FINANCES OF THE UXITED STATES. 



453 



at $300,166,565.35 for the six months. If the 

 . 91 millions authorized should be obtained, there 

 would remain a further sum of over 200 mil- 

 lions to be raised in six months, and the mode 

 of doing this required to be promptly decided 

 on, since the expenditure progressed at the rate 

 of 1} millions per day, with large arrearages to 

 troops and contractors, which were pressing up- 

 on the Treasury with increasing severity. There 

 were evidently but two ways in which the money 

 could properly be raised. These were to borrow 

 of those who had the capital to lend at the 

 market rate, whatever that might be, and to levy 

 promptly such taxes as would place the repay- 

 ment of the loans beyond all manner of doubt. 

 Unfortunately the Secretary and the commit- 

 tees of Congress entertained the idea that paper 

 promises were capital, and that for the Treas- 

 ury to borrow, it was first necessary to supply 

 the paper to be borrowed, in the form of 

 money. The Secretary said that he could not 

 borrow in com at better than 80 per cent., and 

 would be required to pay nearly as much for 

 bank notes, but that he could get better terms 

 if Congress "furnished the currency." This 

 idea, that it is the quantity of paper money 

 afloat which determines how much capital the 

 Government can borrow, seems entirely to have 

 engrossed the mind of the Secretary and the 

 views of the committees. He reproduces it on 

 every occasion and in different forms. Thus 



The Government can resort to "borrowing only 

 when the issue of notes has become sufficiently large 

 to warrant a just expectation that loans of the notes 

 can be had from those who hold or can obtain them at 

 rates not less advantageous than those of coin loans 

 before suspension. ***** 



The extension of the United States note circulation, 

 until sufficient in amount to enable the Secretary to 

 obtain it from holders by way of loans, was equally in- 

 evitable. * * ** " * * * * 



Wherever the volume of notes reaches a point where 

 a loan can be effected at rates fair to the country and 

 desirable to takers, loans will, of course, be made, and 

 ample opportunities for conversion offered. 



This idea seems to have vitiated the entire 

 financial scheme of the Secretary. The fact 

 that it is not paper promises that the Govern- 

 ment seeks to borrow, but capital, is overlook- 

 ed. The circulating medium, by the agency 

 of which capital changes hands, is apparently 

 confounded with capital itself. This is to sup- 

 pose that if a limited amount of surplus capital 

 exists in the country, that capital may be in- 

 creased by the issues of paper money, and 

 therefore a large issue of paper must precede 

 the negotiation of a loan. When business and 

 production were interrupted by the war, a large 

 amount of capital thrown out of its usual em- 

 ployments was comparatively idle, and this 

 sought temporary investment with the Govern- 

 ment. The amount that could be so applied 

 soon reached its limit. Long loans were not 

 desirable, and for a reason similar to that 

 which induced the Government to make short 

 loans at the beginning of the war, namely, that 

 peace might come in " 60 or 90 days," when the 

 capital would be wanted for the usual occu- 



pations of commerce and industry. The Secre- 

 tary therefore encountered an indisposition to 

 take long loans, while the temporary capital 

 was absorbed. He then supposed that he could 

 increase the available capital by paper issues, and 

 to make those issues float he decided upon a 

 measure of doubtful constitutionality, in mak- 

 ing them a legal tender. A bill to this effect en- 

 countered great opposition in Congress. The 

 first effect of paper money is doubtless to cause 

 an apparent increase of means ; since, as in the 

 present case, the possessors of capital had al- 

 ready parted with it to the Government, and 

 now received pay in paper promises which 

 they wished to employ temporarily. The circu- 

 lation of the paper soon caused a rise in prices 

 of all commodities, and that in proportion to 

 its abundance, for the reason that all parties 

 wished to avail themselves of the rise that 

 they foresaw. "With this rise more paper is re- 

 quired for the transaction of business. Hence, 

 no matter how much may be issued, there will 

 be no greater supply for the wants of the Gov- 

 ernment. The only capital which can be loan- 

 ed to the Government, is derived from the profits 

 of industry and commerce. When these profits 

 are absorbed, the power to borrow ceases, no 

 matter how much paper may be floating. 

 Hence the idea that paper money will, when 

 abundant, be readily converted into long stock is 

 a fallacy. If, as measured in paper, a manu- 

 facturer gets for 10,000 yards of cloth, double 

 price or $20,000, he receives double the usual 

 amount of money ; but as he must pay in the 

 same proportion for wool, labor, and other sup- 

 plies, he can spare none of it for investment. 

 He may indeed have suffered loss in the trans- 

 action. In this manner business absorbs in- 

 convertible paper as fast as it is put out, and 

 the Secretary was surprised to find, after he had 

 issued $250,000,000 of paper money, that the 

 notes were more difficult to borrow than ever. 



While the legal tender bill was before Con- 

 gress, the Secretary had continued to draw 

 from the banks the instalments due on the 

 $50,000,000 of that taken Dec. 1, and on Feb. 

 5 the last instalment, $3,500,000, of the loan 

 was paid up in the demand notes. The banks 

 having suspended, and gold no longer in circu- 

 lation, the Government had also suspended on 

 those notes. The 19th of February was at 

 hand, when $1,875,000 interest was due in gold 

 on the $50,000,000 of 7 T 3 ff notes that had been 

 negotiated August 19. 



The Secretary of the Treasury issued the an- 

 nexed notice : 



TEEASCKT DepARTJcmjfr, Feb. 4, 1862. 



Holders of bonds of the United States, dated Aug. 

 If 1 , 1S61, and payable three years from date, are hereby 

 notified that provision is made for the payment of the 

 coupons of semiannual interest, which becomes due 

 on the 19th inst, in coin, agreeable to their tenor, by 

 the Treasurer of the United States at Washington, or 

 by either of the Assistant Treasurers at New York, 

 Boston, and Philadelphia. 



All such coupons, together with schedules, showing 

 the number and amount of each coupon and the ag- 

 gregate sum of each parcel, must be presented for ex- 



