DURING the Rebellion the United States armies suffered many disasters in the field, which for the moment were felt as direct and personal misfortunes by every loyal citizen.  So strong was the public feeling of anger and astonishment, that Congress appointed committees of investigation, to examine into the causes of these military failures, and subjected the whole conduct of the war to a searching and sometimes a severe criticism.  In finance, on the other hand, the nation suffered only one great disaster, but its effects have extended far beyond the period of the war, and are likely to be felt with unmitigated force for an indefinite time yet to come.  The causes of this catastrophe have not been investigated by Congress ;  but as the day may probably arrive when the national government will have been forced to accept the fact that the act of national bankruptcy was a calamity so terrible as to involve the personal and political credit of every man in whose charge the people had then placed the common interests, it may be useful to point out the path which the future congressional committee on the Conduct of the Finances will be compelled to follow in investigating the causes which led to that miscarriage, the results of which have far exceeded in importance the defeat of any of the national armies or the failure of any campaign.  The timid and hesitating criticism with which the subject has been commonly treated speaks ill for the sound sense of the community.  The public has so thoroughly adopted the idea that it is itself the responsible governing power, and its representatives only delegates to enroll its orders, that the healthy process of criticising a policy once adopted seems to it almost an attack on its own authority.  The confusion of ideas involved in this assumption of responsibility is peculiarly unfortunate.  The task of citizens who are selected to govern is one thing.  They bear the burden of leaders, and they enjoy the honor.  They are, too, at liberty to excuse or palliate their mistakes, their ignorance, or their crimes by whatever argument they can make to answer their purpose.  But the task of the public is wholly different.  It is that of insisting, without favor or prejudice, on the observance of truth in legislation and in the execution of the laws.  To apply the principles of truth in criticism is the first duty of every writer for the press and every speaker on the hustings.  Whatever seems harsh in criticism or vehement in temper may be excused in the citizen who clings to the rigid logic of fundamental principles, and who leaves to those whose public conduct fails to reach his standard, the labor of justifying themselves in the best way they can.

It is customary, however, for critics of American finance to begin at this point with the assumption that the Legal-Tender Act was necessary and inevitable.  As a matter of criticism, nothing can be more absurd than such a beginning ;  and as a matter of intelligence, nothing can be feebler.  Congress and the country permitted no such assumption to be made in excuse for the beaten generals at Fredericksburg and Chancellorsville.  There can be no satisfactory conclusion from such a premise.  No sound result can be reached except by assuming at the outset that the Legal-Tender Act was not necessary ;  that the public was not responsible for it ;  that the men who made it law were answerable to the people for their act, and are bound to show that so extraordinary and so grave a misfortune could, by no means, have been avoided.  If they fail to prove their case, they are condemned.  It is, too, a matter of the greatest consequence to decide what the ultimate judgment will be, since on it must turn not only questions of the most considerable material interests, but points of fundamental law in the United States, and of the theory of government for future time.  The urgent necessity of establishing some fixed principles in regard to this disease of debased currency may be measured by the extent of the disease itself.  Russia, Austria, Turkey, Italy, Spain, Brazil, Japan, and an indefinite number of smaller communities, besides the United States, have, to-day, no fixed standard of value in domestic exchanges.  With rare exceptions, no government that has once debased its standard has ever restored it, except through the desperate resource of partial or entire repudiation.  Unless the world is prepared to agree that society has no protection, and that the assumed progress of political science is a mere dream, there can be no excuse for continuing to accept as inevitable an evil which, in all times, has been merely the result of ignorance and misgovernment.

The law of legal tender, passed by Congress in February, 1862, cannot, therefore, be assumed to have been necessary, and its supporters are bound to prove that they had no alternative.  To this task Mr. Spaulding, the principal author of the measure, has applied himself ;  while, on the other hand, Mr. Chase, without whose assent the law could not have passed, has assumed the contrary ground.  There is, unfortunately, at the outset a strong presumption against the law, rising from the unquestionable fact that the men who, in 1862, were charged with the conduct of the finances, and were responsible for this law in particular, had no claim to confidence on the ground of their financial knowledge or experience.  Something better might indeed have been expected among a people so devoted to commerce and so habituated to self-government.  Military disasters were to be looked for, seeing that the nation had no training nor taste for war ;  but though war, or art, or philosophy, or abstract knowledge, were beyond the range of public or popular interest, an experience of two hundred years ought at least to have insured the country against mistakes in practical politics.  Such, however, was very far from the truth.  Among the leading statesmen then charged with responsibility, not one was, by training, well fitted to perform the duties of finance minister, or to guide the financial opinions of Congress.  The Secretary of the Treasury, certainly the most capable of the men then connected with finance, suffered severely under the disadvantage of inexperience.  In the Senate, finance, like every other subject, was treated rather as though it were a branch of the common or constitutional law, than as though it were a system with established principles and processes of its own.  But it was in the House of Representatives that the want of education was most apparent and most mischievous, while, by a significant coincidence, it happens that the law of legal tender, more than almost any other great financial measure of the Rebellion, was peculiarly and essentially the work of this House.  As for the members who originated and whose activity carried through all opposition the act of February, 1862, it is difficult to characterize them in language which would not seem unduly and unreasonably severe.  Yet it may honestly be doubted whether there has ever been a time since Kleon, the leather-seller, was sent by the people of Athens to command its armies at Sphacteria and Amphipolis, and since Aristophanes on the public stage covered the powerful popular leader with an immortal ridicule which surely reflected most severely on the Athenian people itself, — it may honestly be doubted whether history records an occasion when the interests of a great country in an extreme emergency have been committed to hands more eminently disqualified for the trust.  In February, 1862, Mr. Thaddeus Stevens was chairman of the Committee of Ways and Means, from which emanates the ordinary financial legislation of Congress.  To say that Mr. Stevens was as little suited to direct the economical policy of the country at a critical moment, as a naked Indian from the plains to plan the architecture of St. Peter’s or to direct the construction of the Capitol, would express in no extreme language the degree of his unfitness.  That Mr. Stevens was grossly ignorant upon all economical subjects and principles was the least of his deficiencies.  A dogmatic mind, a high temper, and an overbearing will are three serious disqualifications for financial success, especially when combined with contempt for financial knowledge.  It is no exaggeration to say, that every quality of his nature and every incident of his life which gave Mr. Stevens power in the House, where he was almost omnipotent in the legislation which belonged to the war and to reconstruction, conspired to unfit him for the deliberate and difficult discussions of finance.  But it is not to Mr. Stevens that the principal burden of blame or praise for the financial legislation of that momentous year is to be awarded.  In the press of business upon the committee, when in the brief space of a few months the whole system of loans, of taxation, and of currency, demanded by a war of such tremendous proportions, had to be created, so to speak, out of nothing, two sub-committees were formed to divide the duties which fell upon the committee.  One of these, under the lead of Mr. Morrill of Vermont, undertook to enlarge and adjust the scheme of taxation to the new necessities of the government.  The other, under the chairmanship of the Hon. Elbridge G. Spaulding of New York, assumed the care of the national currency, the raising of loans, and the issue of treasury notes or bonds.  Mr. Stevens remained chairman of the whole committee, charging himself particularly with the matter of appropriations, and lending his powerful voice to both sections below him, as either by turn encountered opposition in forcing its measures through the House.

The intellect of a Congressman, gifted with no more than the ordinary abilities of his class, is scarcely an interesting or instructive subject of study ;  nor are the discussions that arise among such men likely to be rich in stores of knowledge or experience.  But when an accidental representative is able to carry “over the administration and through Congress,”⁽²⁾ as Mr. Spaulding claims to have done, and as it is clear that Mr. Spaulding did, a measure of such far-reaching consequences as the Legal-Tender Act of 1862, the character of that person’s mind and the facts of his life cease to be matters of insignificance.  One may well inquire what sort of a man it was that could lead a nation so far astray, and what the condition of things that made it possible to effect results of such magnitude.  Financiers who make an addition of hundreds of millions of dollars to the debts of their countries, representing not a penny of value enjoyed, are entitled to a place in history, whether they boast the intellectual capacity of Mr. Pitt or of Mr. Spaulding.

Unlike Mr. Stevens, Mr. Spaulding had the advantage or disadvantage of a certain sort of financial experience.  He had been for a time treasurer of the State of New York.  By profession he was, in 1862, president of a joint-stock bank at Buffalo, and it was on this circumstance that he based his chief claim to speak as an expert in finance.  At the conference on the 11th of January, 1862, at the treasury, between the Secretary, the committees of Congress, and the representatives of the principal Northern banks, — a conference whose momentous importance will require close attention, — Mr. Spaulding expressed his convictions both “as a banker and legislator.”  The association of functions was not unimportant, and Mr. Spaulding was right in laying stress upon it.  Had he not been a banker as well as a legislator, the Legal-Tender Act might, it is not improbable, never have been enacted.  Being a provincial banker, and at the same time chairman of a subcommittee dealing with the nominally financial but really universal interests of thirty millions or more of citizens, and dealing, too, with the whole future of a nation whose development no bounds seem to limit, Mr. Spaulding naturally proceeded to apply to the necessities of the situation the principles of finance which he had learned in shaving notes at a country bank.

These necessities were unquestionably serious, but few persons now retain any distinct recollection of their actual shape.  To the minds of men living in 1870 the events of 1862 appear bound up in close connection with the long series of events that have intervened.  The necessity of the Legal-Tender Act is now assumed, not on account of what had happened before the law was passed, nor on account of anything that was foreseen by its authors, but because of what afterwards occurred, the exigencies of a situation far more difficult and alarming than existed at that earlier time.  Against such a confusion of ideas it is necessary that every candid man should be on his guard.  The vague, general notion that, sooner or later, legal-tender paper was inevitable, is a part of the same loose and slovenly popular criticism with which the whole subject has been so habitually treated, and is scarcely worth comment ;  but the actual circumstances under which Congress declared the measure to be necessary are a matter of fact, and it is with these that law, history, and political science have first of all to deal.

Congress met on the 2d of December, 1861, and the Secretary immediately set before it an account of the financial situation, and his own scheme for supplying the wants of the treasury.  He required about $200,000,000, in addition to resources already provided, in order to meet the demands of the next half-year.  His immediate necessity was for $100,000,000 within three months.  He estimated that the debt would reach $517,000,000 on the 1st of July, 1862, and that a year later it would probably become $900,000,000.  In fact it rose to $1,100,000,000.  A part of the heavy government expenses were to be met by taxation; a part by the sale of bonds; and for the rest Mr. Chase proposed the assumption by the government of the bank circulation, amounting to some $200,000,000, with a view not only of obtaining the money, but of providing a sound currency on which to conduct the war.  The Secretary did not, in this connection, overlook the possibility of resorting to a forced paper circulation, but “the immeasurable evils of dishonored public faith and national bankruptcy” deterred him from recommending the measure, or rather obliged him to reject it as dangerous and unnecessary.

Thus, on the 1st of December, 1861, according to the Secretary of the Treasury, no occasion existed for resorting even to the moderate measure of issuing government paper at all, except so far as concerned a possible guaranty to a new bank circulation.  The idea of legal tender was expressly rejected.  The government believed itself able to meet its demands on the basis of the bank circulation, provided Congress would place the bank circulation on an available footing.  Nothing, however, was done by Congress towards supplying the wants of the treasury, until, towards the end of December, Mr. Spaulding began to draft a bill for establishing a national banking currency.  While preparing this draft, Mr. Spaulding, “upon mature reflection, came to the conclusion that the bill could not be passed and made available quick enough to meet the crisis then pressing upon the government for money to sustain the army and navy.  He therefore drafted a legaltender treasury note section.”  This was done about the 30th December ;  and this was the origin of the measure destined to have so vast and permanent an influence on the American people.  The “mature reflection” of Mr. Spaulding could discover no other or better method of supplying a temporary want of $100,000,000, than a resort to the last expedient known to finance ;  what he himself calls a forced loan, made in the first year of the war by means which were equivalent to a debasement of the standard of value and a bankruptcy of the government.  It is scarcely necessary to add a comment upon this simple statement.  Any reader in the least familiar with financial history must appreciate the extravagance of Mr. Spaulding’s assumption.  That he acted with perfect honesty and good intention no one will think it worth while to dispute ;  but that he had the least conception of the consequences of what he was doing, or that he grasped even in a limited degree the principles of statesmanship, no unprejudiced or cool observer could imagine.  Like all ignorant men, impatient of resistance or restraint, the moment he saw an obstacle, he knew but one resource, that of a blind and reckless appeal to force.

Mr. Spaulding then, “upon more mature consideration,” converted this section into a separate bill, and laid it before his committee.  The committee, however, was by no means unanimous in accepting Mr. Spaulding’s views of necessity.  It is true, and it is an interesting fact, that the only doubt entertained by Mr. Thaddeus Stevens was in regard to the constitutionality of the law ;  and one is somewhat at a loss whether most to wonder at the profound ignorance thus betrayed or at the constitutional scruples which suggested themselves to this veteran expunger of constitutions.  But though Mr. Stevens and one half the committee approved the bill, the other half stood out firmly against it, and only as a matter of courtesy allowed it to be reported to the House.

On the 7th of January, 1862, the bill was reported.  It authorized the issue of $100,000,000 in treasury notes, to be a legal tender, and exchangeable on demand for six per cent bonds.  Public opinion at once became sharply divided on the merits of the measure.  Delegates from the Boards of Trade and banks of the principal Northern cities appeared in Washington to oppose the bill, and on the 11th of January these gentlemen met the Secretary of the Treasury and the finance committees of the Senate and House, at Mr. Chase’s office in the department.  Here the whole financial policy of the government was made a subject of discussion, and the two paths between which the country was still at liberty to choose were marked out with unmistakable precision.  Mr. Spaulding, on the one hand, insisted not only that his measure was the best, but that it was the only means of raising the money required, and he demanded to know what alternative could be suggested.  On the part of the bank committees Mr. James Gallatin of New York, submitted a complete financial scheme, and, with the plain common sense of a practical man, replied to Mr. Spaulding’s inquiry with the simple proposal that the government should sell its bonds in the open market for what they would bring, without limitation of price.  To this suggestion Mr. Spaulding made the following response : —

“ The Sub-Committee of Ways and Means, through Mr. Spaulding, objected to any and every form of ‘shinning’ by government through Wall or State Streets, to begin with ;  objected to the knocking down of government stocks to seventy-five or sixty cents on the dollar, the inevitable result of throwing a new and large loan on the market without limitation as to price ;  claimed for treasury notes as much virtue of par value as the notes of banks which have suspended specie payments, but which yet circulate in the trade of the North ;  and finished with firmly refusing to assent to any scheme which should permit a speculation by brokers, bankers, and others in the government securities, and particularly any scheme which should double the public debt of the country, and double the expenses of the war, by damaging the credit of the government to the extent of sending it to ‘shin’ through the shaving-shops of New York, Boston, and Philadelphia.  He affirmed his conviction as a banker and legislator, that it was the lawful policy as well as the manifest duty of the government, in the present exigency, to legalize as tender its fifty millions issue of demand treasury notes, authorized at the extra session in July last, and to add to this stock of legal tender, immediately, one hundred millions more.  He thought that this financial measure would carry the country through the war, and save its credit and dignity.  At the same time we should insist upon taxation abundantly ample to pay the expenses of the government on a peace footing, and interest of every dollar of the public obligation, and to give this generation a clear show of a speedy liquidation of the public debt.”

Before commenting further upon this speech, it is necessary to mark with care the fact that, throughout the whole legaltender contest in 1862, there was no question involved but that of resource.  The sum of one hundred million dollars was wanted to carry on the government, and Mr. Spaulding closed every mouth by asking how else the money could be raised, since the banks could provide no more coin and their paper would not properly answer the purpose.  At this time there was no thought of any ulterior process of “ floating the bonds,” which became the ultimate function of the legal-tender paper, and indeed this argument, which implied an intentional depreciation of the paper, would in 1862 have scarcely worked in favor of the bill.  How little weight was put on the idea of “making money easy” is evident from the whole debate, but so far as Mr. Spaulding is concerned, the following letter, written on the 8th of January, 1862, is a sufficiently clear statement : —

“ DEAR SIR, — In reply to yours of the 4th instant, I would say that the Treasury Note Bill for $100,000,000 agreed upon in committee yesterday is a measure of necessity and not one of choice.  You criticise matters very freely, and very likely you may be right in what you say.  We will be out of means to pay the daily expenses in about thirty days, and the committee do not see any other way to get along till we can get the tax-bills ready, except to issue temporarily treasury notes.  Perhaps you can suggest some other mode of carrying on the government for the next one hundred days.... It is much easier to find fault than it is to suggest practicable means or measures.  We must have at least $100,000,000 of paying means during the next three months, or the government must stop payment.... I will thank you to suggest a better practicable mode of getting $100,000,000 of paying means during the next three months.  I would be glad to adopt it, and the committee would be glad to adopt it.  Let us have your specific plan for this purpose, one that will produce the money, and we will be very much obliged to you.”

This curious letter, which, strange to say, Mr. Spaulding has actually published, italics and all, as a meritorious document, tells the whole story of the legal tender in its origin.  As a specimen of American finance and congressional ability it will live in history.  It presents the view on which, then as now, the adherents of this measure have always wished to place it before the public, — as the only alternative to the immediate stoppage of government.  Not as a means of supplying currency, nor of easing the money market, nor of “floating” bonds, was the legal-tender paper first created, but solely to supply a temporary want of $100,000,000, without which the treasury must stop payments.  And Mr. Spaulding flung into the face of every doubter his contemptuous request to suggest some better mode of raising the money, or in future to keep silence.

Three days after this letter was written, Mr. Gallatin, on the part of the New York banks, replied to Mr. Spaulding’s entreaties by the simple and business-like remark of a man who knew what he was talking about, that it was only necessary for Mr. Chase to sell his bonds at their market value, and obtain what money he wanted.  To this suggestion Mr. Spaulding was called upon for a rejoinder.  Obviously he was bound to show that Mr. Gallatin was mistaken ;  that no such alternative really existed ;  and that it was, for some reason or other, impossible to sell the government bonds in the way proposed.  In the speech which has just been quoted Mr. Spaulding did undertake to answer Mr. Gallatin, but he took no such ground as this.  He did not deny the efficacy of the proposed measure.  He did not even question the fact that the resource suggested was both simple and easy.  He only appealed to the dignity of the government.

It appears, therefore, that there was an alternative to legal tender, in spite of Mr. Spaulding’s assertions that there was none.  What this alternative consisted in will be discussed in a moment ;  but as the point is most material in the argument, it will be well to establish here beyond dispute the fact that the existence of this alternative was acknowledged by the supporters of the bill almost in the same breath with which they declared legal tender to be a necessity.  In his speech of the 28th January, on introducing the bill in the House of Representatives, Mr. Spaulding said : —

“ The bill before us is a war measure, a measure of necessity, and not of choice..... We have the alternative either to go into the market and sell our bonds for what they will command, or to pass this bill..... If you offer to the people and put upon the market $300,000,000 to the highest bidder in the present state of affairs, they would not be taken except at ruinous rates of discount.... I fear the twenty years six per cent bonds would under the pressure fall to 75, 70, 60 and even 50 cents.... Why, then, go into the streets at all to borrow money !  I prefer to assert the power and dignity of the government by the issue of its own notes.”

Mr. Hooper, who was second on Mr. Spaulding’s committee, said:—

“ The propositions of committees from boards of trade and banks, which recently visited Washington, differed from the theory of this bill so far as to require that.... the government bonds must first be disposed of, and the money received for them paid to the contractors.... The obvious effect of such an arrangement would be to put the reins of our national finances in the hands of the banks... To render the government financially more independent, it is necessary to make the United States notes a legal tender.  It is possible that they would become a practical tender without providing for them to be a legal tender.”

The alternative, therefore, as seen by Mr. Hooper, was not between legal tender and a stoppage of payments, but between legal tender and dependence on the banks.  Mr. Bingham’s idea of necessity was only a little more ridiculous : —

“ Great names,” said Mr. Bingham, “have been invoked [against legal tender] in this debate.  For what purpose ?  For the purpose of laying at the feet and at the mercy of brokers and hawkers on ’Change, the power of the people over their monetary interests in this hour of their national exigency.”

Mr. Thaddeus Stevens, again, had views of his own in regard to the meaning of the word “necessity ”: —

“ This bill,” said he, “is a measure of necessity, not of choice.... Here, then, in a few words lies your CHOICE.  Throw bonds at six or seven per cent on the market between this and December enough to raise at least $600,000,000, or issue United States notes.... I maintain that the highest sum you could sell your bonds at would be seventy-five per cent, payable in currency itself at a discount.  That would produce a loss which no nation or individual doing a large business could stand a year.”

Senator Sherman also used the word “necessity” in a sense which would have been ludicrous if the subject had concerned the metaphysical doctrine of fate and free will :  “ 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 more amusing example of anti-climax than this is seldom seen in rhetoric.

It would be pleasant to linger over this subject, and enjoy among these apparently tedious speeches the delicate touches of involuntary humor which a critic finds so difficult to resist, but it is useless to accumulate evidence of a point that is selfevident ;  and it is unquestionable that even the strongest supporters of the bill did not in any true and absolute sense maintain that legal tender was necessary, but only that it was preferable to the process of selling bonds at a discount and retaining the old bank currency.  The next step, therefore, must lead to some closer discussion of this opinion, and of the financial principles by which its justice can alone be tested.

Finance is a subject which the liveliest writer may well despair of making popular, since the mere sight or suspicion of it is alone enough to cause every reader, except the dullest, to close the most promising volume.  A writer, therefore, can have no hope of gaining a general hearing on such a topic.  Rarely can he expect sympathy among even business men, unless he adopts the views they hold.  Yet notwithstanding this, it is and will remain true, and not only true but interesting, that in the large experience of modern nations, some few solid principles in finance have been established too firmly to be shaken ;  and whether or no busy politicians or local bankers choose to believe them, and whether or no the ordinary reader choose to listen to them, the principles are sound and will hold.

Hitherto in human history, the mind of man has succeeded in conceiving of but two means by which governments can obtain money.  One of these is, to take.  The other is, to borrow.  The hybrid and self-contradictory notion of a forced loan resolves itself ultimately into one or the other of these conceptions, and as a permanent policy is impossible.  In practice, where a government does not take, it must borrow.

Almost all modern nations are, to a greater or less extent, habitual borrowers so far as their governments are concerned, and therefore it is natural that, during two hundred years of experience, the principles which regulate loans should have been studied with some care, and simplified in some degree into a science.  After innumerable costly experiments and elaborate study of the interests and motives of lenders and borrowers, the effect of complicated financial schemes and special pledges and conditions, it seems to be now acknowledged by the shrewdest governments that the simplest bargain is the best for the public, and that all financial tricks and devices, all attempts to coax or deceive capitalists into better conditions than they are ready to offer, in the end injure only the government and the public.  Simplicity has, therefore, of late years been carried by the great borrowing nations to a degree of scientific perfection beyond which there seems to be no possibility of passing.  According to this principle, governments now sell their own credit without stipulation, reserve, or condition.  They sell, for example, their simple promise to pay a thousand dollars a year so long as it is demanded.  To this promise no condition, expressed or implied, is attached, except that the payment of a nominal principal may at any time discharge the debt.  For this promise they obtain whatever they can, and experience has proved that, in the competition of the world, the bargain thus struck is for both parties the fairest.

Another simple law has also been established, and this is that lenders will always prefer and pay most for a security on which there is a certainty of permanence or a chance of profit, other things being equal ;  that is to say, that a security is relatively less valuable as it approaches its par and its redemption than it should be, judging from the price paid for an exactly similar security which has a better chance of permanence or a wider limit of possible profit.  The English 3 per cents at eighty would commonly have a marked advantage in the markets over 3½ per cents ;  in the first place, because the margin of possible profit would be greater, and in the second place, because there would be no prospect of disturbance in the one case, while in the other redemption would be near at hand.  Experience, therefore, shows that governments as a rule obtain relatively a low price for a security which they insist upon selling at par.

This obvious fact induces most governments to adapt their offer to the market in such a way as to combine these inducements.  If the market rate of interest is at 4 per cent, they commonly offer 3½ or 3 per cent, and thus dispose of their credit at a discount on better terms than if they attempted to outbid the market rate.  The American government, on the other hand, has commonly pursued a different course.  While insisting that it will borrow only at the market rate, that is, at par, it has found itself compelled to concede something in order to be allowed to borrow at all.  In the first place it has to concede a high rate of interest, but even this is not enough.  Lenders require permanence.  It accepts, therefore, the condition that it shall not attempt to redeem its bonds until after the lapse of a term of years, — five or ten, or whatever may be agreed upon.  The expedient is clumsy, but the ignorant prejudice against usury compels its adoption, although, like all such devices, it works in practice only against the public interest and in favor of the capitalist.  Another condition, however, to which the United States government is in the habit of pledging itself is entirely gratuitous.  This is the obligation to redeem after a certain number of years, — an obligation which works wholly against the public interest, and which is without excuse on financial grounds, although the incessant enforcement of a temporary character in the national debt is considered its excuse from a political stand-point.

Every established principle of finance, therefore, indicated that government credit could be sold to more advantage at a certain nominal discount than if a higher interest or any equivalent condition were insisted upon in order to “float” it at par.  If, therefore, the government had chosen to authorize the sale of six per cent bonds at their market price, omitting from the contract all restriction on its own free control over them, it would have done precisely what all established financial rules enjoin, and for such bonds it would unquestionably have obtained the best terms which were then to be had, while at the present day the nation would have owed a homogeneous debt, with which it would have been free to deal as it chose.  Mr. Spaulding, however, apparently imagined that he had discovered some new principle in finance, by which the government might raise money through a process which should be neither taxation nor loan.  Before three years had passed the government was selling its six per cent bonds at a rate equivalent to very nearly thirty-five cents on the dollar ;  but at this time the idea of its credit selling at a discount of twenty or thirty or forty per cent was so revolting to Congress that it was not even to be entertained.  Mr. Gallatin talked in vain.  Nor was it Mr. Spaulding and members of Congress alone who were extravagant on this theme.  At least one gentleman who should have known better, — Mr. Moses H. Grinnell of New York, — encouraged the same delusion.  “As for G[allatin] and a few egotistical gentlemen that act with him, they should be driven out of Washington, as they only embarrass the government.  There are not eight bank presidents that side with G[allatin].  He is an odd fish, — has very little influence here.”  These were the terms used by Mr. Grinnell in a letter dated the 30th January, 1862, and it was a curious sign of the times that the only man who seems to have had a clear and practical knowledge of what the occasion required should have really been “ an odd fish.”

But it is not enough to show that this idea about “shinning” through Wall Street was almost inconceivably absurd, seeing that every government always does and always must borrow on the best terms it can get, or not borrow at all, in which case it can have no resource but to tax.  The event soon showed that the men who treated so contemptuously the idea of the nation’s credit being sold at a discount were the first to convert this same legal-tender paper into the instrument by which the government was to “shin,” not only through Wall Street during the short emergency of the war, but through every lane and alley of the land during a period that now seems interminable.  Congress and the government followed Mr. Spaulding’s doctrine, that the nation’s credit must not be sold at a discount, and the result was that, as the laws of society are inflexible, while the laws of Congress are not omnipotent, there ensued a period of “shinning” which has seldom had a parallel.  The dollar which Congress had set up was “shaved” through Wall Street at twenty, thirty, forty, fifty, and sixty cents discount.  Europe bought the United States six per cents at about thirty-five cents on the dollar, notwithstanding Mr. Stevens’s asseverations that no nation could afford to borrow at seventy without being ruined in a year.  But if Mr. Spaulding and his friends could have foreseen, not only that the government would be compelled to perform this process of “shinning” during four long years, but that, thanks to them and to them alone, the government credit and its broken promises-to-pay would for years longer be hawked about Wall Street at whatever price they could command, and would become the support by which Mr. Jay Gould and Mr. James Fisk, Jr., and their like, would succeed in bolstering up their scandalous schemes against the pressure of sound economical laws, the statesmen of 1862 might perhaps have gained more sensible ideas in regard to the treatment of government credit.

In justice to the Secretary of the Treasury, it must be said that, on the day of the conference, he showed no symptom of yielding to Mr. Spaulding’s influence.  He remained then as before hostile to the principle of legal tender, and before the bank delegates left Washington he succeeded in agreeing with them upon a new financial arrangement which included the adoption of his policy in regard to the bank currency, and rejected the resort to legal tender.  Nor would it perhaps have affected the success of his scheme, that Mr. Spaulding and his committee deemed it inadequate and withheld their assent.  There was a different reason than this, which caused the compromise between Mr. Chase and the banks to fail.  The gentleman who represented the Boston banks on that occasion found on his return to Massachusetts that the arrangement he had made was not satisfactory to them, and he at once telegraphed this information to the Secretary.  Then for the first time Mr. Chase yielded his better judgment, and, relying on his own power and will to control the issues, accepted the policy of legal tender, for which Boston influence thus became immediately answerable.  Having once made his determination to adopt the policy, the Secretary was not a man to hesitate in carrying it out.  He had been drawn into it against his most deeply rooted convictions and his better judgment, but no sooner was the decision made than he threw his whole weight in favor of the bill.

Thus, in spite of the treasury and the banks and the active remonstrances of a great part of the community, the bill came before the House of Representatives as a government measure.  Two months of delay and confusion had seriously complicated the difficulties of the case, but even yet no necessity existed which could in any just sense be considered to exact the adoption of legal tender.  The cry of necessity was indeed raised, and prolonged without a pause, but it was raised merely because no solid argument could be found.  The ablest members of Congress denied the necessity without qualification, and, as has already been shown, the ideas of necessity held by the different supporters of the bill were almost as various as the speeches.

The debate began on the 28th of January, by a speech from Mr. Spaulding, in which he explained at considerable length his reasons for forcing on the country a measure which was so generally obnoxious.  There seems to be something almost extravagant in so often recalling attention to Mr. Spaulding’s speeches, which have little intrinsic claim to notice.  But Mr. Spaulding was at this moment in a position of vast responsibility.  His activity and persistence had carried the bill “over the administration,” and were now to carry it through the House.  It is not easy, therefore, to set him aside as a person of no consequence, or to pass his opinions by as undeserving of attention ;  and indeed, however open to criticism these opinions may have been, Mr. Spaulding has a perfect right to claim that they were little if at all inferior in merit to those expressed by the other friends of the bill.  It is true that if any object were to be gained by reviewing this ground, if it were intended to conciliate support for new opinions, or to lay down principles for a new party, it would be well to speak in milder terms of men whose power and authority have not yet passed wholly away.  But the only inquiry that can have value here is to ask how the future historian will be compelled to treat this chapter of American history ;  and, unless the world is to move backward, it seems as though he must inevitably declare that not all the campaigns of all the unfortunate or incompetent generals employed during the Rebellion can furnish an instance of grosser mistreatment than was offered by Congress in these debates.  The good sense and high moral standard of a few men served only to relieve and make more conspicuous the dark and impenetrable cloud of ignorance against which their efforts were utterly thrown away.  This language is no doubt strong, but it is strictly true.  It would, for example, have been difficult for any human being to compress within the same limited space a greater number of mistaken ideas than are contained in the following extract from Mr. Spaulding’s speech of January 28th : —

“ The bill before us is a war measure, a measure of necessity, not of choice..... Congress may judge of the necessity in the present exigency.  It may decide whether it will authorize the Secretary of the Treasury to issue demand treasury notes, and make them a legal tender in payment of debts, or whether it will put its 6 or 7 per cent bonds on the market, at ruinous rates of discount, and raise the money at any sacrifice the money-lenders may require, to meet the pressing demands upon the treasury.  In the one case the government will be able to pay its debts at fair rates of interest ;  in the other, it must go into the streets shinning for the means, like an individual in failing circumstances, and sure of being used up in the end by the avarice of those who may exact unreasonable terms.  But, sir, knowing the power of money, and the disposition there is among men to use it for the acquisition of greater gain, I am unwilling that this government, with all its immense power and resources, should be left in the hands of any class of men, bankers, or money lenders, however respectable or patriotic they may be.  The government is much stronger than any of them.  Its capital is much greater.  It has control of all the bankers’ money and all the brokers’ money, and all the property of the thirty millions of people under its jurisdiction.  Why then should it go into Wall Street, State Street, Chestnut Street, or any other street, begging for money ?  Their money is not as secure as government money.  All the gold they possess would not carry on the government for ninety days.  They issue only promises to pay, which, if Congress does its duty, are not half as secure as United States treasury notes based on adequate taxation of all the property of the country.  Why, then, go into the streets at all to borrow money ?  I am opposed in our present extremities to all shifts of this kind.  I prefer to assert the power and dignity of the government by the issue of its own notes.”

He would be a bold man who should undertake to say that these remarks can, by any process of explanation, be made intelligible.  The conclusion, however, is clear enough, and is well worth attention.  Had Mr. Spaulding’s studies ever led him to read Goethe’s Faust, he might at this point have recalled the scene where Mephistopheles, in the character of court-jester, invents for the empire a legal-tender currency based on the firm foundation of old treasures which in past ages might have been hidden underground, and applauds his own creation as better than coin, because, if the bankers refused to give coin for it, the holder would at worst have only the trouble of digging.  The great satirist, however, with all his genius, was not so great a satirist as Mr. Spaulding.  He never thought of carrying the bitterness of his sarcasm so far as to invoke the dignity of the empire as the chief glory of his paper money, and yet Mephistopheles closes his scene with the exulting exclamation : —

“ Wer zweifelt noch an unsers Narren Witz !”

Yet one thing remains to be said before quitting Mr. Spaulding.  If he really had an idea in his own mind, and sincerely believed that the government need not go into the streets at all to borrow money, and that a simple assertion of its own dignity would place it in command of indefinite resources ;  in other words, if he thought that the dignity of the government forbade its borrowing, except on its own terms, and that there was no necessity for it to borrow at all, it is a matter of grave question how he can justify himself in having consented that the government should pay 6 per cent or even 1 per cent for money, or should promise to repay any money whatever.

The argument of Mr. Hooper was less extravagant.  He avoided committing himself to anything except to a cautious opinion that the paper issue would make the government financially more independent, and that if Mr. Chase were discreet, the quality of legal tender would help him to keep the notes at par.  The latter opinion may, perhaps, be questioned, and indeed Mr. Chase has himself questioned it in his late judgment, but at least it was not absurd.

Mr. Bingham, however, rivalled Mr. Spaulding, though in different way.  His speech was necessarily made without reference to financial principles, since Mr. Bingham made no pretence to the slightest acquaintance with that subject.  He therefore assumed at the outset that the bill was necessary, because it was said to be necessary, and he then burst into a brilliant denunciation of all persons who refused to believe in the necessity.  Mr. Roscoe Conkling was the victim first immolated.

“ Sir,” said Mr. Bingham, “ as a representative of the people I cannot keep silent when I see efforts made upon this side of the house and upon that, to lay the power of the American people to control the currency at the feet of brokers and of city bankers, who have not a tittle of authority, save by the assent or forbearance of the people, to deal in their paper issued as money.  I am here to-day to assert the rightful authority of the American people as a nationality, sovereignty, under and by virtue of their Constitution.”

Such legal finance would not call for notice, except that it came from a leader in Congress, who, in order to protect the sovereignty of the American people from bankers and brokers, insisted upon creating a legal-tender paper currency, which has always been and always will be the most efficient instrument ever yet discovered for the worst purposes of this very class of men.  Yet Mr. Bingham denounced his opponents for acting with the purpose of sacrificing the public interest to the interest of bankers and brokers.  At the same time it is mortifying to observe the ignorance and vulgar prejudice with which the bankers and brokers of the country were always mentioned in these debates.  Perhaps no other single characteristic offers so much instruction as this simple fact, in regard to the temper and the range of thought exhibited in this momentous discussion.  Mr. Bingham’s remarks have already been quoted.  Mr. Stevens, with his usual nice discrimination, characterized the dealers in money as “sharks and brokers,” to which he afterwards added “harpies.”  Mr. Shellabarger, after appropriating bodily and almost literally several pages of Macaulay’s most luminous and most familiar writing, in the effort to maintain himself on Macaulay’s level without Macaulay’s aid, could discover no more original idea for his peroration than to denounce the outside opposition to this bill as coming from interested persons in the expectation “that out of the blood of their sinking country they may be enabled to coin the gains of their infamy.”  Senator Wilson announced that the practical question lay between “brokers and jobbers and money-changers on the one side, and the people of the United States on the other.”  Invective like this properly belongs only to a debating-club of boys.  But if invective were to be used at all, and if these bankers had been represented in Congress by any person capable of using it, he might easily have retaliated in a manner which would have left little opportunity for an effective rejoinder.  He might have replied that men who claim to be trusted for all they say in regard to a financial exigency ;  who assert in one breath that a necessity exists, which in the next breath they acknowledge does not exist ;  who presume on this utterly unwarrantable plea of necessity to exculpate themselves from what, without exculpation, is the wickedest vote the representative of the people can ever give ;  a vote which delivers labor to the mercy of capital ;  a vote which forces upon the people that as money which in no just sense is money ;  a vote which establishes as law one of the most abominable frauds which law can ever be prostituted to enforce ; — that such men are not the persons to judge of others’ patriotism, honesty, or good sense.

And here it may be proper to add a remark as to the disposition of Congress to stumble over constitutional difficulties.  A very large part of the debate turned on the point of technical construction of the Constitution ;  and many members of the legislature who hesitated about nothing else found an insurmountable obstacle here.  The constitutional argument, whatever its weight may be, is one on which only lawyers will be likely to insist.  Whether, under a strict interpretation of constitutional powers, the law of legal tender is to be justified or not, can make but little difference to persons who look for their principles of action beneath the letter of the Constitution, to the principles upon which all government and all society must ultimately rest.  The law of legal tender was an attempt by artificial legislation to make something true which was false.  This is the sum-total of the argument against legal tender, and this argument is based on the eternal maxim that the foundation of law is truth.  If it is possible for the rhetoric of congressional orators or the ingenuity of professional lawyers to reduce the principle involved to simpler elements than this, at all events neither the debates at the Capitol nor the arguments at the bar, however brilliant or elaborate they may have been, have as yet shown any probability of success.

It would be pleasant to extract from the speeches delivered in favor of this bill any such portions as show depths of knowledge, elevation of morals, or breadth of mind.  Unfortunately nothing of the sort exists.  Almost all the soundest minds in the House declared themselves against legal tender and denied its necessity.  Judge Thomas of Massachusetts and Mr. Roscoe Conkling of New York, Mr. Morrill of Vermont, from the Committee of Ways and Means, Mr. Horton of Ohio, also of the Ways and Means, all the Democratic members, and others who contented themselves with a silent vote, opposed the legaltender clause.  And by some freak of nature, which seems occasionally to amuse itself with putting into the mouths of extreme and violent men language and argument which express the most elevated sense of fitness, the speech of Mr. Owen Lovejoy of Illinois was in its short space as clear, as vigorous, and, from a rhetorical point of view, as perfect, as the oldest statesman or the most exacting critic or the deepest student of finance could have hoped or wished to make.  But although the opponents of the measure were far superior in intellect to its supporters, and although their arguments were essentially sound, and under ordinary circumstances would probably have proved successful, they could not deal with the authority of the executive, which Mr. Chase now used with all his energy in favor of the bill.  On the 6th of February Mr. Spaulding pressed his measure to a vote, and it passed the House by a majority of 93 to 59.

One can scarcely resist the conclusion that, had the bill originated in the Senate, and been discussed without the prejudice arising from the responsibility of rejecting what was approved by the House and urged by the Executive, and had it been acted upon before so much valuable time had been lost, the country would probably for the time have been spared the great misfortune of its adoption.  This opinion is rendered probable by the higher and more statesmanlike spirit in which the Senate discussed the proposed measure.  If it were possible that a mere word of unqualified admiration could please the ear or help to soothe the rest of a statesman whose loss the nation has regretted but has never fairly appreciated, there would be a keen and personal pleasure in repeating the language of Mr. Fessenden, who reported this bill to the Senate : —

“ The question after all returns :  is this measure absolutely indispensable to procure means ?  If so, as I said before, necessity knows no law.  What are the objections to it ?  I will state them as briefly as I can.  The first is a negative objection.  A measure of this kind certainly cannot increase confidence in the ability or integrity of the country.....

“ Next, in my judgment, it is a confession of bankruptcy.....

“ Again, say what you will, nobody can deny that it is bad faith... and encourages bad morality both in public and private.....

“ Again, it encourages bad morals, because if the currency falls (as it is supposed it must, else why defend it by a legal enactment), what is the result ?  It is that every man who desires to pay off his debts at a discount, no matter what the circumstances are, is able to avail himself of it against the will of his neighbor who honestly contracted to receive something better.

“ Again, sir, necessarily as a result, in my judgment, it must inflict a stain upon the national honor.....

“ Again, sir, it necessarily changes the value of all property.....

“ Again, sir, a stronger objection than all that I have to this proposition is that the loss must fall most heavily upon the poor by reason of the inflation.”

He concluded by declaring that in his opinion the legal-tender clause was not necessary, and he reported several amendments.  One of these, the second, he described in these terms :  “ The committee... give to the Secretary the power to sell the bonds of the government at any time that it may be necessary, at the market price, in order to raise coin.  That can always be done.”  This amendment was ultimately adopted and became part of the bill, but the Secretary preferred reaching the same result by a different policy, and the old system was therefore retained.

But it was reserved for Mr. Collamer of Vermont to take yet stronger and more uncompromising ground.  “ Even if it was a necessity,” said he, “ I would not vote for this measure.”  Fidelity to a trust is not so universal that one might not be permitted to sympathize with a man who, when placed between the alternatives of utter destruction on the one hand and what he thinks a breach of trust on the other, in spite of necessity still maintains the standard of his personal honor.  But there was in reality no such bravado in this declaration of Judge Collamer’s.  It was not mere impracticability that prompted his resistance, but a superior discernment that the evidence of necessity which imposes on a legislative body in times of panic is not to be trusted.  Even on a calculation of chances, it is far more likely that other resources are available than that so desperate an expedient should offer the only hope of salvation.  Nay, a measure which in itself is inherently and irredeemably wrong cannot in any just sense be a necessity.  Mr. Collamer’s speech, therefore, was only an energetic expression of his resolution, not that he would refuse to obey necessity, but that he would refuse to believe it.

The position taken by Mr. Sumner [he was a radical reconstructionist, he did what he did purposely, his aim was the reorganization of the United States; years later he voted for reduction of currency and credit strengthening] wanted only the same defiant confidence in the eternal laws of truth to have made it still more impressive than any of the others.  Unhappily, by the side of Mr. Fessenden and Mr. Collamer, his conclusions seemed tinged with irresolution : —

“ And now, as I close, I will not cease to be frank.  Is it necessary to incur all the unquestionable evils of inconvertible paper, forced into circulation by act of Congress, — to suffer the stain upon our national faith, — to bear the stigma of a seeming repudiation, — to lose for the present that credit which in itself is a treasury, — and to teach debtors everywhere that contracts may be varied at the will of the stronger ?  Surely there is much in these inquiries which may make us pause..... It is hard, very hard, to think that such a country, so powerful, so rich, and so beloved, should be compelled to adopt a policy of even questionable propriety...... Surely we must all be against paper money, — we must all insist on maintaining the integrity of the government, — and we must all set our faces against any proposition like the present, except as a temporary expedient rendered imperative by the exigency of the hour...... Others may doubt if the exigency is sufficiently imperative, but the Secretary of the Treasury does not doubt..... Reluctantly, painfully, I consent that the process should issue.”

The authority of the Secretary of the Treasury overruled the scruples of the Senate, and the bill passed by a majority of five votes on the legal-tender clause.  It is scarcely worth while to carry the scene back to the House, in order to ascertain the fate of the Senate amendments, or to cull from the second debate new subjects for quotation.  It is easy, only too easy, to ridicule and satirize the doctrines of public men, and something like an apology to the public is due for the extent to which this appetite has been indulged in these pages.  It is but just to add that Mr. Spaulding at least did strongly and invariably insist upon the difference between legal-tender notes that were fundable and the later issue of greenbacks which were not so.  In point of fact the difference was very slight.  There was nothing in the condition of fundability which made legal tender anything but legal tender, nor would the principle of legal tender have been any sounder, even though it had been attached to the bonds themselves.  It is amusing to notice that, as the later issues of legal tender were made, and the depreciation became excessive, Mr. Spaulding by similar steps became virtuous, until at last his virtue grew intense.  He attributed the failure of his favorite financial scheme to the mistakes of others, and he proposed as an infallible cure a restoration of his funding proviso.  There is little probability that Mr. Spaulding’s mind will ever succeed in gaining a higher stand-point than this, or will ever look over a wider horizon where it can more broadly measure the uncontrollable power of the elements which he, like the unlucky companions of Ulysses, ignorantly set free.

Such was the history of the legal-tender bill.  So far as any evidence of its necessity can be drawn from the action of the Executive at the time, the late decision of Chief Justice Chase has left no doubt as to the facts.  That Mr. Chase should, as Secretary of the Treasury, have adopted the course he did was doubly unfortunate :  in the first place, because he created legal tender ;  and in the second place, because when the delusion was over, and his mind reverted to its first sound principles, the action he had taken as Secretary of the Treasury remained in the public memory to reduce the authority of the opinions he was bound to express as Chief Justice.  Into the legal correctness or political propriety of these opinions it is no purpose of this essay to enter.  No one who holds strong convictions against legal tender as a measure of finance is likely greatly to trouble his mind with the question whether such a power has or has not been conferred by the Constitution upon Congress.  Though it were conferred in the most explicit terms language is capable of supplying, there could be no excuse on that account for changing an opinion as to its financial merits, and its financial merits are not a subject for lawyers, nor even for judges, as such, to decide.  These happily rest on principles deeper than statute or than constitutional law.  They appeal to no written code, and whenever the public attempts to overrule them, the public does so only at its own peril.

There remains but one more point to touch.  The common impression undoubtedly is, that even though there were no actual necessity for a law of legal tender so early as February, 1862, yet at some subsequent time the enactment of such a law would have proved inevitable.  This opinion should properly form the subject of a separate paper.  If it be once acknowledged that the law of February, 1862, was unnecessary and passed by a practical fraud, the whole condition of the argument is changed.  Whenever the public has reached this point, it will be time to enter upon the wider field of discussion into which so vague and general a proposition must lead.  Yet, without venturing at present on any absolute denial of the theory, since this would require much explanation and reasoning, it is only fair to say that, although the subject is scarcely capable at present of positive demonstration, there is absolutely no evidence to prove that the government might not have carried the war to a successful conclusion without the issue of a single dollar of its legal-tender paper.  Such appears to be the opinion of the Chief Justice, as it is undoubtedly the natural inference from economical principles.

It is, however, true that after the first issues of the paper, its original purpose and importance as a resource against a temporary exigency — that purpose which had been so discreditably used in forcing the bill through Congress — was almost wholly lost from sight, and the paper assumed entirely new functions as a financial instrument.

The government, adhering to the policy of selling its bonds only at par, was obliged to consider its paper as the par standard, and the next step was to issue, of its own accord, enough paper to “float” the successive loans.  This was equivalent to selling its credit at the market price, with the addition of voluntarily degrading its own standard of value.  In order to protect the nation’s credit from degradation in the hands of bankers and brokers, the government undertook to dishonor it of its own free will.  As a financial policy, this tortuous and disreputable expedient will not bear a moment’s examination ;  but there was one incidental function of the paper, closely connected with this, on which more stress may be laid.  The issue of paper money in large quantities does produce a temporary and feverish excitement, which, during a certain length of time, may facilitate borrowing, though at a frightful ultimate cost.  If the sole object of the legal tender were to cause this temporary stimulus, and if this stimulus can be proved to have been essential to financial success, the management of the nation’s financial affairs during the war may admit of excuse if not of praise.  Unfortunately, neither of these conditions can be established.

This essay aims at no advocacy of any financial nostrum, nor at any cure of present difficulties.  In the popular humor of the moment, it is more than ever doubtful whether any advice that is wise would be listened to, or whether any advice that has a chance of being listened to could possibly be wise.  Mere knowledge has no hold upon political power in its treatment of this subject.  Other considerations are supreme both in Congress and in the public mind.  But although knowledge, and the application of simple truth in politics, are for the present divorced from power and no longer control the course of current events, yet at least the past belongs to them as their exclusive property, and no one can prevent the past from receiving, sooner or later, the judgment which historical criticism must inevitably exact for the betrayal of principles to which it pretended allegiance.

*    From the North American Review for April, 1870.

2    Mr. Spaulding’s share in the passage of the Bill is described in these words by his colleague, Hon. T.M. Pomeroy, in a speech delivered in the House of Representatives on the 19th February, 1862.