Chapter V: The Greenbacks (2)

This period was congenial to such juggling with public credit and legislative pledges. Socially, financially, and politically, it stands out quite apart from any other decade of the century. Moral sense for a time seemed to have deteriorated in the whole community; it was a sorry audience, at Washington or elsewhere, to which to address appeals for economy, retrenchment, and rigid preservation of the public faith. The Government's financial recklessness was readily imitated by the community at large; debt was the order of the day in the affairs of both. As the period approached its culmination, foreign trade reflected the nature of the situation. Merchandise imports in the fiscal year 1871 rose $84,000,000 over 1870; in 1872 they increased $106,000,000 over 1871. This movement was the familiar warning of an approaching crash; but the warning fell on deaf ears, as it usually does. In 1873 the house of cards collapsed.

The panic of 1873 left the country's financial and commercial structure almost a ruin. It had, however, several ulterior results so valuable that it is not wholly unreasonable to describe the wreck of credit as a blessing in disguise. American prices, long out of joint with the markets of the world, and thoroughly artificial in themselves, were certain to be eventually brought down. This very liquidating process served a useful double purpose; it disclosed the nation's true resources, and it placed the United States on equal footing with the commercial world at large. With the bursting of the bubble of inflated debt and inflated prices, the excessive importations ceased. Simultaneously the export trade, which had halted during 1872, in spite of the continued agricultural expansion, rose to proportions never before approached in our commercial history. In 1874, the balance of foreign trade turned permanently in our favor. By 1876, even the continuous outflow of gold was checked. In short, the two conditions fixed by Hugh McCulloch, ten years before, as indispensable to resumption of specie payments, had now been realized.

Congress was not by any means disposed, however, to seize the opportunity. The first result of the money market crisis in 1873, as in all similar years, was urgent public clamor for more currency. The Supreme Court had decided finally, in 1871, for the constitutionality of the legal tenders; the Secretary of the Treasury, in 1873, had so far yielded to the prevalent excitement as to reissue legal-tender notes already formally retired. The first response of Congress, therefore, was an inflation measure. By a vote of 140 to 102 in the House of Representatives, and of 29 to 24 in the Senate, a law was passed for the permanent increase of the legal-tender currency, by $18,000,000. The Republican party controlled Congress by unusually large majorities; but 60 per cent. of the party's vote in each chamber was cast in favor of the bill. Only the interposition of Grant's Presidential veto prevented this first positive backward step in the direction of fiat money.

It is reasonable to suppose that this curious vote of the Administration party, which occurred in April, 1874, measured the party's political desperation. They were about to receive, in the Congressional elections, the usual chastisement experienced by a dominant party when the people vote in a period of hard times; the inflation act was an anchor thrown desperately to windward. The experiment was in all respects a failure. Even the party's own State conventions failed to say a good word for the inflation bill, and it gained no mitigation of sentence in the November vote.

PASSAGE OF THE RESUMPTION ACT[10]

The Forty-third Congress had three months of existence left to it after the vote of November, 1874. Already defeated overwhelmingly at the polls, it had nothing to risk by a move in sound-money legislation, and possibly much to gain. It used this three-months' period to enact a law of the first importance, not only to the nation, but to the Republican party's future history--a law which must fairly be described, however, under the circumstances of the time, as an expression of death-bed repentance. This was the Specie-Resumption Act, drawn up by a party committee, and submitted to Congress, in December, 1874, by Senator John Sherman. It fixed the date for resumption of specie payments at January 1, 1879, provided for the reduction of legal-tender notes from $382,000,000 to $300,000,000, but made no provision for any further retirement of the notes. It went through Congress on January 7, 1875. It was contended by some that under the Resumption Act of 1875 there could be no reissue of the greenbacks once received into the Treasury. Inflationist successes of 1877-1878 settled this uncertainty, as Congress, May 31, 1878, ordered that there be no further destruction of greenbacks. The amount then outstanding was $346,681,000--the volume of legal tenders still current.

THE STRUGGLE FOR RESUMPTION[11]

The Resumption Act is one of the most curious laws in financial history. It was plain in its requirement that on and after January 1, 1879, the Treasury should "redeem in coin the United States legal-tender notes then outstanding, on their presentation for redemption"; but it left the Treasury to make whatever arrangements it might choose. The law, it is true, conferred ample powers. In order "to prepare and provide for the redemption in this Act authorized or required," it empowered the Secretary of the Treasury "to use any surplus revenues, from time to time, in the Treasury not otherwise appropriated, and to issue, sell, and dispose of bonds of the United States at not less than par in coin." This power was perpetual.

The Law of 1875 involved the double problem of providing for resumption at the stipulated date, and of maintaining it afterward. It is the first of these undertakings, which we shall now sketch. There were, as we have already seen, two influences at work in 1875, which made possible the achievement as it would not have been in 1866. These influences--the shifting of the foreign trade balance in favor of the United States and the subsequent check to gold exports--were factors on which no finance minister could have reckoned. Both in fact developed after the passage of the Resumption Law. But even after allowing for these accidental commercial advantages, the credit for the return to specie payments on January 1, 1879, belongs individually and without dispute to John Sherman.

As one of the authors of the Resumption Act, Mr. Sherman was responsible both for its virtues and its vices. His appointment to the Treasury, therefore, in the Administration under which resumption must by law be carried out, was entirely logical. Yet the practical efficiency of Mr. Sherman, in an administrative office, could not then have been foretold. The Secretary's previous career, though useful and industrious, had been marred by weaknesses which did not promise well. As a legislator, he belonged to the school of compromisers who have indirectly been responsible, in a score of critical emergencies, for the gravest mischief in our history.

But Mr. Sherman was not the first of public men to show that the faults or weakness of a legislator, whose purpose is to obtain enactment of a policy, will sometimes disappear in the administrator, who presses settled policies into execution. As Secretary he was unwavering in pursuit of the resumption goal; practical, resolute, and adroit in the means employed. It was in the face of the repudiation clamor that he declared officially for payment of the Government bonds in gold. Equally distinct was the Secretary's public declaration that the Act of 1875 conferred the power to issue bonds after, as well as before, resumption; another precedent which did invaluable service sixteen years afterward.

To say that Secretary Sherman's management of the Treasury achieved during his time precisely the results proposed, and achieved them promptly, is to concede his administration's practical success. Nor were these results attained through extravagance or waste. In his refunding and resumption operations, Mr. Sherman placed the bonds of the United States on better terms than any of his predecessors.

ARRANGEMENTS FOR RESUMPTION[12]

The Secretary of the Treasury now put the final touches on his arrangements for resumption. Partly by accident and partly through stress of circumstances, the Treasury gold reserve was defined, in later years, at a fixed and arbitrary minimum. The theory adopted by Mr. Sherman, however, in his early operations, was different and undoubtedly better. Following probably the practice of the Bank of England, he fixed his reserve at 40 per cent. of outstanding notes--"the smallest reserve," he wrote to Congress, "upon which resumption could be prudently commenced and successfully maintained." On this basis he held in the Treasury, on December 31, 1878, $114,193,000 gold in excess of outstanding gold certificates, which was a trifle over 40 per cent. of the Government notes then circulating outside the Treasury. Of this gold reserve, $95,500,000 had been obtained through sale of bonds, part of the coin being procured in Europe.

There remained now to be settled only the formal machinery of exchange between the Treasury and outside institutions. If the Treasury had left the banks to pursue unchanged their policy of keeping special gold deposits, the Government reserve would have been at once imperilled. If the banks had continued to present their individual drafts for redemption across the counter of the Sub-Treasury, any timid or blundering banker might have started a general drain of gold. Against these possibilities Mr. Sherman now took measures. He secured the admission of the New York Sub-Treasury as a member of the clearing-house. At New York and Boston the clearing-houses modified their rules, agreed to abolish "gold deposits" after January 1st, and to accept the legal tenders freely in discharge of balances against one another and against the Government. At the same time, the requirement of coin payment of customs duties was revoked, and public officers were directed to receive coin or legal tenders at the payer's option--a move of obvious propriety, since refusal to take notes in payment would merely send the importer to the Treasury's redemption office to convert them into coin. All these preliminaries had been formally and positively settled before the close of 1878. On December 17th, the premium on gold disappeared, for the first time since 1861; on January 1st, specie payments were quietly resumed.

SHOULD THE GREENBACKS BE RETIRED?

[13]Let us now consider for a moment an issue which twenty years ago was urgently pertinent, was in fact the very crux of so-called "currency reform," and which still persists as a live issue in the minds of some of the veteran "reformers" of those days, although the conditions which then gave it point have long since disappeared.

In the middle nineties, when it was estimated that the total gold stock of the entire country was only about 600 million dollars and less than 200 millions of this was in the vaults of the treasury, the Government's fiduciary currency, consisting of 346 millions of greenbacks and 400 millions or more of overvalued silver, presented beyond question a serious menace to the country's monetary standard. It meant that the treasury had outstanding currency obligations payable in gold to the extent of three or four times its own gold holdings, and amounting to far more than all of the gold in the country, including the holdings of the treasury, the banks, and the general public. At that time fluctuations in the trade balance of a single year sometimes almost equalled the treasury's gold holdings in amount, and it was quite conceivable, in fact not improbable, that a sudden unfavorable change in that balance might drain the treasury of all of its gold, and leave the country with a currency standard of depreciated silver or paper. This was the situation which continually menaced Mr. Cleveland's second administration, causing great financial anxiety and forcing the treasury during those years of peace and normal expenditures to borrow 262 million dollars in gold in order to replenish its continually dwindling reserve. Such a situation inevitably led the advocates of monetary legislation in the nineties to place first and foremost among their proposals the necessity of getting rid of the precarious greenback, and most of the plans proposed by bankers' associations, chambers of commerce, and financial experts generally at that time emphasized the urgency of this measure.

WHY RETIREMENT IS NOT IMPORTANT

It sometimes happens that, with the lapse of time and with changed conditions, infirmities, long left untreated, cure themselves, and so it has been with the one-time bothersome greenback. Twenty years ago, when the outstanding greenbacks amounted to twice the gold holdings of the treasury and to much more than half of the country's entire gold stock, there was abundant reason for anxiety on account of their continued circulation. The situation is utterly different to-day. Gold has accumulated in the treasury beyond the wildest "dreams of avarice" of the nineties. From less than 200 millions in the middle nineties the treasury's gold holdings have grown to approximately 1,250 millions to-day, and the estimated gold stock of the country has increased from 600 to more than 1,800 millions, despite the fact that the Director of the Mint in 1907 reduced the estimate for gold in circulation by 135 millions as compared with the basis of previous years.

The greenback has thus become each year a relatively less important element in our currency system, an element of ever less and less potency for harm. Doubtless the absolute amount of outstanding greenbacks has diminished considerably through loss and destruction during fifty years, and is to-day far less than the $346,000,000 issued during the Civil War, which are still carried as an obligation on the Government books....

The greenbacks are less menacing to-day for the further reason that they are being rapidly transformed into small denominations which are absorbed in the general circulation, and which could only with great difficulty be collected in sufficiently large amounts to cause a serious drain upon the treasury through presentation for redemption.... So great and continuous is the demand for notes of small denominations that one may safely predict that in another decade practically all of the greenbacks still in existence will be in small denominations in the pockets of the people.

The "endless chain" with its ineffectual bond issues, the imminence of specie suspension, and the fear of treasury bankruptcy will never again result from the outstanding greenbacks. Their dangers, lurid and nerve-racking though they were twenty years ago, are now only memories.

THE CONFEDERATE CURRENCY[14]

The financial system adopted by the Confederate Government was singularly simple and free from technicalities. It consisted chiefly in the issue of treasury notes enough to meet all the expenses of the Government, and in the present advanced state of the art of printing there was but one difficulty incident to this process; namely, the impossibility of having the notes signed in the Treasury Department, as fast as they were needed. There happened, however, to be several thousand young ladies in Richmond willing to accept light and remunerative employment at their homes, and as it was really a matter of small moment whose name the notes bore, they were given out in sheets to these young ladies, who signed and returned them for a consideration. I shall not undertake to guess how many Confederate treasury notes were issued. Indeed, I am credibly informed by a gentleman who was high in office in the Treasury Department, that even the Secretary himself did not certainly know. It was clearly out of the power of the Government ever to redeem the notes, and whatever may have been the state of affairs within the treasury, nobody outside its precincts ever cared to muddle his head in an attempt to get at exact figures.

We knew only that money was astonishingly abundant. Provisions fell short sometimes, and the supply of clothing was not always as large as we should have liked, but nobody found it difficult to get money enough. It was to be had almost for the asking. And to some extent the abundance of the currency really seemed to atone for its extreme badness. Money was so easily got, and its value was so utterly uncertain, that we were never able to determine what was a fair price for anything. We fell into the habit of paying whatever was asked, knowing that to-morrow we should have to pay more.

Speculation became the easiest and surest thing imaginable. The speculator saw no risks of loss. Every article of merchandise rose in value every day, and to buy anything this week and sell it next was to make an enormous profit quite as a matter of course. So uncertain were prices, or rather so constantly did they tend upward, that when a cargo of cadet gray cloths was brought into Charleston once, an officer in my battery, attending the sale, was able to secure enough of the cloth to make two suits of clothes, without any expense whatever, merely by speculating upon an immediate advance. Naturally enough, speculation soon fell into very bad repute, and the epithet "speculator" came to be considered the most opprobrious in the whole vocabulary of invective. The feeling was universal that the speculators were fattening upon the necessities of the country and the sufferings of the people. Nearly all mercantile business was regarded at least with suspicion, and much of it fell into the hands of people with no reputations to lose, a fact which certainly did not tend to relieve the community in the matter of high prices.

The prices which obtained were almost fabulous, and singularly enough there seemed to be no sort of ratio existing between the values of different articles. I bought coffee at forty dollars and tea at thirty dollars a pound on the same day. My dinner at a hotel cost me twenty dollars, while five dollars gained me a seat in the dress circle of the theatre. I paid one dollar the next morning for a copy of the _Examiner_, but I might have got the _Whig_, _Dispatch_, _Enquirer_, or _Sentinel_, for half that sum. For some wretched tallow candles I paid ten dollars a pound. The utter absence of proportion between these several prices is apparent, and I know of no way of explaining it except upon the theory that the unstable character of the money had superinduced a reckless disregard of all value on the part of both buyers and sellers. A facetious friend used to say prices were so high that nobody could see them, and that they "got mixed for want of supervision." He held, however, that the difference between the old and the new order of things was a trifling one. "Before the war," he said, "I went to market with the money in my pocket, and brought back my purchases in a basket; now I take the money in the basket, and bring the things home in my pocket."

As I was returning to my home after the surrender at Appomattox Court House, a party of us stopped at the residence of a planter for supper, and as the country was full of marauders and horse thieves, deserters from both armies, bent upon indiscriminate plunder, our host set a little black boy to watch our horses while we ate, with instructions to give the alarm if anybody should approach. After supper we dealt liberally with little Sam. Silver and gold we had none, of course, but Confederate money was ours in great abundance, and we bestowed the crisp notes upon the guardian of our horses, to the extent of several hundreds of dollars. A richer person than that little negro I have never seen. Money, even at par, never carried more of happiness with it than did those promises of a dead government to pay. We frankly told Sam that he could buy nothing with the notes, but the information brought no sadness to his simple heart.

"I don' want to buy nothin', master," he replied. "I's gwine to keep dis always."

I fancy his regard for the worthless paper, merely because it was called money, was closely akin to the feeling which had made it circulate among better-informed people than he. Everybody knew, long before the surrender, that these notes never could be redeemed. There was little reason to hope, during the last two years of the war, that the "ratification of a treaty of peace between the Confederate States and the United States," on which the payment was conditioned, would ever come. We knew the paper was worthless, and yet it continued to circulate. It professed to be money, and on the strength of that profession people continued to take it in payment for goods. The amount of it for which the owner of any article would part with his possession was always uncertain. Prices were regulated largely by accident, and were therefore wholly incongruous.

In the winter of 1863-64 Congress became aware of the fact that prices were higher than they should be under a sound currency. If Congress suspected this at any earlier date, there is nothing in the proceedings of that body to indicate it. Now, however, the newspapers were calling attention to an uncommonly ugly phase of the matter, and reminding Congress that what the Government bought with a currency depreciated to less than one per cent. of its face, the Government must some day pay for in gold at par. The lawgivers took the alarm and sat themselves down to devise a remedy for the evil condition of affairs. With that infantile simplicity which characterized nearly all the doings and quite all the financial legislation of the Richmond Congress, it was decided that the very best way to enhance the value of the currency was to depreciate it still further by a declaratory statute, and then to issue a good deal more of it. The act set a day, after which the currency already in circulation should be worth only two-thirds of its face, at which rate it was made convertible into notes of the new issue, which some, at least, of the members of Congress were innocent enough to believe would be worth very nearly their par value. This measure was intended, of course, to compel the funding of the currency, and it had that effect to some extent, without doubt. Much of the old currency remained in circulation, however, even after the new notes were issued. For a time people calculated the discount, in passing and receiving the old paper, but as the new notes showed an undiminished tendency to still further depreciation, there were people, not a few, who spared themselves the trouble of making the distinction.

I am sometimes asked at what time prices attained their highest point in the Confederacy, and I find that memory fails to answer the question satisfactorily. They were about as high as they could be in the fall of 1863, and I should be disposed to fix upon that as the time when the climax was reached, but for my consciousness that the law of constant depreciation was a fixed one throughout the war. The financial condition got steadily worse to the end.

The Government's course in levying a tax in kind, as the only possible way of making the taxation amount to anything, led speedily to the adoption of a similar plan, as far as possible, by the people. A physician would order from his planter friend ten or twenty visits' worth of corn, and the transaction was a perfectly intelligible one to both. The visits would be counted at ante-war rates, and the corn estimated by the same standard. In the early spring of 1865 I wanted a horse, and a friend having one to spare, I sent for the animal, offering to pay whatever the owner should ask for it. He could not fix a price, having literally no standard of value to which he could appeal, but he sent me the horse, writing, in reply to my note:

"Take the horse, and when the war shall be over, if we are both alive and you are able, give me as good a one in return. Don't send any note or due-bill. It might complicate matters if either should die."

A few months later I paid my debt by returning the very horse I had bought. I give this incident merely to show how utterly without financial compass or rudder we were.

How did people manage to live during such a time? I am often asked; and as I look back at the history of those years, I can hardly persuade myself that the problem was solved at all. A large part of the people, however, was in the army, and drew rations from the Government. The country people raised upon their plantations all the necessaries of life, and were generally allowed to keep enough of them to live on, the remainder being taken by the subsistence officers for army use.

In the cities, living was not by any means so easy as in the country. Business was paralyzed, and abundant as money was, it seems almost incredible that city people got enough of it to live on. Very many of them were employed, however, in various capacities, in the arsenals, departments, bureaus, etc., and these were allowed to buy rations at fixed rates, after the post-office clerks in Richmond had brought matters to a crisis by resigning their clerkships to go into the army, because they could not support life on their salaries of nine thousand dollars a year. For the rest, if people had anything to sell, they got enormous prices for it, and could live a while on the proceeds. Above all, a kindly, helpful spirit was developed by the common suffering, and this, without doubt, kept many thousands of people from starvation. Nobody formed any plans or laid by any money for to-morrow or next week or next year, and indeed to most of us there really seemed to be no future. We were not used to think of ourselves as possible survivors of a struggle which was every day perceptibly thinning our ranks. The coming of ultimate failure we saw clearly enough, but the future beyond was a blank.

The reader may find it difficult to believe that with gold at a hundred and twenty-five for one, or 12,400 per cent. premium; when every day made the hopelessness of the struggle more apparent; when our last man was in the field; when the resources of the country were visibly at an end, there were financial theorists who honestly believed that by a mere trick of legislation the currency could be brought back to par. I heard some of these people explain their plan during a two days' stay in Richmond. Gold, they said, is an inconvenient currency always, and nobody wants it, except as a basis. The Government has some gold--several millions in fact--and if Congress will only be bold enough to declare the treasury notes redeemable at par in coin, we shall have no further difficulty with our finances. So long as notes are redeemable in gold at the option of the holder, nobody wants them redeemed.... The gold which the Government holds will suffice to satisfy a few timid ones, and there will be an end of high prices and depreciated currency. I am not jesting. This is, as nearly as I can repeat it, the utterance of a member of the Confederate Congress.

The matter of prices was frequently made a subject for jesting in private, but for the most part it was carefully avoided in the newspapers. As with the accounts of battles in which our arms were not successful, necessary references to the condition of the finances were crowded into a corner, as far out of sight as possible. The _Examiner_, however, on one occasion denounced with some fierceness the charges prevailing in the schools; and I quote a passage from Prof. Sidney H. Owens's reply, which is interesting as a summary of the condition of things in the South at that time:

"The charges made for tuition are about five or six times as high as in 1860. Now, sir, your shoemaker, carpenter, butcher, market man, etc., demand from twenty, to thirty, to forty times as much as in 1860. Will you show me a civilian who is charging only six times the prices charged in 1860, except the teacher only? As to the amassing of fortunes by teachers, spoken of in your article, make your calculations, sir, and you will find that to be almost an absurdity, since they pay from twenty to forty prices for everything used, and are denounced exorbitant and unreasonable in demanding five or six prices for their own labor and skill!"

There were compensations, however. When gold was at 12,000 per cent. premium with us, we had the consolation of knowing that it was in the neighborhood of one hundred above par in New York, and a Richmond paper of September 22, 1864, now before me, fairly chuckles over the high prices prevailing at the North, in a two-line paragraph which says, "Tar is selling in New York at two dollars a pound. It used to cost eighty cents a barrel." That paragraph doubtless made many a five-dollar beefsteak palatable.

FOOTNOTES:

[8] Adapted from Wesley Clair Mitchell, _A History of the Greenbacks_,