Legal Tender Act

previous losses from panics and commercial crises which they helped to bring about. It would be tedious and unnecessary to follow here the various financial manoeuvres of the winter of 1861 and 1862. It is a simple record of temporary makeshifts alternating-with one another, frittering away the credit of the government, disregarding its true resource in the patriotism of the people, and offering large profits to those who handled the government loans. Of the banks, those which clung to the old-fashioned principles of finance, disapproved of the course things were taking, and refused to participate, found themselves losing. Those which fell in with the new order of things made enormous profits. THE LEGAI TENDER ACT. The embarrassments of the government becoming greater and greater, the bill for an issue of legal tender notes was hastily prepared and offered in the House. Mr. E. G. Spaulding, of Buffalo,* claims to have been the author of this * Financial History of the War.

I93 HISTORY OF AMERICAN CURRENCY. act, and no counter-claimant has ever arisen. The act was earnestly opposed by some of the oldest and best members of both houses, but it was pressed as " necessary," and forced through with the energy and decision which, earlier in the session, so much needed to be exerted in another direction. So far as I know, Mr. Owen Lovejoy is the only man who is on record as having put his finger on the irredeemable banknotes as the greatest evil in the situation. The bill was signed on the 25th February, 1862. This act was passed, as the debate shows, as a temporary war measure. On the part of its advocates, Mr. Thaddeus Stevens at the head, it was urged and probably believed, that the legal tender clause would prevent depreciation and give credit to the notes. Pelatiah Webster wrote in 1791 : " The fatal error, that the credit and currency of the continental money could be kept up and supported by acts of compulsion, entered so deep into the minds of Congress, and of all departments of administration through the States, that no considerations of justice, religion, or policy, or even HISTORY OF AMERICAN CURRENCY. 199 experience of its utter inefficacy, could eradicate it. It seemed to be a kind of obstinate delirium, totally deaf to every argument drawn from justice and right, from its natural tendency and mischief, from common sense, and even common safety. This ruinous principle was continued in practice for five successive years, and appeared in all shapes and forms, i. e. in tender acts, in limitations of prices, in awful and threatening declarations, in penal laws with dreadful and ruinous punishments, and in every other way that could be devised, and all executed with a relentless severity, by the highest authorities then in being, viz., by Congress, by assemblies and conventions of the States, by committees of inspection (whose powers in those days were nearly sovereign), and even by military force ; and, though men of all descriptions stood trembling before this monster of force, without daring to lift a hand against it, during all this period, yet its unrestrained energy proved ever ineffectual to its purposes, but in every instance increased the evils it was designed to remedy, and destroyed the benefits it was intended to promote. At best its utmost 2oo HISTORY OF AMERICAN CURRENCY.

effect was like that of water sprinkled on a blacksmith's forge, which indeed deadens the flame for a moment, but never fails to increase the heat and force of the internal fire. Many thousand families of full and easy fortune were ruined by these fatal measures, and lie in ruins to this day, without the least benefit to the country, or to the great and noble cause in which we were then en^a^ed.o o " I do not mention these things from any pleasure I have in opening the wounds of my country, or exposing its errors, but with a hope that our fatal mistakes may be a caution and warning to future financiers, who may live and act: in any country which may happen to be in circumstances similar to ours at that time." Here was a warning from our own history of what must be the tendency of any legal tender law, whether more or less stringent. So far from sustaining, it could only injure the credit of the paper.

The precedent of the English Bank Restriction was frequently and erroneously referred to, and inferences were drawn which were simply HISTORY OF AMERICAN CURRENCY. 2OI ignorant. The spirit of the debate was that of panic. The finances had been allowed to drift into a serious condition, and then, instead of applying cool and calm reason to find out and correct mistakes, recourse was taken to the last and most desperate resources. The financial interests of a great nation for an indefinite future were staked upon a desperate resource, to tide over a temporary exigency. When the lessons of history were quoted they were answered by the flag and the eagle. When caution was urged in view of possible future exigencies, it was answered by prophecies of military success and denunciations of rebels. When the need of deliberation was urged, it was answered by clamor in regard to the necessities of the government. When it was said that irredeemable paper had always wrought ruin, it was answered that our resources were unlimited, and that these precedents did not make a rule for us. When it was prophesied that the paper would depreciate, and that we should not be able to retrace our steps, the prophets of evil were indignantly pointed to the "pledged faith" of the United 9* 202 HISTORY OF AMERICAN CURRENCY.

States, and asked if they thought that would be violated. The inference that the notes must be made legal tender, because the government needed money, was never analyzed, and its fallacy never shown. The question whether it is necessary to issue legal tender notes is a question not of law, but of political economy, and political economy emphatically declares that it never can be necessary. The proposition involves an absurdity. Whatever strength a nation has is weakened by issuing legal tender notes.* One might as well say that it is necessary to open the veins of a weak man who has a heavy physical task to perform. All history shows that paper money with a forced circulation is not a temporary resource. It cannot be taken up and laid down as we choose. It is a mischief easily done but most difficult to cure.f * See the extracts from the debate of 1819, especially Lord Grenville's speech, p. 296.

f See Chapter III.