Wesley C. (Wesley Clair) Mitchell.

A history of the greenbacks, with special reference to the economic consequences of their issue: 1862-65 online

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navy."" Thaddeus Stevens added the necessary clincher
by saying: " Whether such necessity exists is solely for the
decision of Congress." ^ Two attempts were made to over-

8UUe8,frmn 1860 (New York, 1806), Vol. m, pp. 561-7; J. K. Upton, Money in PoU-
ttct, 2d ed. (Boston, 1806), pp. 75-80; J. L. Lauohlin, Report of the MoneUtry Com-
miaUm (Chicago, 1808), pp. 408-10; F. A. WAiiKXB, Money (New York, 1881), pp.
aOO-78; F. A. Walkxb and Hbnkt Adams, '*The Legal-Tender Act," North American
Beoiew, AprU, 1870; "The Greenbacks in Congress," Sound Currency » Vol. in. No.
4, January, 1880.

1 Congreteional Qlobe, 87th Gong., 2d Sess., Part I, p. 525; Spauldxng, pp. 15, 16.
Bates's real meaning seems to be that Congress is no more prohibited from making
bills of credit a legal tender than it is from issuing them, and the latter right no
one contests.

3 J&td. See remarks of Messrs. Pendleton, p. 550; Cowan, p. 781 ; Sheffield, p. 640;
Thomas, p. 681; CoUamer, p. 768; Fearce, p. 803; Crisfleld, Appendix, p. 48; Bayard,
p. 786; Conkling, p. 635; Wright, p. 662.

s/Md., p. 524. Similar arguments were made by Messrs. Blake, p. 686; Howe,
Appendix, p. 54; Stevens, p. 688.


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The Fibst Legal-Tendbb Act 53

throw this position. Such an argument, said Mr. Crisfield,
amounts to a claim of unlimited authority; for, if one
granted it, by asserting that the act was necessary " to insure
public safety," Congress could enact any law, no matter how
injudicious, provided it were not expressly forbidden by the
constitution.* Mr. Pendleton took different ground. Granted,
he argued, that Congress could make treasury notes a legal
tender if this were necessary to pay the army, it still
remained to prove that this necessity existed. He himself
was unable to see the necessity in the pending case. There-
fore, to him the bill was unconstitutional."

A second form of the "necessary means" argument was
made by Mr. Bingham, of Ohio. Congress, he said, has
power to regulate commerce, and the determination of what
shall-be lawful tender in discharge of debts is a necessary
incident of this regulation.' But it was answered, first, that
it was a mere subterfuge to pretend that regulation of com-
merce was the object of the bill;* second, that the power of
Congress over commerce extended only to ** commerce with
foreign nations, and among the several states, and with the
Indian tribes," while a legal-tender act affected only transac-
tions between individuals;* and third, that the substitution
of a paper for a metallic standard, so far from "regulating
and promoting" commerce, tended rather to "disturb and
destroy" it.*

Senators Howard and Sherman elaborated a third varia-
tion of the argument. Making treasury notes a legal tender
.th^ held was one of the necessary and proper means for
borrowing money.' Senator CoUamer anticipated this con-
tention, and replied that where power was granted to do a

I Oonffretnonal Globe, S7th Cod^Tm 2d Sess., Appendix, p. 48. > Ibid,^ p. 550.

3 iMd., p. 637 ; </. remarks of Mr. Kellogg, p. 679.

* Mr. Crisfield, Appendix, p. 49. & Mr. CoUamer, p. 709.

A Mr. Crisfield, Appendix, p. 49. ^ Mr. Sherman, p. 790; Mr. Howard, p. 796.

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certain thing in a certain way it was not permissible to seek
inferential authority to accomplish the same end in a differ-
ent manner. Now Congress was empowered to raise money
first, by levying taxes, second, by negotiating loans. The
issue of legal-tender notes, being neither a tax nor a loan,
came under neither of these express grants; and not coming
under the express grants, no authority could be inferred for
it as a means of raising money.'

The last argument for the constitutionality of the bill —
the one that found no adequate answer — was Charles Sum-
/ ner's. He called attention to the fact that Congress had
/ long been conceded the right to issue treasury notes. Beview-
/ ing the financial history of the American colonies, he showed
that ten of the thirteen had at different times issued paper
money, usually making it a legal tender. In America, he
argued, '* the legal tender was a constant, though not insepa-
rable incident of the bill of credit." The conclusion was
that the unquestioned power of issuing treasury notes carried
with it the right to make the notes a legal tender.'

But, after spending much time and ingenuity in debating
the constitutional questions raised by the legal-tender clause,
the members of Congress apparently concluded that they had
/^ multiplied words to little purpose. While a few declared
(^_ that constitutional scruples would prevent them from voting
/for the bill,' the more general feeling was that it would be
treasonable to decide a question of such importance upon a

1 Conffreuional Globe^ 87th Coug,^ 2d Sess., p. 767.

^Ibid.y pp. 797, 708. An amusingly fantastic argnment for the constitutionality
of the biU was made by Senator McDongall of California, who attempted to deduce
the right to issue legal-tender treasury notes from the power to coin money, by
showing that the word '*coin" was etymologically equivalent to the word *' stamp,"
and therefore that the right of coinage must include the right to stamp paper notes.
Unfortunately for the argument, the canon of interpretation which insists that
words are used in the constitution in strict accordance with their etymological
significance did not commend itself to the lawyers of the Senate. — Ibid.^ Appendix,
p. 00, for his argument; with which compare the remarks of Mr. Thomas, p. 681. .

*E, g,. Senators CoUamer, «6(d., pp. 767, 770; Powell, p. 804; Saulsbury, p. 804.

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The F1B8T Leoal-Tendeb Agt 55


^onbtful technicality which could be settled only by the
irts. If the measure was expedient there need be little
hesitation at such a crisis in construing liberally the powers
of Congress.* The fate of the bill was affected, then, much y

1ms byjkhe inconckisiye oonstitutional argument than by the y^
debate upon the merits of the issua.of l£^-tender notes as
a fi^gjifiiaLpolioy.

Considering the bill thus upon its merits, the opposition

called attention prominently to the lessons of experience.

Could it be shown that the resort to an inconvertible paper

currency had always been attended in the past with evil

results, a strong presumption would be created against

/ the wisdom of a repetition of the experiment. Consequently

/ rhetoric was employed to picture in vivid colors the unhappy

^ ^ consequences that had followed the issue of paper money by

I France during the Revolution,* by England in the Napol-

/ eonic wars,* by Austria,* and Turkey,' by Rhode Island* in

I colonial days, by the Continental Congress in the War of Inde-

\ pendence,' and finally by the Confederate States, then fairly

launched upon the paper-money policy.*

^ To break the force of these historical parallels, which told

so heavily against the bill, its supporters sought to show that

\ causes, which under different conditions had led to deprecia-

1 tion, would not be operative in the case of the United States

in 1862. Thus, it was said, the continental notes of the'
American Revolution depreciated because of the poverty of the
country, which offered no security for their redemption ; the
vastly greater wealth of the nation in 1862 would prevent a
repetition of the experience.' The depreciation of the issues

I Remarks of Fessenden, Con^enional Gio6e, 87th Cong., 2d Sess., P< 767; Wilson,
p. 788; Alley, p. 659; Sherman, p. 791; Pike, p. 658; Campbell, p. 686.
s Mr. Cowan, <6td., p. 792; ef, Sumner, p. 796; Pike, p. 667.
9 Mr. Morrill, p. 681 ; <^. Spaolding, p. 526; Steyens, p. 689.

4 Mr. Morrill, p. 681. & Mr. Simmons, p. 794. • Mr. Sheffield, p. 164.

7 Mr. Collamer, pp. 767-8; Sumner, p. 796; c/. Kellogg, p. 680; Pike, p. 666.
« Mr. Horton, p. 666. • Mr. Kellogg, p. 680.

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of Louis XIV was explained on the gronnd that France was
then exhausted by heavy taxation to maintain a profligate
court.* The cases of the French Revolution and the Con-
federate States were accounted for by the fact that these
governments were revolutionary." Some gentlemen even
denied that depreciated currencies had proved evils. "It
would be far from a blunder," said Senator Howe, " to say
that the ^ golden age ' of England was during that long period
when the only currency she knew was one of irredeemable
paper;"* and Mr. Kellogg declared the paper issues of the
Revolution had increased confidence, clothed the army, and
revived commerce.* Another supporter of the bill tried to
evade the historical argument by maintaining that the true
lesson of experience was that of moderate issues.' But no
one seems to have taken these ingenious pleas very seriously,
for it was easy to show that one of the striking lessons of
experiments with paper money is that such moderation,
which the issuer at first intends to observe, has almost
invariably been soon forgotten.'

If the argument from experience was strongly against the
bill, the cognate economic argument was hardly less so. The
opponents of paper issues assumed the offensive, declaring
emphatically that the proposed legal-tender notes were cer-
tain to depreciate in value. Mr. Love joy said:

It is not in the power of this Congress .... to accomplish an
impossibility in making something out of nothing. The piece of
paper you stamp as five dollars is not five dollars, and it never will
be, unless it is convertible into a five dollar gold piece ; and to pro-
fess that it is, is simply a delusion and a fallacy.^

I Mr. Howe, Appendix, p. 55, Conffreananal Otobe^ 87th Cong., 2d Sess.
3 Mr. Kellogg, p. 680; Howe, Appendix, p. 55.

3 Appendix, p. 55; ^. Spanlding, p. 526.

4 JMd., p. 681. ft Mr. Pike, p. 657.

Messrs. Thomas, p. 682; Cowan, p. 798; Morrill, pp. 631, 886; Pomeroy, p. 884;
Collamer, p. 770; Lovejoy, 601.
^ Ibid., p. 601.

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The First Legal-Tender Act 57

Various shifts were tried to meet this attack, Mr. Kellogg
boldly asseriied that the legal tender quality of the notes
would prevent fluctuation of their value;* but more faith was
put in the reply that the total wealth of the country was
security for the notes, and this security being ample they
value of the paper would not decline.' The rejoinder to this
was first, that the security for the notes was not the total
wealth of the people, but only such part of it as the govern-
ment could obtain by taxation ; and second, that though the
security for ultimate redemption might be ample, the notes
•would nevertheless depreciate in value if the holders were
unable to secure immediate payment.'

A different argument to show the improbability of
depreciation was based by Thaddeus Stevens upon the quan-
tity theory of money as expounded by McC5ulloch. " The
value of legal tender notes,'' said he, '^ depends on the
amount issued compared with the business of the country.
If a less quantity were issued than the usual and needed cir-
culation, they would be more valuable than gold."* The
opponents of the bill replied, not by attacking the quantity
theory, but by insisting that all experience showed that, after
one issue of paper money had been made, other issues were
sure to follow, until the currency became redundant and
depreciated. "The experience of mankind," said Mr.
Thomas, '* shows the danger of entering upon this path ; that
boundaries are fixed only to be overrun; promises made only
to be broken." * " The same necessity," added Mr. Pomeroy,
" which now requires the amount of inconvertible paper now
authorized, will require sixty days hence a similar issue, and
then another, each one requiring a larger nominal amount to

1 Congreuumal Olobe^ S7th Congress, 2d Sess., p. 681 ; ^. the answer of Senator
CoUaimer, p. 767.

'Messrs. Spanlding, p. 524; Howe, Appendix, p. 55; Kellogg, pp. 680, 681.

* or. Mr. Morrill, p. 690, Thomas, p. 682.

« Ibid,, p. 668. s Ibid., p. 682.

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represent the same intrinBic value.^' ' To such assertions^
backed by the weight of historical evidence, the supporters
of the bill could respond only that the case of the United
States would be an exception; the American government
would not yield, as other governments had done, to the
temptation to make further issues.'

Some of the more astute friends of the bill admitted the

probability of a redundant currency, and relied, not on limi-

tetion of issues, but on a funding scheme to prevent depre-

/ciation. Section one of the bill provided that holders of

/ legal-tender notes could at any time exchange them at par

I for 6 per cent, twenty-year bonds.' Under this arrange-

^^ — .ipent, it was supposed, the value of the notes could never be

/ less than that of the bonds, and, as bonds could by law not

( be sold for less than par, it followed that the notes could not

. greatly depreciate.* Unfortunately for the argument, even

\ while Congress was debating the bill, bonds were selling in

JNew York at ninety cents upon the dollar in notes of the

/suspended banks.' Hence the force of Mr. Morrill's remark:

'< By making our notes a legal tender we make them better

for a moment than we can make our bonds, and men might

be willing to exchange bonds for the notes; but notes for

bonds never."*

Having proved to their satisfaction that the legal-tender

r notes would depreciate, the opponents of the bill pursued

i their advantage by dwelling upon the evil consequences that

^ would result. Coin would disappear from circulation, said

they, prices would rise suddenly, fixed incomes would decline,

1 CongreasicncU Globe, 87th Cong.^ 2d Seas., p. 884. Mr. Pomeroy, howoTor, sax>-
ported the bill when amended to proride for payment of interest in coin. QT. also
Collamer, p. 770; Loyejoy, p. 091 ; Horton, p. 664; Cowan, p. 793; Morrill, p. 681.

3 Cf. the remarks of Messrs. Pike, p. 657; Hooper, p. 617; Stevens, p. 688.

'See text of bill, ibid,, p. 522, and Mr. Steyens^s explanation, p. 688. Qf.
Spaulding, p. 628.

« Mr. Hooper, ibid., p. 617. b Mr. Pendleton, p. 551. • Ibid., p. 680.

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The Fibst Legal-Tendbb Act 59

creditors be defrauded, and the widows and orphans would
8u£Fer/ Senator CoUamer showed how depositors in savings
banks would lose by depreciation,' and Senator Fessenden
how labor would be injured by a rise of prices exceeding the
rise of wages.* Finally, Mr. Crisfield represented forcibly
the instability of a paper standard of value and the conse-
quent danger to business.^

To all of this the promoters of the bill found it hard to^
reply. On the other hand they sought support in the
contention that the country needed more money,* and that
the government should regulate the paper currency fur-
nished by the banks.* Of course the rejoinder was, first,
that, granted the existence of the doubtful need of more
money, the issue of a depreciated paper currency was a very
bad method of supplying it; and, second, that if the bank-
note currency required regulation the proper means was a
reorganization of the banking system, not a legal-tender act.

Not content with showing the economic evils of a depre-
ciated paper currency, the opponents of the bill denounced
it roundly as immoral. To pay contractors and soldiers in
depreciated money, they declared, was dishonorable. "The
bill says to the world," asserted Mr. Horton, "that we are
bankrupt, and we are not only weak, but we are not honest." ^
The injustice, however, extended not only to creditors of the
government, but to all persons who would be compelled to
accept in payment money of less value than that which they
had contracted to receive.* And by thus encouraging the

1 Cf. the remarks of Messrs. Pendleton, Congreaaional Globe, Xlth Cong., 2d
Sess., p. 551; Morrill, p. 690; Horton, p. 664; Sheffield, p. 641; Fessenden, p. 765.

2 /bid., p. 770. Cf, the reply of Senator McDongall, Appendix, p. 60.
s Ibid,, p. 766. « Ibid,y Appendix, p. 50.
^Cf, the remarks of Messrs. Alley, p. 659; Hooper, p. 617; Kellogg, p. 681.
I* Senator Doolittle, Appendix p. 57.
7/&td., p. 664; </. also Snmner, p. 796; Fessenden, p. 765; Crisfield, Appendix,

pp. 49, 50; Pearce, p. 804.

^ Cf. Messrs. Pendleton, p. 549; Thomas, p. 682. See Sherman^s attempted reply,
p. 790.

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60 H18TOBY OF THE Greenbacks

debtor to defraud his creditor, urged Senator Pe8senden,the.
bill would lower the moral standards of the people/ To these
charges, also, the promoters of the bill had little to say.
Upon the fiscal aspect of the bill the case of the opposition

(was hardly less clear. First, they declared, the resort to an
irredeemable paper currency was a practical confession of
bankruptcy, and would therefore injure the credit of the
government, and make less favorable the conditions on
which it could borrow. "We .... go out to the country,"
said Fessenden, '^ with the declaration that we are unable to
pay or borrow at the present time, and such a confession is
not likely to increase our credit." ' Second, it was pointed
out that the depreciation of the currency would cause the
prices of everything which the government had to buy to rise,
and thus would vastly increase the cost of the war. As Senator
Cowan put it, the government ^^might as well lose 25 per cent,
on the sale of her [sic] bonds, as to be obliged, in avoiding
it, to pay 25 per cent, more for everything she buys." '

This discussion of the economic, moral, and fiscal conse-
quences of issuing a legal-tender paper currency produced
iiTCongress the feeling that under ordinary circumstances
such a proposal would be indefensible. The vigor with
which the opposition had presented the case against the bill
made a deep impression. On the other hand, the reasoning
by which the supporters of the bill had sought to establish
the constitutional power of Congress to make treasury notes
a legal tender was felt to be inconclusive. The force of the
telling argument from experience had not been broken; the
probability of depreciation had not been disproved; no ade-
quate reply had been found to the indictment of the bill on

1 CongreuiomU Olobe, 87th Cong., 2d Sess., p. 765; cf. Messrs. Conkling, p. 635;
Horton, p. 664.

2 Ibid., p. 765. Cf. Messrs. Vallandingham, Appendix, p. 44; Sheffield, p. 641;
CoUamer, p. 769; Horton, p. 664; Crisfleld, Appendix, p. 49; Willey, p. 796; Samner,
p. 798; Thomas, p. 682.

Sibtd., p. 798; e/. the remarks of Sheffield, p. 641, and Morrill, p. 630.

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The First Leoal-Tendeb Act 61

moral grounds; and, finally, it had not been denied that
resort to paper issues would injure the credit of the govern-
ment and increase the cost of the war. So generally was
the objectionable character of the measure realized that
Senator Fessenden could say :

All the opinions that I have heard expressed agree in this: that
only with extreme reluctance, only with fear and trembling as to
the consequences, can we have recourse to a measure like this of
making our paper a legal tender in payment of debts.'

And yet an argument was found that overcame the
"extreme reluctance" of a majority of the members and^
induced them to vote for the bill Tlua argument.wa? the plea
of absolute nec esaitg> As has been seen, it was to necessity
that Mr. Spaulding had appealed in justification of his first
draft of the legal-tender bilL^ In opening the debate in
Congress he repeated the argument with emphasis. " The
bill before us," said he, **is a war measure, a measure of ^
necessity and not of choice, presented .... to meet ther"^
most pressing demands upon the Treasury."' The cry ofl
necessity was taken up by the other supporters of the bill, ^
who relied upon it to meet all the objections urged by the
opposition.* How effective a plea it was is shown by the
influence it had upon those who appreciated the ills of a
paper currency. "Beneficent as this measure is, as one of
relief," said Mr. Alley, " nothing could induce me to give it
sanction but uncontrolla ble fleQessit^"^ "I shall .... sup-
port the bill," said Mr. Doolittle, "as a m easure of war neces-
sity, with more misgivings as to its effect at home and
abroad, than of any other measure for which I have given
my vote in this body."'

1 OongrtsBional Globe, 37th Cong., 2d Sess., P> 763.

3 Mr. Spaulding's letter quotedt p. 44, above.

s Congresnonal Globe, 87th Cong., 2d Sess., p. 523.

< Cf. the remarks of Messrs. Campbell, p. 686; Walton, p. 692; Edwards, p. 684;
SteTeoB, IK 687; and of Senators Sherman, p. 788; Howe, Appendix, p. 55; McDongall,
Appendix, p. 58.

B Ibid,, p. 669. « Ibid,, Appendix, p. 58.

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That the assertion of necessity might carry the added
force of official sanction, Secretary Chase was induced to
send a note to the chairman of the Committee of Ways and
Means to be read to the House. He wrote:

I have felt, nor do I wish to conceal that I now feel, a great aver-
sion to making anything but coin a legal tender in payment of
debts. It has been my anxious wish to avoid the necessity of such
legislation. It is, however, at present impossible, in consequence of
the large expenditures entailed by the war, and the suspension of
the banks, to procure sufficient coin for disbursements, and it has
therefore become indispensably necessary that we should resort to
the issue of United States notes.^

This letter made the bill an ''administration measure," and
so was an important factor in its success. Desire to support
the government at all costs led members to whom an ine-
deemable currency was very repugnant to vote for the bill
when the secretary of the treasury declared it to be nec-
essary. " I have .... had great doubt as to the propriety
of voting for this bill . . . ." said Mr. Hickman, "but, being
assured .... that the Treasury, and perhaps the Admin-
istration, regard this as a governmental necessity, I am dis-
posed to waive_the question of propriety or expediency, and
to vote for it as a necessity." *

1 CongreBtional Gto6e, S7th Gong., 2d Seas., p. 018. Cf. Mr. Chase's letter to
Spanlding, in the latter's History, p. 59; and MoCullooh, Men and Meaauret ofHi^f
a Century (New York, 1889), pp. 110, 171.

^ Congreuional Olobe, 87th Gong., 2d Sess., p. 090. Cf. Sumner's oonolnsion:
"Snrely we mnst all be against paper money— we mnst all insist upon maintaining
the integrity of the Goyemment— and we mnst all set our faces against any proposi-
tion like the present, except as a temporary expedient, rendered imperatiTe by the
exigency of the hour. If I vote for this proposition it will be only because I am
unwilling to refuse to the GoTemment, especially charged with this responsibility,
that confidence which is hardly less important to the public interests than the
money itself. Others may doubt if the exigency is sufficiently imperatiTe, but the
secretary of the treasury, whose duty it is to understand the occasion, does not

doubt. In his opinion the war requires this sacrifice Your soldiers in the

field must be paid and fed. Here there can be no failure or postponement. A rem-
edy which at another moment you would reject is now proposed. Whaterer may be
the national resources, they are not now within reach, except by summary process.
Belnctantly, painfully, I consent that the process should issue*' (pp. 799, 800). See
also McDougall, Appendix, p. 58.

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The Fibst Lboal-Tendeb Act 63

In replying to the plea of necessity, the opposition can-
didly admitted it would be better to issue a forced currency
than to stop payment, provided there were no alternative.
"If the necessity exists," said Senator Fessenden, "I have no
hesitation upon the subject and shall have none. If there is
nothing left for us to do but that, cmd that will effect the
object, I am perfectly willing to do that." ^ But that such
was the case was emphatically denied. ^*It has been
asserted .... with the utmost apparent sincerity," said
Mr. Horton, "that this is a measure not of choice, but of
necessity. But Mr. Chairman, that assertion is only reiterated,
not proved. Where is the proof that this is a matter of neces-
sity? There may be proo& abundant, but they have not
been produced." *

Not only did the opposition deny the necessity, but they | y

Online LibraryWesley C. (Wesley Clair) MitchellA history of the greenbacks, with special reference to the economic consequences of their issue: 1862-65 → online text (page 6 of 51)