Tag Archives: Treasury

The Resignation of Salmon P. Chase

June 30, 1864 – Treasury Secretary Salmon P. Chase submitted his fourth letter of resignation, but this time President Abraham Lincoln surprised him by accepting.

Treasury Secretary Salmon P. Chase | Image Credit: Wikimedia.org

There had long been tension between Lincoln and Chase. The Radical Republicans had backed Chase for president over Lincoln, but an embarrassing situation was averted when Chase quietly ended his candidacy and Lincoln was nominated earlier this month for a second term. But in May, Chase expressed some regret at not trying harder to wrest the presidential nomination from Lincoln. Ever since Chase had been Lincoln’s rival in the contest for the Republican presidential nomination in 1860, he believed himself intellectually and morally superior to the president.

But troubles plagued Chase’s Treasury Department. The new taxes and tariffs were not enough to fund the war, and Chase could not get reauthorization to hire financier Jay Cooke to sell more war bonds. Printing paper money not backed by gold caused rampant inflation, and reports of corruption in the selling and trading of confiscated southern cotton abounded.

Chase blamed political enemies for highlighting these problems, especially the influential Blair family. Congressman Francis P. Blair, Jr., a staunch Lincoln ally, had excoriated Chase in the House of Representatives for mismanaging the department, and Chase condemned Lincoln for not distancing himself from the Blairs.

In late June, John J. Cisco resigned from the highly important post of assistant Federal treasurer in New York City. Chase proposed to replace Cisco with Maunsell B. Field, a man who knew little of finance but was loyal to Chase. New York politicians, including both U.S. Senators Edwin D. Morgan and Ira Harris, opposed the appointment, with Morgan giving Lincoln a list of three alternatives.

Lincoln wrote to Chase on the 28th, “I cannot, without much embarrassment, make this appointment.” Explaining the political dilemma that it would cause, Lincoln forwarded Morgan’s list to him and asked, “It will really oblige me if you will make a choice among these three.”

Chase requested a personal meeting to discuss the matter, but Lincoln declined “because the difficulty does not, in the main part, lie within the range of a conversation between you and me. As the proverb goes, no man knows so well where the shoe pinches as he who wears it.” Lincoln also noted that he had approved most of Chase’s other recommendations in the past, even when they caused “great burden” among political rivals.

Refusing to pick any of Morgan’s three choices, Chase persuaded Cisco to stay in his post. Chase then tendered his resignation a fourth time, adding, “I shall regard it as a real relief if you think proper to accept it.” Although Lincoln had refused it three times before, he astounded Chase by replying:

“Your resignation for the office of Secretary of the Treasury sent me yesterday is accepted. Of all I have said in commendation of your ability and fidelity I have nothing to unsay; and yet you and I have reached a point of mutual embarrassment in our official relations which it seems cannot be overcome, or longer sustained, consistently with the public service.”

At the same time, Lincoln sent this message to Chase and submitted the name of Ohio Governor David Tod to replace Chase as head of the Treasury Department to the Senate. The anti-Lincoln press immediately panned the move, with the New York Herald opining that Tod knew “no more of finances than a post.”

The message to the Senate arrived first, prompting Finance Committee Chairman William P. Fessenden to ask Chase in a meeting, “Have you resigned? I am called to the Senate and told that the President has sent in the nomination of your successor.”

Stunned, Chase later wrote of Lincoln’s response in his diary, “I had found a good deal of embarrassment from him; but what he had found from me I could not imagine, unless it has been caused by my unwillingness to have offices distributed as spoils or benefits, with more regard to the claims of divisions, factions, cliques, and individuals, than to fitness of selection.”

What Chase failed to understand was that Lincoln merely kept him in the cabinet to prevent him from openly opposing his presidency. Now that Lincoln had secured the nomination for a second term, Chase’s usefulness had run out.

Members of the Senate Finance Committee, many of whom supported Chase, called on Lincoln to protest his removal. Lincoln showed them all four of Chase’s resignation letters, explaining that this had been coming for some time. Some still complained, but none insisted on reinstating Chase.

Lincoln also refused the senators’ urgings to withdraw Tod’s name as treasury secretary. But Tod declined the job due to poor health, prompting Lincoln to then nominate Fessenden. No Republican could object to him, even Chase, who called the appointment “a wise selection.”

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References

CivilWarDailyGazette.com; Denney, Robert E., The Civil War Years: A Day-by-Day Chronicle (New York: Gramercy Books, 1992 [1998 edition]), p. 431; Donald, David Herbert, Lincoln (Simon & Schuster, Kindle Edition, 2011), Loc 10790-833; Foote, Shelby, The Civil War: A Narrative: Volume 3: Red River to Appomattox (Vintage Civil War Library, Knopf Doubleday Publishing Group, Kindle Edition, 2011), Loc 9642-62; Fredriksen, John C., Civil War Almanac (New York: Checkmark Books, 2007), p. 463; Goodwin, Doris Kearns, Team of Rivals: The Political Genius of Abraham Lincoln (New York: Simon and Schuster, 2005), p. 631-33; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 530

The Legal Tender Act

February 25, 1862 – President Abraham Lincoln signed a bill into law establishing the first Federal paper currency in U.S. history–the “U.S. Note.”

Treasury Secretary Salmon P. Chase | Image Credit: Wikimedia.org

Treasury Secretary Salmon P. Chase | Image Credit: Wikimedia.org

By this time, the northern banking community was nearing collapse. Doubts about the Federals’ ability to win the war and a possible European recognition of Confederate independence had prompted panic buying of precious metals, resulting in a gold shortage. This shortage hindered Federal efforts to obtain loans or repay debts. In a message to Congress, Treasury Secretary Salmon P. Chase finally conceded: “I came with reluctance to the conclusion that the legal tender clause is a necessity. Immediate action is of great importance. The Treasury is nearly empty.”

The “legal tender clause” was a measure that would enable the U.S. Treasury to print paper money that was not backed by specie (i.e., precious metals such as gold or silver). Prior to this, all American currency had value based on its ability to be converted to specie. The printing of this new paper money would be financed by bond sales.

Chase called the issuance of paper money “indispensably necessary” as a means to increase the money supply and help pay for the war. Printing money out of thin air sparked intense debate in Congress, with most Democrats opposing and most Republicans favoring the move. Republican William P. Fessenden of Maine, chairman of the Senate Finance Committee, acknowledged that it was “of doubtful constitutionality… It is bad faith… It shocks all my notions of political, moral, and national honor…” however, “to leave the government without resources in such a crisis is not to be thought of.”

Republican Congressman Elbridge C. Spaulding of New York, a member of the House Ways and Means Committee and chairman of a sub-committee working on wartime emergency measures, proposed printing $150 million in paper money. This would pay for all debts except import tariffs and interest on the national debt. Spaulding declared:

“The bill before us is a war measure, a necessary means of carrying into execution the power granted in the Constitution ‘to raise and support armies’… These are extraordinary times, and extraordinary measures must be resorted to in order to save our Government and preserve our nationality.”

Democratic Congressman George Pendleton of Ohio countered:

“The wit of man has never discovered a means by which paper currency can be kept at par value, except by its speedy, cheap, certain convertibility into gold and silver… prices will be inflated… incomes will depreciate; the savings of the poor will vanish; the hoardings of the widow will melt away; bonds, mortgages, and notes–everything of fixed value–will lose their value.”

A banker argued that “gold and silver are the only true measure of value. These metals were prepared by the Almighty for this very purpose.” Constitutionalists asserted that Congress only had the power to “coin” money, which meant create coin, not money based on worthless paper. Moreover, allowing for the payment of debts with this paper violated the Constitution’s contracts clause.

Republican Congressman Samuel Hooper of Massachusetts contended, “Every intelligent man knows that coined money is not the currency of the country,” because state banknotes were the prime medium of exchange, and they often depreciated in value. Hooper stated that the real question was whether national paper money would have “as much virtue… as the notes of banks which have suspended specie payments.”

Lawmakers added a provision authorizing payment of bond interest in specie, up to six percent. It was hoped that this would encourage more bond sales, which would finance the new currency. Tariffs would also continue to be paid in specie to finance interest payments on the bonds.

The Republican-dominated Congress, influenced by increasing pressure from the Treasury, business leaders, and bankers, ultimately cast the votes needed to approve the bill. Three-fourths of congressional Democrats opposed the measure, but their minority status could not overcome the three-fourths of Republicans in favor. Lincoln, admittedly no expert in finance, signed the measure into law.

The Legal Tender Act created the first national monetary system based on paper, or fiat, currency. The new currency, which featured the image of Treasury Secretary Chase, was called “greenbacks” due to the green ink used to print the notes. Issuing paper money in place of specie was intended as a wartime emergency measure only. Attorney General Edward Bates wrote a legal opinion arguing the law’s validity because it fell under the Constitution’s “necessary and proper” clause. Ironically, Chase himself would later rule this measure unconstitutional as Supreme Court chief justice after the war.

The first $150 million in notes were to begin issuance in April; ultimately $400 million was circulated. The paper money helped restore enough investor confidence to sell the $500 million in six-percent bonds issued at the same time. It also provided access to the funds that had been hoarded since the financial crisis of December. Paper money circulation ended when specie currency was finally restored in 1879.

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References

Denney, Robert E., The Civil War Years: A Day-by-Day Chronicle (New York: Gramercy Books, 1992 [1998 edition]), p. 134; Donald, David Herbert, Lincoln (Simon & Schuster, Kindle Edition, 2011), Loc 7452; Faust, Patricia L., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 323; Fredriksen, John C., Civil War Almanac (New York: Checkmark Books, 2007), p. 114; Jackson, Donald Dale, Twenty Million Yankees: The Northern Home Front (Alexandria, VA: Time-Life Books, 1983), p. 58-59; Linedecker, Clifford L. (ed.), The Civil War A to Z (Ballantine Books, 2002), p. 164; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 175; Longacre, Edward G., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 432-33; McPherson, James M., Battle Cry of Freedom: The Civil War Era (Oxford History of the United States Book 6, Oxford University Press, Kindle Edition, 1988), p. 444-46

The Northern Financial Crisis

December 30, 1861 – The leading banks of New York, Boston, and Philadelphia suspended specie payments (i.e., exchanging paper money for gold or silver) due to depleted reserves. This suspension thrust the northern states into a financial crisis.

Wall Street, New York, circa 1850s | Image Credit: Wikimedia.org

Wall Street, New York, circa 1850s | Image Credit: Wikimedia.org

By year’s end, the Federal government was struggling to find ways to pay for the war. Chase had estimated that it would cost $320 million to win the conflict, but only $80 million was obtained through taxation. The rest had to come from import tariffs, public land sales, and the sale of government bonds. The first two did not raise nearly enough to meet the need, and banks were reluctant to buy bonds if they had to pay for them in specie.

The Federal supply of gold and silver had been rapidly dwindling since the war began because the government was required to pay its soaring debts to war contractors in specie. In addition, people concerned about the dwindling supply began hoarding their precious metals, adding to the shortfall.

An economic downturn ensued, made worse by the loss of southern markets. Nearly 6,000 businesses failed this year, and an article in the New York Tribune stated, “Never before perhaps in the history of this country has such a feeling of uncertainty, of alternate hope and fear, prevailed in the business community.”

Federal defeats earlier this year, along with General-in-Chief George B. McClellan’s seeming reluctance to invade the Confederacy, had also shaken public confidence in financial stability. And when news of the Trent affair reached the U.S. on December 16, a panic occurred among the exchanges. New York banks experienced a run during which $17 million was withdrawn in three weeks. All of this threatened to deflate the value of paper money.

After the New York banks voted 25 to 15 to suspend specie payments, banks throughout the North followed suit, except those in Ohio, Kentucky, and Indiana. In all but those three states, people could only pay their debts by check or paper money (i.e., treasury or bank notes). This made it extremely difficult for the Federal government to pay its skyrocketing number of contractors, employees, and soldiers. This in turn made it difficult to obtain loans to continue paying for the war.

The suspension meant that new financial measures needed to be enacted. In his annual report to Congress, Treasury Secretary Salmon P. Chase proposed creating a national bank system in which banks would receive membership by buying government bonds. The bonds would then be used to back the issuance of a new form of paper money. Congressional debate on this proposal continued into the next year.

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References

Denney, Robert E., The Civil War Years: A Day-by-Day Chronicle (New York: Gramercy Books, 1992 [1998 edition]), p. 104; Jackson, Donald Dale, Twenty Million Yankees: The Northern Home Front (Alexandria, VA: Time-Life Books, 1983), p. 56-58; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 152; Longacre, Edward G., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 432-33; McPherson, James M., Battle Cry of Freedom: The Civil War Era (Oxford History of the United States Book 6, Oxford University Press, Kindle Edition, 1988), p. 444; Schweikart, Larry and Allen, Michael, A Patriot’s History of the United States (New York: Penguin Books, 2004), p. 324

The Second Session of the Thirty-Seventh U.S. Congress

December 2, 1861 – The second session of the first Republican-dominated Congress opened amid growing discontent with the way the Lincoln administration was prosecuting the war.

U.S. Capitol Building under construction, circa 1861 | Image Credit: Wikimedia.org

U.S. Capitol Building under construction, circa 1861 | Image Credit: Wikimedia.org

The Republican majority in this Congress included an unprecedented number of New Englanders, most of whom belonged to the party’s Radical faction. Of the 22 Senate committees, 16 were chaired by senators either from New England or born in New England but representing other states. The two most powerful members of the House of Representatives, House Speaker Galusha Grow and Ways and Means Committee Chairman Thaddeus Stevens, represented Pennsylvania but had been born and raised in New England.

Debate quickly focused on more effective means to wage the war. For the Radicals, this meant transforming the conflict from preserving the Union by destroying the Confederacy to destroying the southern way of life by crusading against slavery. This was evidenced by the House rejecting a motion to reaffirm the Crittenden-Johnson Resolution of July 25, which had declared that the war was being waged solely to preserve the Union.

Members of Congress introduced several petitions and bills emancipating slaves, especially those belonging to masters “in rebellion.” Senator Lyman Trumbull of Illinois introduced a bill providing “for the confiscation of the property of rebels, and giving freedom to the persons they hold in slavery.” This would expand the Confiscation Act by seizing and freeing the slaves of anyone supporting the Confederacy (the current act only provided for seizing slaves actively serving the Confederacy and placing them under Federal supervision).

Trumbull had once been a close political ally of President Lincoln, but they had since clashed on the slavery issue, prompting Trumbull to declare that the president lacked “the will necessary in this great emergency.”

Aside from slavery, financing the war dominated debates. It was estimated that by the end of the fiscal year of June 30, 1862, the Federal debt would be $750 million, with only $165 million in revenue generated by taxation. Unprecedented tax increases were proposed, along with other measures such as increasing import tariffs on coffee, tea, sugar, and molasses. More proposals would be forthcoming upon receiving the Treasury Department’s annual report.

Regarding the military, Congress authorized the navy secretary to award the Medal of Honor to enlisted men in the Navy and Marine Corps. Creation of the Medal came about due to pressure from servicemen and the public. This was the highest military award ever granted by the U.S. Congress also approved an official thanks for “the gallant and patriotic services of the late Brig Gen Nathaniel Lyon, and the officers and soldiers under his command at the Battle of Wilson’s Creek.”

In addition, the Senate held a memorial service for Edward D. Baker of Oregon, a fellow senator-turned-colonel, killed at Ball’s Bluff in October. In an unusual occurrence, President Lincoln visited the Senate chamber to attend the service.

The Senate addressed the defection of John C. Breckinridge to the Confederacy by approving a motion: “Whereas John C. Breckinridge, a member of this body from the State of Kentucky, has joined the enemies of his country, and is now in arms against the Government he had sworn to support,” it was resolved “that said John C. Breckinridge, the traitor, be, and he hereby is, expelled from the Senate.”

Breckinridge, the former U.S. vice president under James Buchanan, had attended the special congressional session the previous summer but had since disavowed the Union and accepted a military commission as a Confederate brigadier general. Senators unanimously voted to expel him from the chamber, 36 to 0.

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References

CivilWarDailyGazette.com (multiple dates); Denney, Robert E., The Civil War Years: A Day-by-Day Chronicle (New York: Gramercy Books, 1992 [1998 edition]), p. 99; Donald, David Herbert, Lincoln (Simon & Schuster, Kindle Edition, 2011), Loc 6818-29; Fredriksen, John C., Civil War Almanac (New York: Checkmark Books, 2007), p. 88, 92; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 145-48, 151; McPherson, James M., Battle Cry of Freedom: The Civil War Era (Oxford History of the United States Book 6, Oxford University Press, Kindle Edition, 1988), p. 358, 495-96; Pollard, Edward A., Southern History of the War (New York: The Fairfax Press, 1990), p. 267-68; Smith, Dean E., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 751-52; Stanchak, John E., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 213-14; Sylvia, Stephen W., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 484; White, Howard Ray, Bloodstains, An Epic History of the Politics that Produced and Sustained the American Civil War and the Political Reconstruction that Followed (Southernbooks, Kindle Edition, 2012), Q461