who would require to exchange them for other values in commerce and trade, through the process of the clearing house. And this consideration was greatly strengthened by the fact, that these advances were made, and the money publicly disbursed, a long time before the treasury notes were ready for delivery to the Banks which had paid for them. In the light which has since been shed upon the Act of Congress referred to, it is evident that undue weight was given to the views of the Secretary, and that the Banks would have conferred an incalculable benefit upon the country, had they adhered inflexibly to their own opinions. . . . It soon became manifest that, in consenting to have their hands tied and their most efficient powers restricted, while engaged in these great operations, and in allowing their coin reserves to be wasted by pouring them out upon the community in a manner so unnecessary and exceptional, the Banks deprived themselves and the government of the ability of long continuing, as they otherwise could have done, to negotiate the National loans upon a specie standard. "This first great error, if it did not create a necessity for the legal-tender notes, it certainly precipitated the adoption of that most unhappy expedient, and thereby committed the nation at an earlier day to the most expensive of all methods of financiering. "One other subject of discussion between the Secretary and the Associated Banks at the same time arose, which led in the same direction. Congress by its Act of 17th July had authorized loans to the amount of two hundred and fifty millions. This could be issued either in bonds running twenty years at not over seven per cent interest-7-30 notes running three years, or fifty millions of the amount could, at the discretion of the Secretary, be made in currency notes payable on demand without interest. As the undertaking of the Associated Banks covered one hundred and fifty millions of this sum, and it was desired that they continue the work thus auspiciously begun, a question of the expediency of putting out the circulating notes was immediately raised by one of its members. A very small amount had been emitted. The Treasury was empty of coin to redeem them, and could only be replenished by the proceeds of the bank loans. It was evident to the bank officers that they could not sustain coin payments, if the transfers from their vaults to that of the Treasury were subject to be intercepted and absorbed by these notes of government. could the Banks receive them upon deposit from the public as money, while they were responding to the government and to their own dealers in coin. It was an inflation of the currency in the form most embarrassing to the enterprise they had commenced. Accordingly, the Secretary was urgently solicited to refrain from exercising the discretionary powers given him of creating the Treasury currency, until all other means were exhausted. In response to a resolution to that effect, the Secretary assured the bank officers of his acquiescence in their suggestion; but at the same time insisted that it was improper for a public officer to openly pledge himself not to exercise a power conferred by the law. With this understanding the Banks began their work; paying into Nor the Treasury, in coin, one hundred and fifty millions, in sums at the rate of about five millions, at intervals of six days. Even with all these unfavorable circumstances surrounding them, it was an encouraging fact, observed by those who were anxiously watching the practical operation of this great and novel experiment, that, while the circulating notes in the country were restricted, the dis bursements of the government for the war were so rapid, and the consequent internal trade movement was so intense, that the coin paid out upon each instalment of the loan came back to the Banks, through the community, in about one week; the natural effect of this general commercial activity upon the circulating medium being simply to quicken its flow. "After taking the third amount of fifty millions by the Associated Banks, those in New York, who had at that time paid in of their proportion over eighty millions in all, found themselves in this position: Their aggregate coin, which on the 17th August, before the A reduction of only and the other two cities in like proportion. $49,733,990 42,318,610 $7,415,380 "In the mean time the 7-30 notes taken by the Banks had been purchased by the people to the extent of some fifty millions, notwithstanding a prolonged and vexatious delay in issuing them by the Treasury Department. The popular feeling was all that could have been desired for continuing that method of distribution. It may be confidently affirmed, that, had the Banks been permitted to exercise their own methods of exchanging the bonds for the varied products of industry required by the government, they could have continued their advances in sums of fifty millions for an indefinite period, and until the available resources of the people had been ail gathered in. It is to be borne in mind that these resources were all existing at home, and that the increased industry which the war excited was daily increasing new means for investment. . . . "But at this time the demand notes were paid out freely by the Treasury, and began to appear as a cause of embarrassment among the Banks which were pressed to receive them upon deposit; and while they could not decline them without diminishing public confidence in the government credit, they could not give them currency without impairing their own specie strength. In fact, the notes became at once a substitute for coin withdrawn from circulation, and their emission expressed a purpose of resorting to government paper issues to carry on the war. So soon as these notes thus appeared, the reflux of coin to the Banks at once sensibly diminished. During three weeks from the 7th December, the reserves of the Banks in New York fell to $29,357,712,—a loss of thirteen millions within that short period; and on the 28th December, after conference with the Secretary, in which he still adhered to the views before expressed, it was decided as expedient for the Banks to suspend specie payments. "At that moment the Associated Banks yet held over forty millions in coin, and it was still possible for them to continue their advances to the government but for the two obstacles thus interposed. Before entering into this last conference with the Associated Banks, some of the members expressed to the Secretary the importance of continuing his relation to an organization which combined so much of experience, capital, and financial resource, and which was yet capable of rendering the government invaluable service; and that if an irredeemable paper currency was the inevitable resort, it would be more expedient and economical for the government not to become involved in its dangers, but to impose the duty and responsibility of issuing the notes upon the Banks, who would naturally be compelled to keep the day of redemption continually in view. Thus, as a suspension of coin payment was about to be declared, it was practicable to preserve from distribution and set aside the forty millions of coin then owned by the Banks, together with one hundred and fifty or sixty millions of government bonds, which could be taken by them as a special security for two hundred millions of notes, which could then be immediately issued by the Associated Banks from their own plates, and be verified and made National by the stamp and signature of a government officer. And that such an issue, so supported by coin and bonds, at once simple and expeditious, would serve the temporary purpose required, with little if any deterioration below. coin value; and that it would be then practicable for the Banks to continue, without further agitation, their advances. But the Secretary declined to entertain this suggestion; preferring the system of National Banks, which he had already conceived. "Looking back over events that have since transpired, it must be admitted that this suggestion possessed true merit. It would have preserved a coin basis for the currency, prevented the destructive expansion, relieved the government from its almost inextricable entanglement with the circulating notes, and compelled an early restoration of coin payments. And with a proper use of the expedients and machinery of Banks, by utilizing their power of affecting exchanges, which was substantially applied by the Secretary in the National Banking system without reserve, this amount would have been found sufficient. When we review the excessive cost of the war, the vast increase of the National debt, and the public and private evils which a profuse currency has entailed upon the country, it must appear evident that, in failing early to use and to exhaust all those means and appliances of commerce and banking that the experience of other civilized nations has proved most effective, a great and irreparable mistake was made. .. "This forcible entry of the government into the private affairs of the people, so utterly at variance with the fundamental principles of our system, so great an abridgment of personal liberty, and operating as a tax so unequal in its effects, was a rigorous measure of war, and as such was vindicated only as a temporary act of dire necessity. In enforcing this unequal burden, Congress did not leave the holders of the notes without some measure of relief; but it gave to all the option of converting them at pleasure into a six per cent gold-interest-bearing bond, payable in twenty years. By this means, the notes became equal in value to the bonds for which they were made exchangeable; and while, during the war, the pay ments of gold interest continually operated to produce a curtailment of the volume of the notes in circulation, the return of peace opened a market abroad for the bonds, which would have insured the early and entire absorption of the war currency, and thus clear the way for specie payments. "But, in an evil hour for the country, other counsel obtained possession of the good judgment of the Secretary; and, yielding to it, he consented and urged Congress to withdraw this privilege of converting the notes, so that thenceforth all issues were made without it. All notes emitted consequently became an unmitigated burden upon commerce, of indefinite duration, from which there was no escape. A new currency was created, utterly at variance with all economic laws, and in conflict with all recognized rules of commerce and exchange. It did not, like all sound currency, naturally spring out of industry, production, and trade; but it was an enforced result of exhaustion and necessity. It did not come and go, following the beneficent courses of commerce, expanding and contracting with the times and seasons that required it; but it remained an unyielding, inflexible mass, subject only to the chances and vicissitudes of war. As the war progressed and the country became poorer, this currency increased, giving new instruments and facilities to expend just in proportion as the means of payment were consumed. With a compulsory currency thus made the measure of prices, and daily deteriorating yet still increasing, is it strange that all other property was eagerly sought for in preference to this, and that prodigal expenditure became the law of the land?" 1 Such were the financial operations of the new administration, up to the 30th of December, 1861, to the suspension of specie payment, and the issue of government notes. Without means, without sufficient credit or faculty to provide them, the results of the military operations of the government in great measure disastrous, Mr. Chase, in his extremity, appealed to the Banks. This appeal was most patriotically responded to. In view of his necessities and of the employment of the Banks in his operations, the provisions of the Act creating the Independent Treasury had been so far modified as to allow the use of their circulation, and to make them the depositories of the public moneys. Pending the negotiations, the Banks earnestly pressed upon Mr. Chase the importance of his dealing with them as their own customers dealt with them, and of availing himself of the proceeds of their loans, by drawing 1 Financial History of the War, by George S. Coe, President of the American Exchange Bank. See Bankers' Magazine, January, 1876. upon them in the ordinary course of business, and allowing them to pay his drafts in whatever manner their holders might designate. The Banks assumed that, as the ordinary operations of the public had no tendency to withdraw their coin, those of government, if conducted in a similar manner, would exert no such tendency; that in this way the war might be carried on by the use of their paper, symbolizing merchandise at the value of coin. To a request and to reasons so pertinent and judicious, Mr. Chase turned a deaf ear. He would take nothing in payment of his loans but coin. The result is the present condition of the country. Had he taken the course pressed upon him, the specie in the Banks must have constantly increased, not only from the products of our mines, but from importations which were being made in very large amounts. The exports of specie from the country the year preceding the war, exceeded the imports by $57,996,154. During the first year of the war, and before the Banks had suspended, the imports over exports equalled $22,558,791; making in a single year a change in favor of the country of $80,554,945. No sooner was trouble with the South apprehended, than the Northern Banks began instinctively to strengthen themselves. On the 1st of January, 1860, before any suspicion or distrust was excited, and when the country was in an eminently sound and prosperous condition, the coin reserves of the Banks of the three great cities, New York, Boston, and Philadelphia, equalled $29,822,320; of which the Banks of New York held $20,119,779; those of Boston, $4,796,000; those of Philadelphia, $4,906,541. On the 1st of January, 1861, when the disruption of the country seemed imminent, they had increased their reserves to $43,849,628; and on the 9th of August, 1861, when they undertook to aid the government, to $63,165,039. There was no concert or method in all this; only ordinary prudence. Even so late as 1862, after the Banks had suspended, and Mr. Chase had drawn from them $150,000,000, they held $44,887,093 in coin; a sum greater, by $15,000,000, than that held on the 1st of January, 1860. Had he acceded to their request at the outset, he might have availed himself, at the value of coin, of every dollar of capital in the country which could have been spared for the war. No sooner did the Banks enter upon their undertaking, than they brought into action the most efficient |