DEPRECIATION OF GOVERNMENT LOANS, 1812-1815. 39

out interest) bore interest at the rate of 5 per cent. None were in the form of a promise to pay coin on demand, but all in the form of a receipt for all dues payable to the Government. None of these notes had any legal tender quality, and Congress, without debate, rejected the only proposition made to give them this quality. The denominations, except in the case of the small notes of 1815, were too large for general circulation, and the inducements for funding the latter were so great that they were speedily funded into seven per cent. bonds. As long as the banks redeemed their notes in specie, treasury notes appear to have been kept at par, but when specie payments were suspended, they began to depreciate, but were kept from great discount by the funding acts of November 25, 1814, and February 24, 1815. It is said, "that of eighty millions of loans negotiated by the Government during this period, the avails were only thirty-four millions, after deducting discounts and depreciations."1 After the close of the war, in December, 1814, these notes were rapidly funded.

1 Report of Committee of Ways and Means, April 13, 1830.

CHAPTER VI.

TREASURY NOTES OF THE PERIOD OF THE FINANCIAL CRISIS

OF 1837.

IN anticipation of a large surplus, Congress, by act of June 23, 1836, provided for the distribution of a large amount of Government money among the States in proportion to their representation in the Senate and House of Representatives, and three instalments, amounting in all to $27,063,430, were so distributed.' In the meantime, about May 1, 1837, specie payments were suspended, owing to the great depression in commercial circles. An extra session of the 25th Congress was called in September of the same year. The charter of the second Bank of the United States had expired on March 4, 1836, and on June 23, 1836, Congress had passed an act authorizing and regulating the deposit of public moneys in State banks. No action was taken during the extra session toward rechartering the Bank of the United States. The distribution of the fourth instalment to the States was, however, postponed, but the Secretary was prohibited from calling for any of the money already distributed without special authority from Congress, which has not, up to the present date, been given.

The revenues for the year (1837) were from six to ten

1 See page 180.

DISCUSSION OF TREASURY NOTE BILL, 1837. 41

millions short of the expenditures. The public funds already deposited with the States were unavailable, and there was another instalment to be deposited on October 1st. The Secretary recommended the withholding of this instalment, and, in order to supply currency, an issue of treasury notes, the small denominations to bear no interest, and the large with interest.

A large party in Congress were in favor of rechartering the Bank of the United States. The advocates of treasury notes urged the issue principally upon the ground of necessity, there being no currency upon which the Government could rely to make and receive payments. Many were in favor of a substitute to be issued by the proposed new Bank of the United States. A bill was presented and passed by the Senate. When it came to the House, objection was made that it was a money bill, which the Senate had no constitutional right to originate. This point was not discussed, but the Committee of Ways and Means presented their own bill, by which the issue of ten millions in treasury notes was authorized. The bill encountered much opposition, particularly from those in favor of authorizing a new bank, but passed the House on October 9, 1837, by a vote of 127 to 98, which was a strict party vote. In the Senate, the next day, Mr. Benton moved to make the lowest denomination of notes $100, instead of $50, as provided in the bill. He presented strong objections to the issue of treasury notes. Nothing but the fact that the Government must otherwise stop for want of funds, would induce him to vote for paper money in time of peace. He particularly objected to the policy of reducing the denominations of paper currency. It was the most dan

gerous feature of the system, and would drive all specie from circulation. Mr. Clay spoke in favor of Mr. Benton's motion, and characterized the whole measure to be, to all intents and purposes, a great bank experiment, and alluded to the inconsistency of issuing, in time of profound peace, ten millions additional notes after decrying the banks for enlarging their circulation. Mr. Webster favored Mr. Benton's motion. It was lost by a vote of 25 to 16. The bill then passed by a vote of 35 to 6, both Mr. Benton and Mr. Webster voting for it, and Mr. Clay against it. This bill authorized the issue of treasury notes to an amount not exceeding ten millions, and in denominations not exceeding fifty dollars. The interest was not to exceed 6 per cent; and they were to be payable, principal and interest, after one year from date, and were, for the first time, signed by the Treasurer and countersigned by the Register. They were to be issued in payment of the debts of the United States to any creditor who would receive them, and were to be receivable in payment of all debts and dues to the Government. They were not reissuable, and the authority to issue terminated December 31, 1838. The ten millions authorized were issued by Secretary Woodbury previous to July 1, 1838. About two millions were issued at the nominal rate of interest of 1 mill per cent.; three millions at 2 per cent.; and over four millions at 5 per cent. On account of the low rate of interest upon a large portion of the notes, the object for which they were issued, namely, to supply a circulating medium, was thwarted, for they were soon presented in payment of taxes, and over five millions were retired before the whole amount had been issued.

SECOND PROPOSITION OF LEGAL TENDER.

43

At the end of 1837 the Secretary estimated that the balance in the treasury for July, 1838, would be $34,187,000, of which $28,101,644 was due from the States, $1,100,000 due chiefly from insolvent banks, and $3,500,000 from other banks, payment of which was postponed. These sums, and the bullion fund in the mint, reduced the estimated available balance in July, 1838, to about one million. This estimate was nearly correct, for Congress was advised by the President, in May, 1838, that only $216,000 of available funds remained in the treasury. There were several propositions in the House, one of which was a bill for authorizing loan certificates, which should be a legal tender to public creditors, but not receivable for dues to the Government. The question of the legal tender was not discussed. Mr. Cambreleng, of New York, from the Committee of Ways and Means, reported a short bill, authorizing the issue of treasury notes to the amount of the issue of October, 1837, which had been redeemed and cancelled. The interest upon the issues already made under the laws of 1837 had been too small, and they had been immediately paid into the treasury when due. There were gratifying signs of a revival of prosperity. The Northern banks had resumed specie payment sooner than expected. This he ascribed to the firmness of the President in refusing to allow dues to the United States to be paid in notes of banks not paying specie. He referred to the passage of the Free Banking act of New York as a presage of sound banking in future. He also urged the necessity of providing notes to enable the treasury to meet its payment. The objections to the bill were much the same as those urged in the debate during the previous session, though they were presented with