CHAPTER V.

TREASURY NOTES OF THE WAR OF 1812.

THE original debt had, at the beginning of 1812, been reduced from seventy-five millions to forty-five millions. In 1810 it was found impossible to meet all of the annual reduction of the debt required by law from the sinking fund, and a temporary loan was authorized to make up the deficiency, which amounted to $2,750,000. This loan was paid the next year. In 1811, however, recourse was had to a loan, and the one authorized by Congress for that year was taken so slowly, that, in the month of May of the following year the Secretary of the Treasury, for the first time since the adoption of the Constitution, recommended the issue of treasury notes upon the following principle, viz.: "1. Not to exceed, in the whole, the amount which may ultimately not be subscribed to the loan; that is to say, that the amount received on account of the loan, and that of the treasury notes, shall not, together, exceed eleven millions; which limits, therefore, the greatest possible amount of treasury notes to less than $4,900,000. 2. To bear an interest of 5 per cent. a year, equal to one cent and one-half a cent per day on a hundred dollar note. 3. To become payable by the treasury one year after the date of their respective issues. 4. To be, in the meanwhile, receivable in

payment of all duties, taxes, or debts, due to the United States.". He did not propose that the notes should be fundable in the loan which they were intended to reenforce. This recommendation of Secretary Gallatin was made in his letter of May 14, 1812, to Mr. Langdon Cheves, chairman of the Committee of Ways and Means of the House, and, in conformity therewith, a bill was reported by that Committee on June 12, 1812.

War was declared against Great Britain June 18, 1812. The failure of the loan was due to the fact that the money had to be borrowed from the very classes who had been opposed to the war; therefore, when the bill for authorizing treasury notes was put upon its passage on June 16, it met with much opposition. It was argued that the notes under the bill were not equal in value to gold and silver, and would not be received by the banks or the people, who were prejudiced against such Government paper; that if issued they could not be redeemed, and would depreciate; that the measure would be subversive of public and private credit; that it was a confession of impaired credit; that to allow the notes to be deposited in banks and to accept bank paper in exchange was to depreciate the Government's paper; that if issued, additional taxes should be imposed and set apart for the redemption of the notes, as in the case of the English exchequer notes; that the proposed notes were the same as the old continental money, and would depreciate in the same way.

Others opposed the bill simply because they opposed the war or any preparation for it. In case war proved unavoidable the necessary funds should be raised by taxes and loans. The shortness of the time for which

ARGUMENTS FOR AND AGAINST ISSUE OF NOTES. 23

the notes were to be issued was another objection. The public revenues would not meet the engagement, and engagements should not be entered into without a certainty of fulfilment. Taxes were necessary. It was a paltry expedient never suggested by Hamilton or Wolcott, and not even the spontaneous production of Gallatin; that the first suggestion of the latter was to authorize a loan on such terms as would have insured its success. It was a humiliating spectacle to exhibit the Government failing in negotiating its first war loan.

On the other hand, the supporters of the bill maintained that the notes would be received by the banks in the same manner as any good individual paper was received. The banks would give the Government credit for them, and in return the Government could draw gold and silver from the banks. The notes would be even more valuable to the latter than specie, as they could be kept as an interest-bearing reserve. They would have currency, being receivable in duties, taxes, and debts due the Government, and, as interest accumulated, they would increase in value. In reply to the suggestions that money should be raised by taxes, it was stated that when, previously, measures of that kind had been proposed, the opposition had refused to consent. The issue of treasury notes, bearing interest at 5 per cent. only, did not indicate bad, but rather good credit. Individuals in good credit could not borrow at less than 6 per cent. There was no depreciation of Government paper in exchanging the notes for bank paper, as the latter was ready money, while the former were payable one year after date. It was denied that the people had or would have any prejudice against treasury notes.

They were not prejudiced against bank notes, and the proposed notes bearing interest had many advantages over bank paper. The proposed notes would be in no way inferior to exchequer bills; in fact, it was only want of credit that compelled the English Government to set aside certain revenues to meet the latter. The treasury notes would have two advantages over exchequer bills: one, the superior credit of the United States, and the other, that they were receivable for taxes and public dues. They were also superior to public stocks, in that, while bearing interest, they also can serve as currency, the same as gold and silver, thus enhancing the medium of circulation. There was no resemblance between them and continental money. When the latter was issued, the Government was dependent on the pledges of the several States for its revenues, but now its credit was above suspicion, its power to raise revenue complete, and its ability to pay its debts undoubted. War was unavoidable. Both loans and taxes would have to be resorted to. The proposed notes were nothing but a loan with extraordinary advantages, taking, however, but little from the circulating medium of the country. In many transactions they would have all the effect of money. While not secured by any specific fund set apart for their redemption, the entire duties and taxes of the year are indirectly pledged for this purpose, since they are receivable in payment of such duties and taxes. The revenues of the year were estimated at eight millions, and the proposed issue of notes was five millions only. The faith of the Government was pledged for their redemption. That faith had never been violated. The resources of the Govern

FIRST ISSUES UNDER CONSTITUTION, 1812. 25

ment were ample beyond those of any other nation. Its sources of revenue were unimproved land, a productive agriculture, an extensive commerce, an enterprising people, and an unlimited right of taxation. The anticipated abuse of a privilege was no argument against its legitimate use.

The bill passed the House June 17, 1812, yeas 85, nays 41. It passed the Senate June 26, and became a law June 30, 1812. By it the President was authorized to issue treasury notes to an amount not exceeding $5,000,000. Section two of the first "Act to authorize the issuing of treasury notes," read as follows: "That the said treasury notes shall be reimbursed by the United States, at such places, respectively, as may be expressed on the face of the said notes, one year, respectively, after the day on which the same shall have been issued; from which day of issue they shall bear interest at the rate of five and two-fifths per centum a year, payable to the owner and owners of such notes, at the treasury, or by the proper commissioner of loans, at the places and times respectively designated on the face of said notes for the payment of principal."

They were signed by persons designated by the President, and the compensation of these persons was fixed at one dollar and twenty-five cents each for one hundred notes signed. They were countersigned by the Commissioners of Loans for the State in which the notes were respectively made payable. With the approval of the President, the Secretary of the Treasury was authorized to borrow money upon the security of the notes, and to pay them to such banks as would give the Government credit for them at par. When the notes were paid to