expenses; heavy exports of specie naturally following; more legal tender currency, with further rise in prices and increase in expenses; repudiation of right to fund legal tender notes into bonds; wild speculation in specie which extended into all lines of business, enriching the shrewd few at the expense of the many. Net result, ultimate cost to the people very much more than it would have been had they been taxed more heavily at the outset.

As Franklin had pointed out in the days of continental currency, the people actually paid exorbitant sums indirectly because they did not pay the lesser amounts directly. It has been said that the "greenbacks" saved the Union. Be this as it may, it is certain that had a great national bank or a system of national banks existed, and had a proper scheme of taxation been adopted, the same result would have been accomplished at far less cost; and while suspension of coin payments would probably have been inevitable, the premium upon gold would have been controllable and prices kept within limits.1

Specie includes after 1861 only the amount estimated in use on Pacific Slope. Population reduced by that of states in rebellion.

LABOR

PER

CAPITA

CHAPTER IX

1866 TO 1875

administra

THE expenses of the government did not become nor- McCulloch's mal at once after the close of the war. A great army tion. had to be disbanded and many obligations remained to be paid. McCulloch reported (December, 1865) that the debt had increased during the fiscal year nearly $942,000,000; he estimated a deficit in the revenue for 1866 of $112,000,000, but a surplus in 1867 of almost the same amount. The total debt at its maximum, in August, 1865, stood at $2,845,900,000. It was expected that it would reach $3,000,000,000, but by this time the revenues increased and expenditures diminished. The fiscal year 1866 showed $290,000,000 surplus instead of the $112,000,000 deficit as estimated. Provision had been made for funding the floating debt, and this process, as well as the reduction, began in the fall of 1866. The debt in August, 1865, was composed of

McCulloch directed special attention to the currency portion of the debt, urging preparation for resumption. of specie payments and ultimate repeal of legal tender acts. But a new idea had become prevalent. The United States notes, popularly called "greenbacks,”1

1 The word "greenback," applied to the first legal tender notes issued by the government in 1862 because of the prevailing color of the back of

Contraction

of currency.

Volume of currency.

were a convenient form of money and a non-interestbearing loan, hence their retention was urged on the double ground of convenience and economy. To these the Secretary opposed, first, the extra-constitutional exercise of power warranted only by war; second, the breach of faith involved in failure to redeem; third, the evil effects which would follow the continuance of the inflated currency. He recommended that the legal tender power of the interest-bearing notes be discontinued after maturity, and that he be authorized to sell bonds to retire these as well as the non-interest-bearing notes (greenbacks). He warned Congress against a continuance of the policy of an inconvertible currency, predicting that, unless remedied, the question would become a political one, and few less disturbing to the welfare of the country could be imagined.

McCulloch estimated the amount of currency on October 31, 1865, at $704,000,000, not including $205,000,000 of interest-bearing legal tenders (nor the 7.30's); of the interest-bearing notes about $30,000,000 and some of the smaller 7.30's were circulating as money. The bank-notes included in the above total he placed at $250,000,000, of which $65,000,000 were state banknotes, the remainder national bank issues; of the latter class $115,000,000 might still be issued within the legal limit, some of which would, however, replace the state bank issues. The premium on coin which in the early months of the year stood at over 100 (reaching 1332), fell as low as 28ğ, closing in December at 451.

President Johnson supported the recommendations of McCulloch in his message. He said:

the notes, is generally used as a comprehensive term including all legal tender notes issued prior to the law of 1890. It is used interchangeably with the term "United States notes," but colloquially is much more popular.

"It is our first duty to prepare in earnest for our recovery from the ever-increasing evils of an irredeemable currency, without a sudden revulsion and yet without untimely procrastination."1

A considerable number of public men were inclined Debt to regard the war debt as only partially obligatory upon rejected. repudiation the Nation, owing to the fact that depreciated currency had been received for the greater part of it, and urged that payment in coin commanding a high premium ought not to be insisted upon. This led to the adoption, on motion of Representative Randall (Dem., Pa.), afterwards Speaker, of the following declaratory resolution in the House on December 5, 1865, with but one dissenting vote:

"RESOLVED, That, as the sense of this House, the public debt created during the late rebellion was contracted upon the faith and honor of the Nation; that it is sacred and inviolate and must and ought to be paid, principal and interest; that any attempt to repudiate or in any manner to impair or scale the said debt shall be universally discountenanced, and promptly rejected by Congress if proposed."

indorsed.

McCulloch had actually begun the retirement of McCulloch's greenbacks out of the surplus revenues. The House of policy Representatives on December 18, 1865, indorsed his policy by almost unanimous vote, and the act of April 12, 1866, authorized him to fund all notes into bonds or sell bonds to retire notes, provided the total debt was not increased. The act contained the limitation that not more than $10,000,000 of the "greenbacks" be retired in the ensuing six months, and $4,000,000 monthly thereafter. Other acts provided for nickel coins of three and five cents to retire those denominations of the fractional paper currency.

This salutary legislation was not secured without opposition from those who might have been expected to 1 Messages of Presidents, Vol. VI.