away. Correct as this position unquestionably was, it encountered at once the political obstacle that no such vigorous measure could be carried, and also it was inadequate as a financial measure, because it would take time; and the chief advantage of the financial resource offered by a metallic circulation is that it can be used without a moment's delay, while plans for making loans or laying taxes are being realized.
The government treasury notes were therefore issued on top of a circulation which was already full of bank notes, and the consequence was immediate depreciation of both.
The critical period with regard to the finances of the war was from July, 1861, to January, 1862. The real issue was whether the war should be conducted on inflation or contraction. There were those who argued that the people should be cajoled into the support of the war by an apparent prosperity, produced by paper money inflation;but it does not appear that the administration adopted this view, although it failed to rise to that pitch of courage and energy which the temper of the people would have warranted. The issue appears rather to have presented itself to the men at Washington as this: Whether they should make plans for a long war, which would need thorough and comprehensive measures for its management, whereby they might be led into expenses which would later prove to have been unnecessary; or, whether they might adopt for a short time make-shift expedients, since the war would be short. Before this question of policy was settled, the delay produced an accumulation of difficulty which was used as an argument to force the adoption of desperate measures.
During the year 1862, the circulation of the banks in Maine, New Hampshire, Massachusetts, Rhode Island, New York, New Jersey, and the cities of Philadelphia and Baltimore increased about thirty-eight per cent.; loans increased about twenty-two per cent. There was a universal movement of expansion and inflation. Bankers declared "that the circulation had expanded in spite of efforts to keep it within limits; that bills issued did not come back for redemption; and that, on the other hand, fresh supplies were constantly called for by depositors and customers having to provide for payrolls or to make other petty payments."[1]
By an act of Congress, July 17, 1862, the issue and circulation of fractional notes was made punishable by a fine of not more than five hundred dollars and imprisonment for not more than six months.
From January to July, 1863, the bank circulation of Boston, New York, and Philadelphia was reduced nearly thirty per cent.
The banks of Boston, New York, and Philadelphia loaned the government $50 millions, in old legal tenders, in September, 1863, to meet a special emergency. Unfortunately this loan also was attended with some dissatisfaction on the part of the banks, on account of delay in furnishing the one-year legal tender notes bearing five per cent. interest, which were to have been given for the 1oan.[2]
