Sedgwick, of the House. The conference met, and, after two or three days of full discussion, the material parts of the disagreements between the two Houses were settled. The provision that coin only be received for duties on imports, and that it be held as a fund to pay the interest on the bonded debt, was retained. The report of the conference was agreed to by both Houses, and on the same day the bill was approved by the President. Thus, the legal tender act, after a most able and determined opposition, became a law on the 25th of February, 1862.

It would be difficult to measure the beneficial results that rapidly followed the passage of this bill. The public credit was greatly strengthened by the provision for the payment of interest in coin furnished by duties on imported goods. The legal tender clause was acquiesced in by all classes, and we had, for the first time, in circulation national paper money as the actual standard of value. It was silent as to time of its payment, but each note contained a promise of the United States to pay a specific sum, and the implied obligation was to pay in coin as soon as practicable.

On the 11th of July, 1862, a further issue of $150,000,000 United States treasury notes (or "greenbacks," as they were commonly called from their color) of the same description was authorized, and subsequent issues increased the total amount to $450,000,000, the extreme limit. By the act of March 31, 1863, fractional currency was authorized to an amount not exceeding $50,000,000, to take the place of fractional silver coins, which had entirely disappeared from circulation, and this amount was issued.

The passage of the legal tender act was the turning point of our physical and financial history. Less than a year before the government was bankrupt; our bonds bearing six per cent. interest were sold at a discount; our national expenditures exceeded our receipts; loans could only be made upon the basis of coin, and this coin was disappearing from circulation. We had to appeal to the patriotism of bankers to accept the demand notes of the United States as money, with no prospect of being able to pay them. Our regular army was practically disbanded by the disloyalty of many of its leading officers. Washington was then practically in a state of siege, forcing me, in May, 1861, to go there at the heels of the 7th regiment of New York militia, avoiding the regular channels of travel. The city of Baltimore was decked under the flag of rebellion. Through the State of Maryland, loyal citizens passed in disguise, except by a single route opened and defended by military power. The great State of Kentucky, important as well from its central position as from the known prowess and courage of its people, hung suspended in doubt between loyalty and secession. In the State of Missouri, St. Louis was the only place of unquestioned loyalty, and even there we regarded it a fortunate prize that we were able to take the public arms from a government arsenal. The whole State of Virginia, with the single exception of Fortress Monroe, was in the possession of the revolutionary force.

But from the passage of the legal tender act, by which means were provided for utilizing the wealth of the country in the suppression of the rebellion, the tide of war turned in our favor. Delaware, after a short hesitation, complied with the proclamation of the President. Maryland had, by clear and repeated votes and acts, arrayed herself on the side of the Union. Her rebellious sons who fought against the old flag could not tread in safety on a single foot of the soil of that state. Western Virginia, the eastern peninsula, and many ports on the eastern coast, were securely reclaimed. The State of Kentucky had distinctly, by the vote of her people, and by the action of all her constituted authorities, proclaimed her loyalty, and her sons were fighting side by side with the soldiers of other states to expel traitors who, in her days of doubt, had seized upon a small portion of her soil, which they still occupied. In the State of Missouri the constituted authorities, organized by a convention of the people duly elected, were sustained by physical power in nearly all the state, and the rebellion there was subsiding into bands of thieves, bridge burners, and small parties of guerillas, who could soon be readily controlled by local militia. In nearly every rebellious state, the government had secured a foothold, and an army of half a million men, armed, organized and disciplined, impatiently awaited the word of command to advance the old banner of our country against every foe that stood in its way. Where does the history of nations present an example of greater physical weakness followed so soon by greater physical strength? When have results more wonderful been accomplished in eight months?

At the beginning of the year 1862 we were physically strong but financially weak. Therefore, I repeat, the problem of this contest was not as to whether we could muster men, but whether we could raise money. There was great wealth in the country but how could it be promptly utilized? To that question the diligent attention of Congress was applied. The banks which had aided us with money were crippled and had suspended coin payments. The Secretary of the Treasury was begging at the doors of both Houses for means to meet the most pressing demands. On the 15th of January, 1862, the London "Post," the organ of Lord Palmerston, said:

"The monetary intelligence from America is of the most important kind. National bankruptcy is not an agreeable prospect, but it is the only one presented by the existing state of American finance. What a strange tale does not the history of the United States for the past twelve months unfold? What a striking moral does it not point? Never before was the world dazzled by a career of more reckless extravagance. Never before did a flourishing and prosperous state make such gigantic strides towards effecting its own ruin."

The legal tender act, with its provision for coin receipts to pay interest on bonds, whatever may be said to the contrary by theorists, was the only measure that could have enabled the government to carry on successfully the vast operations of the war. Our annual expenditures at that time were four times the amount of our currency; were three times the aggregate coin of the country; were greater than any ever borne by any nation in ancient or in modern times. The highest expenditure of Great Britain during her war with Napoleon, at a time when her currency was inflated, when she made the Bank of England notes a legal tender, was but £100,000,000.

Anticipating these enormous expenditures I introduced a bill which became a law on the 31st of July, 1861, which provided for a commission to examine and report as to the compensation of all offices for the government, the commission to be composed of two Members of the Senate, three Members of the House of Representatives, one officer of the navy, and one officer of the army, who were directed to examine and report, as soon as practicable, a fair and just compensation for each officer of the government, and such regulations as would secure a more economical collection of the revenue. When this bill was pending I stated its purpose and my hope to accomplish a reduction of the expenditures of the government, or, at least, an equalization of the salaries then paid to the different officers. We sought economy by the reduction of expenses. I was chairman of this commission, and Senator Clark, of New Hampshire, was my associate. The commission collected a mass of information, and upon it based several bills introduced in the second session of the 37th Congress. Some of these were made nugatory by the rise of prices, measured in most cases by the fall in value of our currency, but many of their provisions were ingrafted into other bills that became laws.

The organization of national banks, authorized to issue circulating notes, is so intimately connected with legal tender United States notes that I think it proper to consider them in connection, though the banking law did not pass until 1863. The two forms of currency, one issued directly by the government as lawful money of the United States and a legal tender, and the other issued by private corporations, but secured by bonds of the United States, constitute a system of national currency which, organized in the midst of war, was an important aid to the government in its great struggle, and when placed at par with coin by the resumption act has proven to be the best paper money created by legislation in this or any other country.

The issue of circulating notes by state banks had been the fruitful cause of loss, contention and bankruptcy, not only of the banks issuing them, but of all business men depending upon them for financial aid. Inflation and apparent prosperity were often followed by the closing of one bank and distrust of all others. The notes of a broken bank were rarely paid, the assets of such bank being generally applied to the payment of other liabilities, leaving the loss to fall on the holders of the notes, mostly innocent persons of limited means. This led to the adoption in 1846 of the sub- treasury system, by which all payments to the treasury were required to be in coin, to be held until required for disbursements on government account. This protected the United States, but it did not save the people from loss, as, from necessity, they were compelled to use bank bills authorized by the several states, varying in value and security, and chiefly limited in circulation to the state in which issued. With a narrow view of the powers of the national government, Congress had repeatedly refused to authorize a national bank, a policy I heartily approve, not from a doubt of the power of Congress to grant such a charter, but from the danger of intrusting so vast a power in a single corporation, with or without security. This objection did not lie against the organization of a system of national banks extending over the country, which required every dollar of notes issued to be secured by a larger amount of bonds of the United States, to be deposited in the treasury of the United States, thus saving the note holder from all possibility of loss.

Secretary Chase, in his report of December 9, 1861, recommended that a tax be imposed upon notes issued by state banks and also that Congress should exercise its authority to establish a system of national banks, with proper safeguards and limitations. A bill was introduced for the latter purpose in the House of Representatives in 1861, but, owing to the urgency for legislation on war measures, it was not acted upon.