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for bonds. Therefore, to the financial loss caused by the increase of expenditures should be added a second loss from the unfavorable terms to which the government had to submit in selling its securities.

Of course, it is true that the secretaries of the treasury in their efforts to borrow money were obliged to agree to some very hard bargains. There was little ground for exultation over the sale at par of bonds bearing interest at 5 or 6 per cent in gold when the currency received from purchasers was worth in specie but 50 per cent of its face value. But this loss arising from the difference in value between the paper dollars received by the treasury for bonds and the specie dollars which the treasury contracted to pay bondholders after a term of years is not a further loss in addition to the losses discussed in the preceding sections, but rather these same losses looked at from another point of view. For the estimate of the increase of expenditures above receipts, and therefore of debt contracted, rests precisely upon the decline in the value of the paper dollar from the specie standard. One may arrive at an estimate of the loss either by computing the increase in the number of dollars that had to be borrowed in paper money to be repaid in gold, or by estimating the decline in the specie value of the paper money raised by the sale of bonds; but to make estimates by both of these methods would be to include two guesses at the same item.

It is true that, had gold bonds been sold largely at less than par for paper money, a second loss would have been incurred from the discount in addition to the loss from the smaller purchasing power of the currency received. But, as a matter of fact, the deviation from par in the subscription prices for bonds was not of great importance. The prices of government securities did not fluctuate very widely during the war, for the very good reason that these prices showed merely the value of one set of government promises to pay-viz., bonds, in terms of another set-viz., greenbacks. Most factors that affected the credit of the government would affect the specie value of all its promises in much the same manner, and therefore would not alter materially the ratio of one to another.

It remains only to say a word about the effect of the legal-tender acts upon the interest charge borne by the government. The great financial argument in favor of the greenbacks has always been that they constitute a "loan without interest." But against the saving of interest effected by issuing greenbacks instead of selling bonds. should be put down the loss of interest on the increase of debt arising

from the augmentation of expenditures. If the rate of interest be taken at 6 per cent, a simple calculation shows that the interest saved by the greenbacks up to August 31, 1865, was but $28,000,000 greater than the interest loss through the excess of increase of expenditures over the increase of receipts as shown by tables. By the end of this period the augmentation of debt caused by the greenbacks had apparently become greater than the volume of greenbacks in circulation, so that from this time forward the annual loss of interest probably exceeded the gain.

V. CONCLUSION

The public debt reached its maximum amount August 31, 1865, when it stood at $2,846,000,000. Of this immense debt the preceding estimates indicate that some $589,000,000, or rather more than a fifth of the whole amount, was due to the substitution of United States notes for metallic money. Little as these estimates can pretend to accuracy, it seems safe at least to accept the conclusion that the greenbacks increased the debt incurred during the war by a sum running into the hundreds of millions. If so, it follows that, even from the narrowly financial point of view of their sponsors, the legaltender acts had singularly unfortunate consequences.

103. EFFECTS OF GREENBACKS ON CREDIT TRANSACTIONS1 BY JOSEPH J. KLEIN

In an address on "Character and Credit," delivered shortly after the close of the Civil War, Mr. Edward D. Page stated that the long credits which existed before the war could not be continued because of the doubts that existed in consequence of a fluctuating standard. Horace Greeley, writing his Essays on Political Economy sometime before 1869, confirms the statements of Mr. Page. He declared that our internal credit system had broken down, and rural traders, no longer able to replenish their stocks on credit, bought little or nothing. A gentleman who was in the dry-goods business at the time states that "during the war everything was on a cash basis, on account of uncertainty." An actuary recalled that the usual terms during the period were cash or thirty days.

The Commercial and Financial Chronicle, on September 9, 1865, published an authoritative editorial, "The Present State of Trade Adapted from "The Development of Mercantile Instruments of Credit," Journal of Accountancy, XIII (1912), 45–46.

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and Credit," wherein we find exactly the information sought as a result of "careful inquiry" regarding the buyers from the South and the West. Most jobbing sales were made on "short" time, from sixty days to four months, but if settled within thirty days from date a discount of 1 per cent per month was allowed, including interest for the first thirty days. Inasmuch as most bills were anticipated because of these favorable terms, very little credit was either "asked or given."

Continuing from the same source, we learn that the continued rise in prices because of the volume of currency in circulation has made money so plentiful that even the retail merchants can and do buy for cash. "Very little paper is being made," and it is on short-time periods only. Industry has not kept pace with the demand, therefore buyers are more anxious to secure goods than are the sellers to dispose of them, which is another reason why long credit is not in vogue. "To be sure," old customers can still get the one-time fashionable six months, but a few only avail themselves of this privilege. About one-half of the buyers pay cash, and the rest "average less than three months' credit, while only a few obtain six to eight months."

104. PAPER MONEY AND SUBSIDIARY CURRENCY1
BY ROLAND P. FALKNER

When, through the blighting influence of a forced circulation of paper money, silver, as well as gold, disappears from the monetary circulation, there is left a distressing vacancy which is not immediately filled. The circulation of silver, the small change of everyday life, affects the whole people, and the inability to secure change and make change causes ceaseless vexation. Sweep out of existence all denominations of currency between the cent and the dollar and try to imagine how the affairs of everyday life would be hampered and checked at every turn. Petty commerce would be at a standstill. The retail dealer would have to refuse his customer or give him credit, unless the latter should be willing to purchase vastly more than he would need. The payment of labourers would become a serious daily or weekly trial for the employer. In actual experience there has never been such a complete absence of small change, but there have been times of great scarcity, marked by all the phenomena described.

There are two measures of relief which have been applied in such a predicament, often concurrently. One is the issue of paper substiAdapted from "The Private Issue of Token Coins," Political Science Quarterly, XVI (1901), PP. 305-27.

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tutes-e.g., our own fractional currency; the other, the abundant issue of copper coins-e.g., so that twelve pennies may do the work of a shilling. If the crisis is prolonged the government sooner or later steps in to give relief in one of these ways or both. But the need brooks no delay, and it frequently happens that before the slow machinery of the government is set in motion private persons seek relief in the unauthorized issue of both notes and coin to meet the emergency.

In the United States resort has been made to tokens at various times. During the suspension of specie payments in 1812 and in 1837, large quantities were issued. Few of these "shinplasters" have been preserved; but the historians tell us that they were in universal use and, if we consider the circumstances of their issue, we may well believe that it was so. In the panic of 1837 some relief was sought in the issue of coppers. Within certain limits, such coins in sufficient quantities are capable of being a substitute for small silver. Some of these private copper coins have been preserved. Numismatists enumerate some 164 varieties of such coins from the Jacksonian epoch. In diameter and thickness they correspond to the large copper cent then in use.

Of the coins described by the numismatist, some ninety-three are what are designated as shop cards. These were issued by merchants and others, partly as advertisements, partly to supply the great need of small change. Some of them bear inscriptions, "For public accommodation," and the like, which indicate their purpose. On the other hand, a large number of the coins of this period were used as vehicles of political satire and abuse. The victim of this abuse is generally Jackson. Thus, one coin of 1834 bears the gaunt figure of the President, carrying in one hand a sword and in the other a money-bag, surrounded by the words, "A plain system, void of pomp." On the reverse of the coin is the emblem of a jackass in his most stubborn attitude, with the letters "LL.D." on his haunches, in allusion to the degree conferred on Jackson by Harvard University. Over the jackass are the words "Roman Firmness" and around the edge the celebrated words of Jackson, "The Constitution as I understand it." Another coin of 1837 bears a representation of a turtle carrying on its back an iron safe labelled "Sub-treasury," while beneath are the words, "Fiscal agent" and around the coin, "Executive experiment." The reverse of this coin has a jackass running, and the words from Van Buren's inaugural, "I follow in the steps of my illustrious predecessor." The contest over the Bank is shown in two contrasted coins

of this period. One bears a ship under full sail, labelled "Constitution," and around it the words, "Webster, credit currency, 1840"; while the other shows a ship labelled "Experiment," struck by lightning and foundering in the waves, with the inscription, "Van Buren, metallic currency, 1837." A few of the coins are laudatory of Jackson and his party, but the greater number contain expressions of abuse and ridicule. A full list of these coins, with appropriate explanations, would form a complete exposition of the political controversies of the day; for among them we find references to the Bank, the suspension of specie payments, Benton's "mint-drops," slavery and kindred subjects of contemporary interest. The strong political bias of these coins leads us to doubt whether their circulation as money was as general as that of the neutral merchant tokens. They are none the less a curious monument alike of the bitterness of political strife and of the disorders of the currency.

Again during the Civil War the depreciation of the greenbacks soon drove the subsidiary silver from circulation and compelled a resort to cheap substitutes and tokens. To mitigate this evil a law was enacted July 17, 1862, authorizing the secretary of the treasury to issue stamps to be exchanged for United States notes. Private issues were prohibited in the most explicit terms.

This law was commonly understood to authorize the use of postage stamps, and its first effect was a run upon the post-office for stamps. The postmaster-general reported that in the third quarter of 1862 the receipts from the sale of stamps in twenty-nine of the larger postoffices exceeded by $794,340.08 the receipts in the corresponding quarter of 1861. This excess was, in fact, greater than the total sales in the third quarter of 1861. In New York City alone the excess was $425,296. Even at this rate the post-office department did not supply half the quantity demanded. Such a sudden and unusual demand greatly embarrassed the postal authorities and led to orders from headquarters to refuse to sell stamps wherever there was reason to believe they were not to be used for postal purposes. The adhesive stamps of the post-office were an awkward makeshift as currency. They cracked easily, and when they grew dirty could not be used for their original purposes. Frequently the mucilage was washed off or they were pasted upon strips of cardboard. In some cases they were encased in metal, and I have seen one with the face protected by a piece of mica and bearing on the back an ingenious advertisement.

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