United States Notes

United States Notes. in 1899 (United States)

The following information about United States Notes. is from the Cyclopaedia of Political Science, Political Economy, and the Political History of the United States by the Best American and European Writers.

UNITED STATES NOTES. A brief sketch in reference to the bills of credit or treasury notes, issued by the government, by the colonies, and of the circulating notes issued by the banks previous to the adoption of the constitution, is given in the article on Banking in the United States, in the first volume of this Cyclopædia. The committee appointed by the federal convention held in Philadelphia on May 14, 1787, reported, on Aug. 6, a draft of the constitution, which contained, in article thirteen, a clause giving qualified authority to the states to issue paper money, as follows:

No state without the consent of the legislature of the United States shall emit bills of credit, or make anything but specie a tender in payment of debt.

This clause, after discussion, was finally so amended as to read as follows:

No state shall coin money; emit bills of credit, make anything but gold and silver coin a tender in payment of debts.

-The eighth clause of the first section of the seventh article of the constitution as presented for the consideration of the convention, provided that the legislature of the United States shall have power to borrow money, and emit bills on the credit of the United States.

This clause, as embodied in the eighth section of the first article of the constitution as finally adopted, reads, The congress shall have power to borrow money on the credit of the United States.

The debate141 on the question of striking out the words and emit bills, is given in full for the reason that the subject of making bills of credit issued by the government a legal tender, is here for the first time discussed, and was not subsequently at any time, as far as I am aware, discussed at any length by congress, though it was twice presented for their consideration, until the legal tender acts of 1862 were brought before congress for its consideration.

Mr. Gouverneur Morris moved to strike out, 'and emit bills on the credit of the United States.' If the United States had credit, such bills would be unnecessary; if they had not, unjust and useless. Mr. Butler seconds the motion. Mr. Madison: Will it not be sufficient to prohibit the making them a tender? This will remove the temptation to emit them with unjust views. And promissory notes, in that shape, may in some emergencies be best. Mr. Gouverneur Morris: Striking out the words will leave room still for notes of a responsible minister, which will do all the good without the mischief. The moneyed interest will oppose the plan of government, if paper emissions be not prohibited. Mr. Gorham was for striking out without inserting any prohibition. If the words stand, they may suggest and lead to the measure. Mr. Mason had doubts on the subject. Congress, he thought, would not have the power, unless it were expressed. Though he had a mortal hatred to paper money, yet as he could not foresee all emergencies, he was unwilling to tie the hands of the legislature. He observed that the late war could not have been carried on, had such a prohibition existed. Mr. Gorham: The power, as far as it will be necessary or safe, is involved in that of borrowing. Mr. Mercer was a friend to paper money, though in the present state and temper of America, he should neither propose nor approve of such a measure. He was consequently opposed to a prohibition of it altogether. It will stamp suspicion on the government, to deny it a discretion on this point. It was impolitic, also, to excite the opposition of all those who were friends to paper money. The people of property would be sure to be on the side of the plan, and it was impolitic to purchase their further attachment with the loss of the opposite class of citizens. Mr. Ellsworth thought this a favorable moment to shut and bar the door against paper money. The mischiefs of the various experiments which had been made were now fresh in the public mind, and had excited the disgust of all the respectable part of America. By withholding the power from the new government, more friends of influence would be gained to it than by almost anything else. Paper money can in no case be necessary. Give the government credit, and other resources will offer. The power may do harm, never good. Mr. Randolph, notwithstanding his antipathy to paper money, could not agree to strike out the words, as he could not foresee all the occasions that might arise. Mr. Wilson: It will have a most salutary influence on the credit of the United States to remove the possibility of paper money. This expedient can never succeed while its mischiefs are remembered. And as long as it can be resorted to, it will be a bar to other resources. Mr. Butler remarked that paper was a legal tender in no country in Europe. He was urgent for disarming the government of such a power. Mr. Mason was still averse to tying the hands of the legislature altogether. If there was no example in Europe, as just remarked, it might be observed, on the other side, that there was none in which the government was restrained on this head. Mr. Read thought the words, if not struck out, would be as alarming as the mark of the beast in Revelation. Mr. Langdon had rather reject the whole plan than retain the three words, 'and emit bills.' On the motion for striking out, New Hampshire, Massachusetts, Connecticut, Pennsylvania, Delaware, Virginia, North Carolina, South Carolina, Georgia, aye-9; New Jersey, Maryland, no-2. The clause for borrowing money was agreed to, nem. con. Adjourned.

-Nine states voted to strike out, and two states to retain. Virginia voted in the affirmative, and in explanation of his vote, Mr. Madison appended the following note:

This vote in the affirmative by Virginia was occasioned [961] by the acquiescence of Mr. Madison, who became satisfied that striking out the words would not disable the government from the use of public notes as far as they could be safe and proper: and would only cut off the pretext for a paper currency, and particularly for making the bills a tender either for public or private debts.

-The constitution was adopted on Sept. 17, 1787, and three years thereafter, Hamilton, in his report of Dec. 13, 1790, on a national bank, said:

The emitting of paper money by the authority of government is wisely prohibited to the individual states by the national constitution; and the spirit of that prohibition ought not to be disregarded by the government of the United States. Though paper emissions, under a general authority, might have some advantages not applicable, and be free from some disadvantages which are applicable, to the like emissions by the states separately, yet they are of a nature so liable to abuse-and, it may even be affirmed, so certain of being abused-that the wisdom of the government will be shown in never trusting itself with the use of so seducing and dangerous an expedient.

-Although notes of different forms were issued subsequently by the government at various dates, some of which were receivable for all dues payable to the government, no circulating notes were issued, which by the terms of law were made a full legal tender until the passage of the act of Feb. 25, 1862, which was nearly seventy-five years after the adoption of the constitution.

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-Some of the treasury notes, issue
d since the adoption of the constitution, and previous to the passage of the legal-tender act, were receivable for all dues to the government, and others not: some were payable at a fixed date, both with and without interest: some were fundable at any time after the date of their issue, others at a fixed date in United States bonds.

-During the late civil war, treasury notes were also issued of all these different forms, and also notes payable on demand, receivable for all dues to the government, and others payable on demand, not receivable for duties on imports, or payable by the government for interest upon the public debt, but in every other respect a full legal tender to and by the government, and between the people in all payments.

-No notes were issued from 1789 to 1812, a period of twenty-three years. Such notes were issued in the years 1812, 1813, 1814 and 1815, and at various dates from 1837 to 1847. They were again issued in 1857, and subsequently, in the years 1860, 1861 and thereafter. The periods for the issue of these notes may be summarized as follows: first, the war of 1812; second, the financial panic of 1837; third, the Mexican war; fourth, the financial crisis of 1857; and fifth, the war of the rebellion. It will thus be seen that there have been five emergencies in which congress, without any special constitutional authority, has seen fit to authorize such issues. The original debt had, at the beginning of 1812, been reduced from seventy-five millions to forty-five millions.

-TREASURY NOTES OF THE WAR OF 1812. In 1810 it was found impossible to meet all of the annual reduction of the debt required by law from the sinking fund, and a temporary loan was authorized to make up the deficiency, which amounted to $2,750,000. This loan was paid the next year. In 1811, however, recourse was had to a loan, and the one authorized by congress for that year was taken so slowly, that, in May, the secretary for the first time recommended the issue of treasury notes upon the following principle, viz.:

1. Not to exceed, in the whole, the amount which may ultimately not be subscribed to the loan: that is to say, that the amount received on account of the loan, and that of the treasury notes, shall not, together, exceed eleven millions; which limits, therefore, the greatest possible amount of treasury notes to less than $4,900,000. 2. To bear an interest of 5 2/5 per cent. a year, equal to 1_ per cent. per day on a hundred dollar note. 3. To become payable by the treasury one year after the date of their respective issues. 4. To be, in the meanwhile, receivable in payment of all duties, taxes, or debts, due to the United States.

He did not propose that the notes should be fundable in the loan which they were intended to re-enforce. This recommendation of Secretary Gallatin was made in his letter of May 14, 1812, to Mr. Langdon Cheves, chairman of the committee of ways and means of the house, and, in conformity therewith, a bill was reported by that committee on June 12, 1812.

-War was declared against Great Britain June 18, 1812. The failure of the loan was due to the fact that the money had to be borrowed from the very classes who had been opposed to the war: therefore, when the bill for authorizing treasury notes was put upon its passage on June 16, it met with much opposition.

-It was argued, that the notes under the bill were not equal in value to gold and silver, and would not be received by the banks or the people, who were prejudiced against such government paper; that if issued they could not be redeemed, and would depreciate; that the measure would be subversive of public and private credit; that it was a confession of impaired credit; that to allow the notes to be deposited in banks and to accept bank paper in exchange was to depreciate the government's paper; that if issued, additional taxes should be imposed and set apart for the redemption of the notes, as in the case of the English exchequer notes; that the proposed notes were the same as the old continental money, and would depreciate in the same way. Others opposed the bill simply because they opposed the war or any preparation for it. In case war proved unavoidable the necessary funds should be raised by taxes and loans. The shortness of the time for which the notes were to be issued, was another objection. The public revenues would not meet the engagement, and engagements should not be entered into without a certainty of fulfillment. Taxes were necessary. It was a paltry expedient never suggested by Hamilton or Wolcott, and not even the spontaneous production of Gallatin; that the first [962] suggestion of the latter was to authorize a loan on such terms as would have insured its success. It was a humiliating spectacle to exhibit the government failing in negotiating its first war loan.

-On the other hand, the supporters of the bill maintained that the notes would be received by the banks in the same manner as any good individual paper was received. The banks would give the government credit for them, and in return the government could draw gold and silver from the banks. The notes would be even more valuable to the latter than specie, as they could be kept as an interest-bearing reserve. They would have currency, being receivable in duties, taxes, and debts due the government, and, as interest accumulated, they would increase in value. In reply to the suggestions that money should be raised by taxes, it was stated, that when, previously, measures of that kind had been proposed, the opposition had refused to consent. The issue of treasury notes, bearing interest at 5 2/5 per cent. only, did not indicate bad, but rather good, credit. Individuals in good credit could not borrow at less than 6 per cent. There was no depreciation of government paper in exchanging the notes for bank paper, as the latter was ready money, while the former were payable one year after date. It was denied that the people had or would have any prejudice against treasury notes. They were not prejudiced against bank notes, and the proposed notes bearing interest had many advantages over bank paper. The proposed notes would be in no way inferior to exchequer bills: in fact, it was only want of credit that compelled the English government to set aside certain revenues to meet the latter. The treasury notes would have two advantages over exchequer bills; one, the superior credit of the United States; and the other, that they were receivable for taxes and public dues. They were also superior to public stocks, in that, while bearing interest, they also can serve as currency, the same as gold and silver, thus enhancing the medium of circulation. There was no resemblance between them and continental money. When the latter was issued, the government was dependent on the pledges of the several states for its revenues, but now its credit was above suspicion, its power to raise revenue complete, and its ability to pay its debts undoubted. War was unavoidable. Both loans and taxes would have to be resorted to. The proposed notes were nothing but a loan with extraordinary advantages, taking, however, but little from the circulating medium of the country. In many transactions they would have all the effect of money. While not secured by any specific fund set apart for their redemption, the entire duties and taxes of the year are indirectly pledged for this purpose, since they are receivable in payment of such duties and taxes. The revenues of the year were estimated at eight millions, and the proposed issue of notes was five millions only. The faith of the government was pledged for their redemption. That faith had never been violated. The resources of the government were ample beyond those of any other nation. Its sources of revenue were unimproved land, a productive agriculture, an extensive commerce, an enterprising people, and an unlimited right of taxation. The anticipated abuse of a privilege was no argument against its legitimate use.

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-The bill passed th
e house June 17, 1812, yeas 85, nays 41. It passed the senate June 26, and became a law June 30, 1812. By it the president was authorized to issue treasury notes to an amount not exceeding $5,000,000. The notes were redeemable, at such places as were expressed on them, within one year of the date of their issue. They bore interest at the rate of 5 2/5 per cent. per annum from the day of issue, being one and one-half cents a day on a hundred dollar note, payable at the place where the principal was payable. They were signed by persons designated by the president, and the compensation of these persons was fixed at one dollar and twenty-five cents each for one hundred notes signed. They were counter-signed by the commissioners of loans for the state in which the notes were respectively made payable. With the approval of the president, the secretary of the treasury was authorized to borrow money upon the security of the notes, and to pay them to such banks as would give the government credit for them at par. When the notes were paid to collectors of revenue and receivers of public money, the interest ceased on the day of payment. The commissioners of the sinking fund were authorized to cause the principal and interest to be paid when due, and to purchase them at not more than par, in the same way as they purchased other public securities, with a view of reducing the debt. They were made payable to order, transferable by delivery and assignment on indorsement by persons to whose order they were made payable.

-The notes were made everywhere receivable for duties, taxes, and in payment of public land, at their par value with accrued interest on the day paid in. Penalties were imposed for counterfeiting them, and an appropriation made for the expense of printing and preparing the notes.

-There was nothing in the law regulating the denominations in which they should be issued, but, as a matter of fact, none were issued of a denomination of less than one hundred dollars.

-The largest amount authorized under this act, outstanding at any one time, was five millions. The notes authorized were all issued before the end of the year 1813, and were all redeemed during the year 1814. The secretary estimated that there would be a deficit of nineteen millions for the year 1813. Congress authorized sixteen millions of this amount to be obtained by loans, without the usual provision that the bonds should be sold at par, or specifying the rate of interest. The loan was placed with great difficulty, the sixteen millions authorized being obtained from the avails of $18,109,377.43 of stock, bearing interest at 6 per cent. To supply the remainder, a bill was introduced into the house on Jan. 27, 1813, to authorize a new issue of treasury [963] notes. The bill was similar in its provisions to the act of 1812: the arguments for and against the measure, were, in the main, the same as those in 1812. The opposition complained that much favoritism had been shown in the dealings of the banks. It was alleged that among the banks granting credit, in return for the treasury notes deposited, as authorized by the law of 1812, were those acting as depositaries of public moneys derived from the deposits of collectors and public agents; that this very money so deposited by the government agents was again loaned to the government on the credit of treasury notes. On the other hand, it was urged that the use of banks as depositaries was unavoidable, and that, in any event, banks would receive incidental benefit from keeping government deposits. Even if a stock loan was substituted for treasury notes the money realized therefrom would be deposited with the same banks until required by the government. The bill passed the house by a vote of 79 to 41, and the senate by a vote of 17 to 9, and became a law on Feb. 25, 1813.

-The greatest amount of notes authorized by this act, outstanding at any one time, was five millions: they were all redeemable by the first quarter of the calendar year of 1815, but at the close of that quarter only $1,483,900 had been redeemed, and all of the remainder was not finally paid until the year 1820, although the greatest portion was called in by 1817. They were issued in denominations of not less than $100. An act similar in all respects to that of Feb. 25, 1813, passed the house by vote of 83 to 48, and the senate without debate, on March 1, and was approved March 4, 1814. It authorized the issue of five millions of treasury notes, and of an additional five millions, which, if issued, was to be considered as part of a stock loan for the year, which was subsequently to be authorized. This loan for twenty-five millions was authorized on March 24 of the same year, and could only be placed at a large discount. An additional five millions was therefore issued in place of an equal amount of stock, making in all ten millions of treasury notes issued under this act. These notes were for the first time issued in denominations of less than $100, notes of the denomination of twenty dollars being placed in circulation. The whole ten millions were issued previous to June 30, 1815. The policy of congress seemed to be to keep the authorized issue of treasury notes each year below the amount of the revenue of the year, or, if more was authorized, they were to be in lieu of, and to re-enforce, stock loans.

-On Dec. 26, 1814, an act was passed which authorized the issue of $7,500,000 of treasury notes in place of portions of the loans of March 24 and Nov. 15 not already placed, and three millions more for the expenses of the war department. These notes bore the same rate of interest and were for the same time as those of the act of June 30, 1812, and under this act, $8,318,400 of notes were issued, a portion of which was in the denominations of twenties and fifties.

-On Aug. 31, 1814, specie payments were suspended except in New England. The accounts of the treasury department show that there were outstanding on Sept. 30, 1814, $10,649,800 of treasury notes. Mr. Crawford was succeeded in October by Secretary Dallas, and the latter, in his report to the committee of ways and means on Oct. 17, 1814, says:

The condition of the circulating medium presents another copious source of mischief and embarrassment. The stock of specie was diminished by exportation, and would remain so withdrawn from use. The multiplication of banks had increased the paper currency so that it was difficult to calculate its amount, and still more difficult to ascertain its value. Bank currency was of no benefit since the suspension of specie payments, and there virtually existed no circulating medium common to all the citizens of the United States. The money transactions of private individuals were at a stand, and the fiscal obligations of the government labored with extreme inconvenience. Under favorable circumstances, the limited issue of treasury notes would probably afford relief, but they were an expensive substitution for coin or bank notes.

He concluded by recommending the establishment of a national bank. This statement was called out by a report made by Mr. Eppes, chairman of the committee of ways and means of the house, on Oct. 10, 1874, in which, in order to secure the circulation of treasury notes, it was recommended that notes of small denominations should be issued, to be funded into 8 per cent. stock, payable to bearer, and transferred by delivery, receivable in all payments of public lands and taxes. The internal revenue taxes were to be pledged for payment of interest, and they were to be exchangeable for stock at 8 per cent, or redeemable in specie after six months' notice from the government. On Nov. 24, 1814, in a report to the committee to which a bill for establishing a national bank had been referred, Mr. Dallas mentions, as one of the means at the disposal of the treasury, the issue of treasury notes, which none but necessitous creditors, contractors in distress or government agents acting officially were willing to accept.

He also states that the act of Nov. 15, 18
14, authorizing treasury notes to be taken in payment for subscriptions to loans, was passed too late; that the interest on the public debt had not been punctually paid, and that a large amount of treasury notes had already been dishonored. In a subsequent communication of Dec. 14, 1814, he said that the non-payment of treasury notes, and the risk of not paying the interest on the funded debt, were chiefly owing to the suspension of specie payments by the banks, and the consequent impracticability of transferring public funds from the place where they were deposited to the place where they were needed. The difficulty referred to in meeting the interest upon the public debt was in Boston. A state bank had large government deposits, and a draft was sent to meet the interest, upon Oct. 1, 1814. The state bank declined paying in coin or bank [964] notes, and the creditors refused to receive the treasury notes that were offered instead. After the suspension, the government was deprived of the use of specie, and as the banks in each state refused credit and circulation to the notes of banks in other states, no transfer of funds could be made to places where they were wanted to meet treasury notes: consequently the credit of these notes was lessened, and creditors refused to accept them in payment. On Nov. 12, 1814, Mr. Hall, of Georgia, introduced in the house a series of five resolutions to revive the credit of treasury notes. The second resolution provided that the notes should be a legal tender between citizens, and between citizens and foreigners, for all debts then due or afterward to become due, which the house refused to consider by a vote of 95 to 42-more than two-thirds. These resolutions were evidently introduced as measures in opposition to the proposition for a national bank, and the other four resolutions were subsequently laid upon the table by a large majority.

-On Jan. 30, 1815, a bill authorizing the issue of treasury notes was introduced in the house, and referred to a committee of the whole. The bill passed the house Feb. 11, and the senate Feb. 21, and was approved Feb. 24, 1815; it was the last of a series of five acts, commencing with that of June 30, 1812, the first four of which had authorized the issue of treasury notes bearing interest at the rate of 5 2/5 per cent. The following is the form of the large notes issued under this act.

Endorsed on the back:

Pay the bearer, Jos. Delafield.

This act authorized the issue and reissue of treasury notes to an amount not exceeding twenty-five millions upon principles essentially different from those governing prior issues. These notes might be of any denomination: if of a denomination less than $100, they were designated as small treasury notes, were payable to bearer, and bore no interest; if of a denomination of $100 or upward, they were payable to order, transferable by indorsement, and bore interest at the same rate as those of $100 and upward previously authorized. The small treasury notes were of this form.

[965] These notes were not chargeable upon the sinking fund, as in the case of the first three acts of the series, nor were they payable out of any money in the treasury not otherwise appropriated, as in the previous act of Dec. 26, 1814, but rested entirely upon the provision making them fundable into stock. The principal and interest were not payable at any specified time, but the notes were everywhere receivable in all payments to the United States. The act reduced the pay of those signing the notes to seventy-five cents for each one hundred notes, and also provided that treasury notes of previous issue should be fundable into 6 per cent. stock. The holders of the small treasury notes could exchange them at pleasure, in sums of not less than $100, for certificates of funded stock bearing interest at 7 per cent. The treaty of peace was signed on Dec. 14, 1814, but the news reached Washington a few days only before the passage of the bill, which, although a war measure, was carried through, inasmuch as it was considered necessary to the regulation of the disordered finances of the country. The whole amount of treasury notes, absolute and contingent, which was authorized by these five acts, was $60,500,000, of which amount $36,680,794 was issued. The following table exhibits the amount issued under each act:

Under act of June 20, 1812… $ 5,000,000Under act of Feb. 25, 1813… 5,000,000Under act of March 4, 1814… 10,000,000Under act of Dec. 26, 1814… 8,318,400Under act of Feb. 24, 1815-$100 notes… $4,989,400Under act of Feb. 24, 1815-small treasury notes… 3,392,994 8,362,394Total amount issued… $ 36,680,794

-Although the treasury notes of 1815 of small denominations originally issued, amounted to only $3,392,994, the law made them fundable into 7 per cent. stock, payable after Dec. 31; and as the notes were reissuable, they were, under various exigencies, again and again paid out, until the whole amount of the 7 per cent. stock, issued for the purpose of funding them, amounted to $9,070,386. On account of the high rate of interest of these bonds, the small treasury notes were in demand, and a small amount was sold at a premium of 4 per cent., and $1,365,000 at a premium of $32,107.64, or about 2_ per cent. The secretary, in his annual report for 1815, says:

The treasury notes, which were issued under act passed previous to Feb. 24, 1815, were, for the most part, of a denomination too high to serve as a current medium of exchange; and it was soon ascertained that the small treasury notes, fundable at an interest of 7 per cent., though of a convenient denomination for common use, would be converted into stock almost as soon as they were issued.

142 The notes of $100 and upward, though fundable into 6 per cent. bonds, were depreciated from 8 to 10 per cent. below bank notes, which bore no interest, but were redeemable in specie.

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-In recapitulation, it may be stated that the treasury notes of the period of the war of 1812 were issued under five acts of congress, as stated in the table. The notes of the first three acts were made chargeable to the sinking fund-those of the last two, not; those of the first two acts were in denominations of not less than $100; those of the next two were not less than $20; and those of the last act were in denominations of 3, 5, 10, 20, 50, 100 dollars and upward. Those of the first three acts were not originally fundable into stock, but were made so by the act of Nov. 15, 1814, and by the subsequent act of Feb. 24, 1815. The notes of the acts of Dec. 26, 1814, became fundable by the act of Feb. 24, 1815, but those of the last-named act were fundable by the terms of their authorization. The notes of all the acts but the last were made payable one year from the date of their issue; those of the last act were payable at no fixed date. All of these notes (with the exception of the small treasury notes, which were without interest) bore interest at the rate of 5 2/5 per cent. None of these notes had any legal-tender quality, and congress, without debate, rejected the only proposition for giving them this quality. The denominations, except in the case of the small notes of 1815, were too large for purposes of circulation, and the inducements for funding these were so great that they could not be used for that purpose. As long as the banks redeemed their notes in specie, treasury notes appear to have kept at par, but when specie payments were suspended, they began to depreciate, and appear to have been kept from great discount by the funding acts of Nov. 25, and Feb. 24, 1815. It is said, that of eighty millions of loans negotiated by the government during this period, the avails were only thirty-four millions, after deducting discounts and depreciations.

(See FINANCE.) After the close of the war, in December, 1814, these notes were rapidly funded.

-TREASURY NOTES OF THE PERIOD OF THE FINANCIAL CRISIS OF 1837. In anticipation of
a large surplus, congress, by act of June 23, 1836, provided for the distribution of a large amount of government money among the states in proportion to their representation in the senate and house of representatives, and three installments amounting in all to $27,063,430, were so distributed. (See U. S. SURPLUS MONEY, DISTRIBUTION OF, AMONG THE STATES