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of war. It secured prompt and ample supplies for the army and navy.
It invigorated the industries of the people. It was a substitute for
money that at the time performed all the functions of money. The
depreciation as measured with gold w r as gradual, and in the main
salaries and wages advanced with the advance in prices. The pre-
mium on gold became only a name a symbol for speculators who
gambled upon the fluctuations of the gold market. The state of the
currency was not really measured by the fluctuations in gold, which
rose and fell without any apparently adequate cause. Gold rose when
there was no increase in the currency, and fell when it was increased
by large additions. The price of gold was only a barometer of mili-
tary success or failure from the standpoint of the gamblers of the
Stock Exchange and the gold room. The premium in New York in
1862 rose from 3 per cent, on the 13th of January to 4f per cent, on
the 13th of February; then it fell to 1$ per cent, on the 13th of March.
Afterward there was a rise, but on the 13th of June it had reached
only 5 per cent. On the 15th of July it was 17; on the 15th of Octo-
ber 32|, and on the 31st of December 34. During the year 1863 the
fluctuations were greater than in 1862, the premium rising and fall-
ing with the w T ar bulletins. On the 25th of February gold had ad-
vanced to 72, but upon the receipt of favorable news from the South-
west it fell to 40 on the 26th of March. On the 2d of April it had risen
to 58, but a favorable report of an attack on Fort Sumter brought it
down to 461. The battle of Gettysburg and the surrender of Vicks-
burg brought gold as low as 23^. The highest premium during the
rest of the year was 56f. In 1864 the premium rose from 52 on the 2d
of January to 88 on the 14th of April. It fell again to 67 on the 29th,


but on the 22d of June the passage of the Gold bill sent it up to 130,
to be followed the next day by a fall of 15 points. When the resigna-
tion of Secretary Chase was announced July 1, 1864, gold reached 185,
but the next day it dropped to 130. After further fluctuations it had
fallen to 87 on the 10th of September. It would be idle to look for any
adequate cause for these wide divergences, and people paid no atten-
tion to the premiums on gold, unless a stray " demand note " came to
light to be turned into " greenbacks " at a great advance on its
face value. The constitutionality of the legal tender issues had not
yet become a practical question, just as the constitutionality of the
income tax was held in abeyance. The history of the " greenbacks "
shows how little practical value the principles of the economists have,
for they made the prosecution of war possible and saved what the
prophets of finance said they were fated to destroy.

The creation of the National Banking system, although it was al-
most co-ordinate with the extensive issues of legal tenders, was
neither a war measure nor one that attained great political impor-
tance, either during the War Period or the Period of reconstruction.
The National banks were necessary to a national currency. The State
banks, although no longer on a specie-paying basis, still retained and
exercised the right of issuing circulating notes. At first they were
hostile to any change, but the circulation of the legal tenders soon
brought their notes into disfavor even in the localities where they
were issued. In order to make a system of National banks possible
it was necessary to tax the State banks out of existence. It is un-
necessary in this place to follow the steps by which the new system
was established. The central idea of the system was to establish a
uniform circulation of equal value throughout the country upon the
foundation of national credit combined with private capital. The
banking associations were required to invest a fixed capital in United
States bonds, and privileged to receive in return United States
notes, to be employed in discounts and exchanges. The State banks
were allowed to reorganize under the act. The measure was under
discussion in Congress, and before the country previous to its becom-
ing a law, June 3, 1864, for a longer period than any of the great
financial or military measures of war times. The system not only
proved successful in freeing the country from the objectionable State
banks, but it was of great service to the Government in placing the
national loans and funding the debt.

It was not until 1867 that final judicial action was taken on the con-
stitutionality of the Legal Tender Act by the Supreme Court of the
United States. The decision was in the now famous case of Hepburn
against Griswold. In 1860 Mrs. Hepburn made a promissory note by


which she was to pay to Henry Griswold, February 20, 1862, the sum
of $11,250. The note not being paid at maturity, which was five days
before the Legal Tender Act was approved, suit was brought in the
Louisville Chancery Court, where Mrs. Hepburn, in 1864, tendered
f 12,720 in United States legal tender notes in payment of Griswold's
claim, principal and interest. The tender was not accepted, but the
case was decided against him. This action was reversed by the Court
of Errors of Kentucky, whereupon Mrs. Hepburn appealed to the
Supreme Court of the United States. The case was argued at the De-
cember Term, 1867, and elaborately reargued at the December Term,
1868. It had not yet been decided when President Grant took office,
but the decision was announced at the December Term, 1869. By the
decision the Legal Tender Act was declared unconstitutional. The
opinion was read by Chief Justice Chase, Justices Harlan, Clifford,
Grier, and Field concurring. Justice Miller read a dissenting
opinion for himself and Justices Swayne and Davis. This was re-
garded as a Democratic judgment, none of the Justices who swept
away the law that had contributed so much to the perpetuity of the
Republic being in sympathy with the Republican party. When the
majority of the Court was Republican, as it soon became by the ap-
pointment of Justices Strong and Bradley, the Supreme Court re-
versed the decision in cases that, it was claimed, were governed by
the judgment in Hepburn against Griswold. There was a great out-
cry against this action by Democrats, who, only a short time before,
were in favor of paying the interest on the national debt in legal ten-
ders. Justice Bradley, especially, was subjected to the most virulent
abuse. The controversy was an unfortunate one, not so much because
the question was decided both ways, as because it was decided at all.
Equity required that Mrs. Hepburn should pay her indebtedness in
coin, and the interests of the country required that in the near future
there should be a return to coin payments. But if Griswold had been
compelled to accept " greenbacks " his case would not have been
harder than that of thousands of men who went into debt on a cur-
rency basis and were compelled to pay on a gold basis. If the neces-
sity to resort to legal tender notes should present itself in the future
to save the life of the nation, these conflicting decisions w r ould stand
in the way of a remedy that proved vastly beneficial only to be doubly

The equities involved in the conflicting decisions of the Supreme
Court in regard to the constitutionality of the Legal Tender Acts was
applicable with even greater force to the payment of the national
debt at the beginning of President Grant's administration. The
two parties were diametrically opposed to each other on this question


when the President sent his first annual message to Congress in De-
cember, 1869. The Republicans stood on the firm ground that pay-
ment of Government obligations should be in coin, unless payment in
paper money had been previously agreed upon; the Democrats in-
sisted that all such obligations might be paid in paper, unless pay-
ment in coin had been previously agreed upon. In his message the
President expressed the belief " that immediate resumption, even if
practicable, would not be desirable," but he said that " a return to a
specie basis should be commenced immediately." All this time Hor-
ace Greeley was asserting his famous epigram that the way to resume
was to resume. As a matter of fact, resumption was not a question
of will, but of ability. Before there could be resumption it was neces-
sary that the national debt should be refunded at a lower rate of in-
terest than was carried on the face of the various issues of United
States bonds. This neither of Chase's successors at the head of the
Treasury had been able to accomplish. Both Mr. Fessenden and Mr.
McCulloch were more concerned with raising money to meet pressing
obligations than with reducing the rates of interest that enabled
them to find takers of their bonds. Mr. Fessenden soon withdrew
from a position for which his temperament scarcely fitted him. Mr.
McCulloch had been in office only a short time when President Lin-
coln was assassinated. Under President Johnson he was weakened by
the odium that attached to a hated Administration. But he was a
careful, methodical man, and a sound financier. As early as the au-
tumn of 1865 he was looking forward to the time when the irredeem-
able paper money of the Government might be made convertible.
" The present inconvertible currency of the United States," he said in
a speech in Indiana at that time, " was a necessity of the war; but
now that the war has ceased, and the Government ought not to be
longer a borroAver, this currency should be brought up to the specie
standard, and I see no way of doing this but by withdrawing a por-
tion of it from circulation." He secured the withdrawal and cancel-
lation of nearly fifty millions of legal tender notes under the act of
1866, but in the main Mr. McCulloch's energies, apart from the routine
work of the Department, were directed toward funding the immense
temporary obligations of the Government. His administration of
the Treasury was highly creditable, especially when his environment
is considered, and he turned over the Department to his successor,
Mr. Boutwell, with a reputation that again brought him back to it in
later years, under an administration that had none of the antago-
nisms that made his work so difficult from 1865 to 1869. The appoint-
ment of George S. Boutwell as Secretary of the Treasury under Presi-
dent Grant was not favorably regarded by business men. He was


known as an active partisan in Congress, and was supposed to be
narrow in his views of finance and limited in financial knowledge.
Grant's choice for the place had been a man eminent for business suc-
cess Alexander T. Stewart, the millionaire merchant of New York.
As an importer Stewart was ineligible under the laws, and the nomi-
nation was withdrawn very reluctantly by the President and to the
great disappointment of the ambitious merchant. Grant, accustomed
to military methods, wanted Congress to make Stewart eligible by
joint resolution, but Congress declined to make a precedent by oblig-
ing the soldier President. Mr. Boutwell was not a great financier,
but neither was he narrow or ignorant, and his management of the
Treasury was careful and creditable. The gradual retirement of the
legal tenders, the reduction of taxation, and the funding of the na-
tional debt in bonds, with interest not to exceed four and a half per
cent., were the tasks that Secretary Boutwell set for himself. Con-
gress responded with the necessary legislation, and under the acts of
July 14, 1870, and January 20, 1871, authority was given for the issue
of 1500,000,000 in bonds at five per cent., payable in ten years, $300,-
000,000 at four and a half per cent., payable in fifteen years, and
11,000,000,000 at four per cent., payable in thirty years all to be pay-
able in coin and exempt from taxation, and to be issued without any
increase of the national debt. The contemplated funding operations
were delayed by the war between France and Germany, and in 1871,
when confidence was partly restored, it was found possible to dispose
of the five per cents only.

One of the causes that impeded funding the national debt in low in-
terest-bearing bonds at that time was the existence of so many finan-
cial vagaries in the public mind. The exemption of the bonds from
taxation and their payment in coin had been so stubbornly resisted in
Congress that capitalists held aloof, uncertain of the future. With
gold at 110 and constant exportations of bullion, with the balance
of trade against us and production almost at a standstill, with the
national banks weakened by prejudice and opposition; with the cur-
rency deranged by the demand for the increased issue of fiat money,
on the one hand, and the destruction of the legal tender quality of
the greenbacks on the other, and with resumption forced so far into
the future as to seem only a dream, it was not only impossible that
Mr. Boutwell should succeed in funding the debt, but there were por-
tents that distrust would be followed by disaster. These culminated
in the panic of 1873.

The monetary panic of 1873 was the beginning of reaction. The
crisis was due to some extent to the contraction of the currency, in
consequence of the retirement of legal tenders, and the rapid payment


of the public debt. Its chief causes, however, were speculation and
overtrading, and the losses involved in the transition from inflation
toward resumption and a sound currency. The financial heresies
of the Democratic platform of 1808, and the greenback craze, that
finally resulted in the organization of the Greenback party, were con-
tributing causes. Business men especially in the West and South-
west believed that an increased circulation of notes would relieve
the depression that followed the monetary crisis. Even President
Grant was disposed to regard renewed inflation as a remedy. " In
view of the great actual contraction that has taken place in the cur-
rency,-' he said in his annual message in December, 1873, " and the
comparative contraction continuously going on, due to the increase
of manufactures and all the industries, I do not believe there is too
much of it now for the dullest period of the year. Indeed, if clearing-
houses should be established, thus forcing redemption, it is a question
for your consideration whether banking should not be made free, re-
taining all the safeguards now required to secure billholders." Many
of the Republican Senators and Representatives shared in the views
of the President, and the Finance Committee of the Senate reported
a bill fixing the maximum limit of United States notes at f 382,000,000.
This was afterward increased to |400,000,000, which was $44,000,000
above the amount of legal tender notes then in circulation. More than
this, the Senate went so far as to refuse to allow a clause for future
reduction. An enlargement of the circulation of the National banks
was made at the same time. The House w r as not in entire accord with
the Senate, but the differences were in matters of detail only, and the
Senate bill was agreed to by both Houses without any radical changes
in its provisions. In the mean time, however, the President had re-
ceded from his own recommendations, and he vetoed the bill. In con-
sequence of the veto Congress failed to pass any measure of relief.
This led to so much dissatisfaction that a Democratic House of Repre-
sentatives was chosen in 1874, for the first time since 1862. The de-
feat was a warning that was not allowed to go unheeded, and an act
to provide for the resumption of specie payments was passed before
the adjournment of the 43d Congress. The Resumption Act of 1875
was the basis upon which the return to specie payments was finally

" Nearly ten years had elapsed since the w r ar closed," says Mr.
Elaine in his " Twenty Years of Congress," " and although the subject
was one which constantly engaged the attention of financiers and to
a large extent enlisted the interest of the public, it had never been
framed into a practical legislative measure. It had now been accom-
plished, as might well be said, in a day. The pressure upon the Repub-


licans, caused by the Democratic victory of the preceding autumn,
was very great. The Democratic Senators and Representatives,
though recording themselves unanimously in opposition to the
measure, were not willing to risk its defeat by the parliamentary
strategy of delay, as they might easily have done. Their party leaders
had no faith in the measure, but they knew how troublesome was the
subject; they knew that it had proved the stumbling-block in the Re-
publican policy for years, and they were more than willing that it
should be taken out of the way on the eve of their accession to the
control of the House of Representatives. If the act should prove to be
successful their hostility to it might be forgotten, and they could
well arraign their opponents for so long neglecting to enact it. If,
on the other hand, it should prove unsuccessful, it would remain a
standing reproach to the financial policy of the Republican party.
Benefits, as they well knew, are soon forgotten, while injuries are
tenaciously remembered; and this they believed was as true of parties
as of persons. In short, as the leaders of the Democracy viewed it,
the Resumption Act, passed over their combined vote, could do them
no harm, while the chances were that it would inure to their advan-

Closely allied with the Resumption Act, as it turned out when the
time came for resumption, January 1, 1879, was the Coinage Act of
1873. This was the measure that many years afterward became so
conspicuous in party politics as " the crime of 1873." The act omitted
the standard silver dollar from the coinage of the United States. The
silver coins authorized in this act w r ere: the " trade dollar," the half-
dollar, quarter dollar, and dime. The weight of the " trade dollar "
was fixed at 420 grains troy; of the half-dollar at twelve and one-half
grammes; of the quarter dollar at six and one-fourth grammes, and
of the dime at one-fifth of the half-dollar. The standard for both gold
and silver coins was not changed, except that the allo3 r for the gold
coin might be wholly of copper, or have one-tenth part of it silver.
The weight of the gold coins was fixed at 510 grains for the double
eagle, 258 grains for the eagle, 129 grains for the half-
eagle, seventy-seven and four-tenths for the three-dollar piece,
sixty-four and one-half grains for the quarter-eagle, and
twenty-five and eight-tenths for the gold dollar. These gold
and silver coins, and none other, were thereafter to be issued; and
except the " trade dollar " and silver for the sum of five dollars,
gold was the only coinage that had a legal tender quality affixed to it
by law, under this act. By the joint resolution, approved July 22,
1876, the legal tender quality of the "trade dollar" was abolished,
and the Secretary of the Treasury was authorized to limit its coinage


" to such an amount as he may deem sufficient to meet the export
demand for the same."

With resumption the question arose as to the meaning of the word
" coin " in the Resumption Act of 1875. Did it mean gold and silver,
or gold only? It was found that demonetization had been accom-
plished by the omission of the standard silver dollar from the coinage
of the United States. The omission had attracted no attention and
had met with no opposition. When the legal tender quality of the
" trade dollar " was withdrawn in 1876, silver, as a standard of value,
disappeared from the coinage. After that remonetization became an
issue, as will be found in the subsequent chapters of this work.



Unfriendliness of Europe During the Civil War England's Hostility
The Trent Affair English and French Neutrality Mr. Day-
ton's Indignant Protest Recognition of the Southern Confed-
eracy Ocean Belligerency Failure of the Johnson-Clarendon
Treaty President Grant's Recommendations Hamilton Fish
The Joint High Commission Treaty of Washington Settlement
of Pending Difficulties with Great Britain Purchase of Alaska
Opposition to the Treaty in the House The United States and
Russia Treaty for the Annexation of San Domingo Mr. Sum-
ner's Hostility to the Treaty Sumner and Grant Reactionary
Influences of the Period.

HE diplomatic relations of the United States were skillfully
managed by Secretary Seward during the long period be-
tween the inauguration of President Lincoln and the retire-
ment of President Johnson. As a result of the Civil War
many delicate and dangerous controversies had arisen with powers
hostile to the Union, especially Great Britain and France. Without
provocation of any kind Lord John Russell exhibited an unfriendly
spirit toward the incoming Administration even before Mr. Lincoln
took office. The cause of his haste was, no doubt, the supposed foreign
policy of Mr. Seward for averting the war. There is no other possible
explanation of Lord John's threats, when he undertook to " warn a
government which was making political capital out of blustering
demonstrations, that our patience might be tried too far." The gov-
ernment of which he spoke so hotly had not yet an existence. This
spirit entered into all the diplomatic relations of Great Britain and
the United States at that time. So eager was Her Majesty's Govern-
ment for a dissolution of the Union that it did not w r ait for the arrival
of Charles Francis Adams, the new American Minister, in England
before issuing a proclamation recognizing the belligerency of the
confederated Southern States. At the same time Lord John Russell
concerted measures looking to virtual intervention with France, and
actual negotiations were conducted with the Confederate Government
during the summer of 1861. France recognized the Southern Con-
federacy with a like precipitation, and in all these transactions acted
as an ally of Great Britain.


No opportunity was presented for Great Britain to be dangerously
arrogant and aggressive until the affair of the " Trent " occurred, near
the close of 1801. On the 9th of November, Captain Wilkes, of the
United States steamer " San Jacinto," seized the persons of James M.
Mason and John Slidell, Ministers from the Southern Confederacy to
Great Britain and France, respectively, on board the British mail
steamer " Trent," from Havana to Kingston. The manner of the de-
mand for the surrender of these rebel commissioners was as peremp-
tory and offensive as it was possible to make it. Mr. Seward made
the surrender and virtually the required apology. The Secretary of
State placed the surrender on the ground that Captain Wilkes had
not brought the " Trent " into a Prize Court and submitted the whole
question to a judicial examination. It was afterward contended,
notably by Senator Sumner, that we could not have refused to sur-
render Mason and Slide! 1 without trampling on our own principles
and in disregard of the precedents we had sought to establish. This
was a sounder legal view than the ground taken by Mr. Seward, but it
was the manner of the demand rather than the demand itself that
sank deep into the hearts of the American people, and renewed the
old feeling of hostility to England that nearly forty years have not
been able entirely to eradicate. America never has forgotten and
never can forget that Great Britain was preparing to go to war w r ith
us not to right a wrong done to her sovereignty, but to divide the

The neutrality of Great Britain and Prance the malignant neu-
trality, as it has been fitly called left many questions for settlement
after the war that w r ere necessarily kept in abeyance while the war
lasted. In according ocean belligerency to the Confederate States
these great pow r ers were guilty of a crime against an independent
nation. The character of this neutrality was vigorously described in
the indignant protest of Minister Dayton, when the Confederate
steamer " Georgia " received a hospitable welcome at Brest. " The
1 Georgia,' " Mr. Dayton said, " like the ' Florida,' the ' Alabama,' and
other scourges of peaceful commerce, was born of that unhappy de-
cree which gave the rebels, who did not own a ship-of-war or com-
mand a single port, the right of an ocean belligerent. Thus encour-
aged by foreign powers, they began to build and fit out in neutral

Online LibraryGeorge Oberkirsh SeilhamerHistory of the Republican party (Volume 1) → online text (page 29 of 61)