Tag Archives: William P. Fessenden

Compensated Emancipation and the Hampton Roads Fallout

Politics, Reconstruction, Slavery February 10, 2020 Leave a comment

February 10, 1865 – President Abraham Lincoln unveiled a new plan for slave emancipation, and members of Congress demanded to know what happened at Hampton Roads.

16th U.S. President Abraham Lincoln | Image Credit: histmag.org

After returning from the Hampton Roads conference, Lincoln met with his cabinet and presented a scheme to compensate slaveholders if their state governments voted to return to the Union and ratify the Thirteenth Amendment. Slaveholders in the loyal border states would also be compensated if they voluntarily freed their slaves. Lincoln proposed that Congress appropriate “four hundred millions of dollars,” payable in 6-percent Federal bonds, and distribute them to each participating state according to its slave population in the 1860 census.

Half the subsidy would be paid if “all resistance to the national authority shall be abandoned and cease” by April 1. The other half would be paid if the states ratified the amendment by July 1. Once these conditions were met, Lincoln would declare the war ended and the “armies… reduced to a basis of peace.” He would pardon political dissidents, restore confiscated property (except slaves), and urge Congress to be liberal “upon all points not lying within executive control.”

This was a more detailed version of a compensated emancipation plan that Lincoln had suggested to the Confederate envoys during the Hampton Roads conference in exchange for peace. He asked his cabinet ministers for their advice, and to his surprise, they unanimously opposed this proposal.

Interior Secretary John Usher feared that the Radical Republicans in Congress “would make it the occasion of a violent assault on the president” for offering such leniency toward the South. Secretary of War Edwin M. Stanton argued that such a plan was wasteful and unnecessary since the slaves had already been freed by the Emancipation Proclamation. Treasury Secretary William P. Fessenden asserted “that the only way to effectually end the war was by force of arms, and that until the war was thus ended no proposition to pay money would come from us.”

Lincoln countered that he was presenting this plan “as a measure of strict and simple economy.” The monetary figure equated to continuing the war for another 200 days, and he desperately wanted it to end. He said:

“How long has this war lasted, and how long do you suppose it will still last? We cannot hope that it will end in less than a hundred days. We are now spending three millions a day, and that will equal the full amount I propose to pay, to say nothing of the lives lost and property destroyed.”

When this did not move the cabinet members, Lincoln sighed, “You are all against me.” On the back of his written proposal, Lincoln wrote under the date of 5 Feb 1865: “Today these papers, which explain themselves, were drawn up and submitted to the Cabinet and unanimously disapproved by them.” Lincoln signed his name and filed it away. He never raised the issue of compensated emancipation again. Navy Secretary Gideon Welles later wrote that “the earnest desire of the President to conciliate and effect peace was manifest, but there may be such a thing as so overdoing as to cause a distrust or adverse feeling.”

In reality, the Radicals seeking to punish the Confederacy would have never approved Lincoln’s plan. Many of them had already condemned Lincoln for even meeting with the Confederate envoys at Hampton Roads. Thaddeus Stevens, the leading Radical in the House of Representatives, strongly criticized the president for negotiating with “rebels,” and he led the majority in approving a resolution demanding that Lincoln submit a formal report on what had been discussed. House Speaker Schuyler Colfax assured Lincoln that such a report “cannot fail to increase the confidence of the American people in you.”

At the same time, Charles Sumner, the leading Radical in the Senate, introduced a resolution asking for “any information in his (Lincoln’s) possession concerning recent conversations or communications with certain rebels.” A heated debate ensued in which conservative Republicans, Lincoln’s firmest allies, accused Radicals and Democrats of conspiring to infringe on the president’s constitutional power to negotiate treaties. The Radicals angrily denied such charges, but the resolution passed nonetheless.

Lincoln complied with Congress by submitting a formal report (actually written by Secretary of State William H. Seward) on the 10th. Correspondent and Lincoln friend Noah Brooks reported from the congressional gallery: “The reading began in absolute silence. Looking over the hall, one might say that the hundreds seated or standing within the limits of the great room had been suddenly turned to stone.”

Many congressmen who had been skeptical of Lincoln slowly realized that he had stood firm in his commitment to restore the Union and end slavery. Brooks reported:

“When the reading was over, and the name of the writer at the end of the communication was read by the clerk with a certain grandiloquence, there was an instant and irrepressible storm of applause, begun by the members on the floor, and taken up by the people in the gallery. It was instantaneous, involuntary, and irrepressible, and the Speaker only perfunctorily attempted to quell it. It was like a burst of refreshing rain after a long and heartbreaking drought.”

A Democrat spoke for the small minority who urged Congress to support an armistice, declaring, “I am in favor of appealing from guns and bayonets and artillery to reason, to sense, to Christianity, and to civilization.” Stevens responded by quoting Jefferson Davis: “Sooner than we should be united again, I would be willing to yield up everything I have on earth; and if it were possible, I would yield up my life a thousand times rather than succumb.” He continued:

“And yet a man calling himself a patriot and an American rises upon this floor and sends forth to the country a denunciation of the President of the United States for not entering into negotiations with men holding these doctrines and entertaining these views. I will apply no epithets to such a man; I do not know that I could use any which would be sufficiently merited.”

Thus, the war would continue until the Confederacy surrendered unconditionally.

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References

CivilWarDailyGazette.com; Donald, David Herbert, Lincoln (Simon & Schuster, Kindle Edition, 2011), Loc 11949-60; 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 16241-70; Fredriksen, John C., Civil War Almanac (New York: Checkmark Books, 2007), p. 550; Goodwin, Doris Kearns, Team of Rivals: The Political Genius of Abraham Lincoln (New York: Simon and Schuster, 2005), p. 692-93, 695-96; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 634-35, 637; 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), Q165

The Resignation of Salmon P. Chase

Politics June 30, 2019 Leave a comment

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

Lincoln Addresses Republican Dissension

Politics December 19, 2017 1 Comment

December 19, 1862 – President Abraham Lincoln met with the secret Senate Republican caucus committee and shrewdly arranged for the committee members and his cabinet to explain their differences face to face.

U.S. President Abraham Lincoln | Image Credit: Wikimedia.org

When Lincoln learned about the secret caucus on the 16th, he was “more distressed” about this supposed conspiracy against him “than by any event of my life.” He asked Senator Orville Browning of Illinois, “What do these men want? They wish to get rid of me, and I am sometimes half disposed to gratify them. We are on the brink of destruction. It appears to me the Almighty is against us, and I can hardly see a ray of hope.”

More bad news came that night, when Lincoln received the resignations of both Secretary of State William H. Seward and his son, Assistant Secretary of State Frederick Seward. Lincoln went to meet with the elder Seward, who was already packing to return to New York. The president refused to accept his resignation and, although Lincoln kept the letter, he told nobody about it as he awaited the caucus results.

The senators resolved to demand that Lincoln reorganize his cabinet, and they deputized nine colleagues to issue this demand at the White House on the 18th. The meeting began at 7 p.m., when Jacob Collamer of Vermont read a statement calling for Lincoln to replace conservative cabinet members with those who agree with Lincoln “in political principles and general policy.” Furthermore, all major military commanders must also be “a cordial believer and supporter of the same principles.”

U.S. Secretary of State William H. Seward | Image Credit: Wikimedia.org

Various senators delivered speeches “attributing to Mr. Seward a lukewarmness in the conduct of the war.” Benjamin Wade of Ohio accused Lincoln of taking war advice from “men who had no sympathy with it or the cause,” and he alleged that the Republican defeats in last month’s midterm elections were due to “the fact that the President had placed the direction of our military affairs in the hands of bitter and malignant Democrats.”

William P. Fessenden of Maine was more respectful, applauding Lincoln’s patriotism and dedication while admonishing him because “the Cabinet were not consulted as” a group before making crucial decisions about the war. Fessenden then accused Seward of undermining the war effort and claimed that army commanders were “largely pro-slavery men and sympathized strongly with the Southern feeling.” Fessenden singled out Major General George B. McClellan as the prime example.

Lincoln responded by reading copies of letters he had written to McClellan proving that Lincoln had consistently urged him to destroy the enemy as soon as possible. The senators then turned back to Seward, with Charles Sumner of Massachusetts accusing him of writing questionable diplomatic letters “which the President could not have seen or assented to.”

After three hours of discussion, Lincoln pledged to consider the committee’s recommendations and asked the senators to return tomorrow night to resume talks. The men agreed. At next morning’s cabinet meeting, Lincoln informed the members about the committee’s concerns. He said that the senators considered Seward, who did not attend, “the real cause of our failures.” He reported, “While they believed in the President’s honesty, they seemed to think that when he had in him any good purposes Mr. S. contrived to suck them out of him unperceived.”

Lincoln persuaded the members to attend that evening’s meeting with the committee so he could shrewdly put up a unified front against the senators. Before the meeting began, the senators were surprised to see the cabinet members (except Seward) waiting in the anteroom. Lincoln brought them all into the office and announced that his cabinet would be attending to listen to the complaints and testify that the administration was united in purpose.

The meeting began with Lincoln reading a long rebuttal to the committee’s resolutions, which included “some mild severity” against them. Acknowledging that he did not consistently consult with his entire cabinet before making important policy decisions, Lincoln asserted “that most questions of importance had received a reasonable consideration” and he “was not aware of any divisions or want of unity.”

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

Lincoln then asked his cabinet to say “whether there had been any want of unity or of sufficient consultation.” This put Treasury Secretary Salmon P. Chase in an embarrassing predicament. As a Radical ally, Chase had secretly told the senators that there was dissension and a lack of communication in the cabinet, but now he had to say so in front of the president. To say so would make him disloyal to Lincoln; to not say so would mean he had deceived the senators.

Chase angrily said that he should not have been placed in this awkward situation. He then “fully and entirely” supported Lincoln’s statement and grudgingly admitted that “there had been no want of unity in the cabinet.” The discussion then turned back to Seward, but Chase’s admission seriously damaged the senators’ case against him.

After five hours, Lincoln asked the senators if they still demanded Seward’s resignation. Four said yes, but the other five were no longer sure. The meeting finally adjourned around 1 a.m. with everyone present fairly confident that Seward would not be removed.

Lincoln noted Chase’s disapproval of how the meeting was handled and, as expected, Chase visited him the next day and explained how he had been embarrassed. He told Lincoln that he had written a letter of resignation. Lincoln quickly asked, “Where is it?” Chase pulled it from his pocket and said, “I brought it with me. I wrote it this morning.” Lincoln replied, “Let me have it.”

Chase reluctantly handed the paper to Lincoln, who read it and said, “This… cuts the Gordian knot. I can dispose of this subject now.” Both Postmaster General Montgomery Blair and Secretary of War Edwin M. Stanton also offered to resign, but Lincoln refused. He did not, however, refuse Chase’s because it played right into Lincoln’s hands. If the senators insisted on removing Seward, then their greatest ally in the cabinet, Chase, would have to go as well. As Lincoln said to Senator Ira Harris of New York, “I can ride on now. I’ve got a pumpkin in each end of my bag!”

The Radicals ultimately withdrew their demands, Lincoln refused the resignations of both Seward and Chase, and all cabinet members resumed their duties. Lincoln’s shrewdness in handling this affair diffused the political crisis for now.

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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. 244-46; Donald, David Herbert, Lincoln (Simon & Schuster, Kindle Edition, 2011), Loc 8563-85; Foote, Shelby, The Civil War: A Narrative: Volume 2: Fredericksburg to Meridian (Vintage Civil War Library, Knopf Doubleday Publishing Group, Kindle Edition, 2011), p. 111, 113-15; Fredriksen, John C., Civil War Almanac (New York: Checkmark Books, 2007), p. 240-41; Goodwin, Doris Kearns, Team of Rivals: The Political Genius of Abraham Lincoln (New York: Simon and Schuster, 2005), p. 486-87; Jackson, Donald Dale, Twenty Million Yankees: The Northern Home Front (Alexandria, VA: Time-Life Books, 1983), p. 146-47; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York Da Capo Press, Inc., 1971), p. 297-99; 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. 574-75; 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), Q462

The Second Confiscation Act

Politics, Slavery July 25, 2017 1 Comment

July 25, 1862 – President Abraham Lincoln issued a proclamation warning southerners to “cease participating in, aiding, countenancing, or abetting the existing rebellion, or any rebellion, against the Government of the United States, and to return to their proper allegiance to the United States, on pain of the forfeitures and seizures” of their property under a controversial law enacted the week before.

Just before adjourning, Congress enacted an amended version of the Confiscation Act of 1861. Unlike the original law, which only provided for freeing slaves actively employed in the Confederate military, this version included provisions for freeing all slaves belonging to anyone with Confederate sympathies.

The law classified all Confederates as “traitors” in accordance with a 1790 statute. These “traitors” had 60 days to stop “aid, countenance, and abet such rebellion, and return to his allegiance to the United States.” If not, “all his slaves, if any, shall be declared and made forever free of their servitude, and not again held as slaves.” This amounted to 90 percent of the slaves in the Confederate states and, to many southerners, validated their accusation that Republicans had sought to free their slaves all along.

According to the measure’s ninth provision:

“That all slaves of persons who shall hereafter be engaged in rebellion against the government of the United States, or who shall in any way give aid or comfort thereto, escaping from such persons and taking refuge within the lines of the army; and all slaves captured from such persons or deserted by them and coming under the control of the government of the United States; and all slaves of such person found on (or) being within any place occupied by rebel forces and afterwards occupied by the forces of the United States, shall be deemed captives of war, and shall be forever free of their servitude, and not again held as slaves.”

This finally resolved the issue of whether Federal commanders should allow fugitive slaves to come into their camps.

The freed slaves received no guarantees that their rights would be protected; rather, the president was authorized to deport them to “some tropical country beyond the limits of the United States… such persons of the African race, made free by the provisions of this act, as may be willing to emigrate, having first obtained the consent of the government of said country to their protection and settlement within the same, with all the rights and privileges of freemen.”

Furthermore, if a Confederate did not submit to Federal authority, “the estate and property, moneys, stocks, and credits of such person shall be liable to seizure” by the Federal government for the rest of his life in what was called a “bill of attainder.” Radical Republicans pushed for taking the land “beyond the lives of the guilty parties,” but Lincoln made it known that such a provision would be unconstitutional and spiteful, and he would veto the entire bill if this was not modified.

President Abraham Lincoln | Image Credit: Wikimedia.org

Lincoln insisted on restricting property confiscation to just a person’s lifetime and then allowing ownership to revert to the person’s descendants. Congressional Republicans responded by passing an accompanying resolution declaring that the law was not a bill of attainder, which was prohibited by the Constitution, even though it clearly was.

Slaves escaping from bondage in the loyal slave states (i.e., Delaware, Maryland, Kentucky, and Missouri) would continue to be returned to their masters (if they could prove their loyalty to the U.S.) in accordance with the Fugitive Slave Act. Lincoln hoped this assurance would keep these states in the Union, and that a promise of gradual, compensated emancipation might persuade Virginia and Tennessee to return to the Union.

The House of Representatives estimated that this law could affect six million people and result in the confiscation of $5 billion in property. But it had no effective enforcement mechanism, and its conflicting references to the Confederacy as both a region rebelling against the Federal government (i.e., Confederates were “traitors”) and an independent nation (i.e., slaves were “captives of war”) made its constitutionality extremely dubious. Moreover, Lincoln was in the process of formulating his own emancipation plan under his wartime powers as commander-in-chief, which he believed to be more constitutional than a congressional decree and would do less to hinder Republicans’ chances in the midterm elections. Therefore, several of this law’s provisions went unenforced.

Congressmen speculated that Lincoln might veto the bill. Some feared that the measure would drive the loyal slave states out of the Union. Lincoln submitted a list of objections to the original bill, and the law passed after bitter debate. It was strongly opposed by Democrats and some moderate Republicans, but they could not overcome the majority of other moderate and Radical Republicans in favor.

Senator William P. Fessenden of Maine persuaded Lincoln to sign the bill into law and then send his proposed veto message to Congress, to be recorded for when the law was tested in the courts. This unprecedented move enabled Lincoln to curry favor from both factions of Republicans. In the message, Lincoln stated that “the severest justice may not always be the best policy.” Referring to the provision freeing slaves of Confederates after 60 days, Lincoln declared:

“It is startling to say that Congress can free a slave within a State, and yet, if it were said the ownership of the slave had first been transferred to the nation, and Congress had then liberated him, the difficulty would at once vanish. And this is the real case. The traitor against the General Government forfeits his slave at least as justly as he does any other property; and he forfeits both to the Government against which he offends. The Government, so far as there can be ownership, thus owns the forfeited slaves, and the question for Congress in regard to them is, ‘Shall they be made free or sold to new masters?’”

Lincoln argued that freeing slaves within the states contradicted the Republican Party platform to which Lincoln and the Republicans owed their election. Members of Congress, particularly the Radical Republicans, laughed at the message, confident that Lincoln did not have the nerve to oppose them any longer.

The 60-day countdown began on the 25th, when Lincoln issued his warning for southerners to cease and desist their rebellion. The language was derived from the first draft of Lincoln’s emancipation proclamation, which he had agreed not to release in its entirety until the Federal military gained a victory.

The Second Confiscation Act highlighted the growing political rift between Lincoln and the Radical Republicans in Congress. It also set the stage for later Federal efforts to preserve and reconstruct the Union by destroying the southern way of life.

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References

CivilWarDailyGazette.com; Davis, Jefferson, The Rise and Fall of the Confederate Government: All Volumes (Heraklion Press, Kindle Edition 2013, 1889), Loc 14721-30, 14753-62; Donald, David Herbert, Lincoln (Simon & Schuster, Kindle Edition, 2011), Loc 7701; Faust, Patricia L., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 157; Foote, Shelby, The Civil War, A Narrative: Fort Sumter to Perryville (New York: Vintage Books, 1958), p. 539-40; Fredriksen, John C., Civil War Almanac (New York: Checkmark Books, 2007), p. 182; Goodwin, Doris Kearns, Team of Rivals: The Political Genius of Abraham Lincoln (New York: Simon and Schuster, 2005), p. 460-61; Jackson, Donald Dale, Twenty Million Yankees: The Northern Home Front (Alexandria, VA: Time-Life Books, 1983), p. 143; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 241, 244; 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. 500; Pollard, Edward A., Southern History of the War (New York: The Fairfax Press, 1990), p. 351; Robertson, Jr., James I., Tenting Tonight: The Soldier’s Life (Alexandria, VA: Time-Life Books, 1983), p. 32-33; 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), Q362

The Legal Tender Act

Politics February 25, 2017 1 Comment

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 First Federal Income Tax

Politics August 5, 2016 1 Comment

August 5, 1861 – The 37th U.S. Congress approved the Revenue Act of 1861, which raised taxes on imported goods, imposed taxes on the states, and provided for the first tax on individual income in American history.

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

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

In this special session of Congress, members rushed to enact measures that would increase government revenue to pay the interest on the war bonds being sold. The Republican Party, which dominated this Congress, had long supported higher tariffs on imports, so a measure to raise tariff rates 10 percent higher than the Morrill Tariff Act enacted earlier this year was not surprising. However, it did produce resentment among free trade advocates, including trading partners such as Great Britain, who favored the Confederacy’s free trade policies.

Unlike any other Congress before, this Congress introduced two new and innovate methods of taxation–taxing states and individuals.

Under the “Act of August 5,” states would be required to collectively pay $20 million to the Federal government. The sum was to be apportioned among all the states–even Confederate–according to their population. Thus the more populous states would be responsible for more of the total than those with fewer residents. Pennsylvania, for instance, was billed $1,946,719.33, while Oregon was taxed $35,140.66. Taxes from Confederate states were to be collected once they came under Federal military occupation.

The more controversial provision of the law provided that “there shall be levied, collected, and paid, upon annual income of every person residing in the U.S. whether derived from any kind of property, or from any professional trade, employment, or vocation carried on in the United States or elsewhere, or from any source whatever.” Such a tax had been approved to help finance the War of 1812, but that war ended before it could take effect. Republican Congressman Roscoe W. Conkling of New York argued that, like in 1812, wartime emergencies demanded such taxation:

“War is not a question of valor, but a question of money…It is not regulated by the laws of honor, but by the laws of trade. I understand (that) the practical problem to be solved in crushing the rebellion of despotism against representative government is who can throw the most projectiles? Who can afford the most iron or lead?”

Republican William P. Fessenden of Maine, chairman of the Senate Finance Committee, explained that the import tariff and the income tax complemented each other because the former was a regressive tax while the latter was progressive. He said, “Taking both measures together, I believe the burdens will be more equalized on all classes of the community.”

The income tax provision mandated that all U.S. citizens earning more than $800 per year would pay three percent to the Federal government. Some opponents of this law argued that the Constitution did not give the Federal government power to tax individuals, and thus only states could be subject to Federal taxation. But wartime demands trumped constitutional arguments, and the law passed. The income tax was to take effect on January 1, 1862. The levies on imports, states, and people were expected to generate $90 million in revenue.

A vague provision to the income tax part of the law opened a path to do away with the independent sub-treasury system that had regulated Federal finance since the 1840s. Under that system, the gold that people used to buy government bonds had to be deposited into a sub-treasury. This new provision authorized the Treasury to instead keep the gold in banks as government credit to help fund bank notes. However, Treasury Secretary Salmon P. Chase’s decision not to invoke this provision threatened to deplete gold reserves in the banks and cause a financial panic if Federal military fortunes did not improve.

Congress adjourned the following day, but not before President Lincoln approved what many considered an even more controversial bill.

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References

CivilWarDailyGazette.com; Crocker III, H.W., The Politically Incorrect Guide to the Civil War (Washington: Regnery Publishing, 2008), p. 139; Fredriksen, John C., Civil War Almanac (New York: Checkmark Books, 2007), p. 53-54; Jackson, Donald Dale, Twenty Million Yankees: The Northern Home Front (Alexandria, VA: Time-Life Books, 1983), p. 59; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 104-05; Ward, Geoffrey C., Burns, Ric, Burns, Ken, The Civil War (New York: Alfred A. Knopf, 1990), p. 127