various classes of commodities and services; but the table on p. 169 is the best representation of the situation that can be given. The total increase for the whole period is roughly $791,000,000.

II. THE GREENBACKS AND RECEIPTS

Of the government receipts during the war some sources were unaffected, while with others the depreciated currency gave rise to an increase of revenue for the government. Under the provisions of the first legal-tender act customs duties were paid in gold, and the ad valorem duties were assessed on the foreign specie valuation of goods. The receipts from this source therefore remained on substantially the same footing as if specie payments had been maintained. The receipts from direct taxes were all collected under one law passed six months before suspension. This law fixed the total amount of the tax at $20,000,000 and determined the precise amount to be raised by each state. Accordingly the legal-tender acts had no effect upon this item-except that the states were ESTIMATED INCREASE IN THE ORDINARY RECEIPTS OF THE FEDERAL GOVERNMENT CAUSED BY THE GREENBACKS (In millions of dollars)

enabled to pay their quotas in greenbacks instead of in gold. The revenue derived from miscellaneous sources includes a considerable number of small items. Of these, some were doubtless increased by depreciation, e.g., proceeds of sales of captured and abandoned property. Other items were unaffected, e.g., receipts of fees by American consuls abroad. Premiums on sales of gold coin may be set down from the present point of view as clear gain.

The internal-revenue system of taxation was inaugurated by an elaborate law passed July 1, 1862, which imposed certain duties, partly ad valorem, partly specific, upon a great variety of manufactured articles. Two years later another act raised the rates of taxation and increased the number of articles made to pay duties.

At the time the first law was passed the depreciation of the currency was not great, and probably the rates of taxation imposed do not differ much from what they would have been upon a specie basis. But without any modification of the terms of the law, the progressive rise of prices must have caused an increase of the revenue from ad valorem duties, and from taxes on gross receipts and upon incomes. Receipts from specific duties, licenses, etc., however, probably did not increase except as changes were made in the law or in its administration.

The table shows the increase of receipts to be roughly $174,000,000.

III. THE

GREENBACKS AND INDIRECT COSTS

It is probable that not a little of the lavishness with which public funds were appropriated by Congress during the war can be traced to the paper-money policy. At least such was the opinion of a man so well placed to observe the operations of the treasury as Hugh McCulloch. In his report of 1867 he said: "As long as notes could be issued and bonds could be sold at a premium or at par, for what the statute made money, there was a constant temptation to liberal, if not unnecessary, expenditures. Had the specie standard been maintained and bonds been sold at a discount for real money, there would have been an economy in all branches of the public service which unfortunately was not witnessed."

If the paper currency tempted the government to reckless expenditures, it also predisposed the people to submit more willingly to heavy taxation. The advance of money wages and of money prices made most people feel wealthier, and, feeling wealthier, they were less inclined to grumble over the taxes. But while the feeling of prosperity may have been instrumental in procuring a cheerful acceptance of war taxes, it is very doubtful whether the net effect of the paper-money system was favorable to revenue.

IV. THE GREENBACKS AND THE PUBLIC DEBT

The resort to a legal-tender paper currency, one may argue, is a confession of acute financial distress and as such must depress the market

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.

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 CURRENCY'
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 substi

1 Adapted from "The Private Issue of Token Coins," Political Science Quarterly, XVI (1901), pp. 305-27.