Library of Congress Subject Headings, 21st edition, 1998

Languages Used:

• English
• Latin

LC Subject Headings:

• Finance, Public -- Confederate States of America.
• Debt, Public -- Confederate States of America.
• Finance -- Confederate States of America.
• Currency question -- Confederate States of America.
• Confederate States of America -- Appropriations and expenditures.
• United States -- History -- Civil War, 1861-1865 -- Economic aspects.
• United States -- History -- Civil War, 1861-1865 -- Finance.

Revision History:

• 2000-05-02,
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  revised TEIHeader and created catalog record for the electronic edition.
  
  
• 1999-12-10,
  Natalia Smith, project manager,
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• 1999-12-01,
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Page 1

REPORT
OF THE
SECRETARY OF THE TREASURY.

CONFEDERATE STATES OF AMERICA,
TREASURY DEPARTMENT,
Richmond, December 7th 1863.

HON. T. S. BOCOCK,
SPEAKER OF THE HOUSE OF REPRESENTATIVES:

        SIR:--I have the honor to submit the following report of the condition of this Department:

RECEIPTS FROM JANUARY 1ST TO SEPTEMBER 30TH, 1863.

• For eight per cent. stock,. . . . . $107,292,900 70
• seven per cent. stock,. . . . . 38,737,650 70
• six per cent. stock,. . . . . 6,810,050 00
• five per cent. call certificates,. . . . . 22,992,900 00
• four per cent. call certificates,. . . . . 482,200 00
• Cotton certificates, act April 21, 1862,. . . . . 2,000,000 00
• Interest on loans,. . . . . 140,210 11
• War tax,. . . . . . 4,128,988 97
• Treasury notes,. . . . . 391,623,530 00
• Sequestration,. . . . . 1,862,550 21
• Customs,. . . . . 934,798 68
• Export duty on cotton,. . . . . 8,101 78
• Patent fund,. . . . . 10,794 04
• Miscellaneous, including repayments by disbursing
• officers,. . . . . 24,498,217 93
• Total,. . . . . $601,522,893 12

        The public debt (exclusive of the foreign loan) at the same period, was as follows:

FUNDED.

• Eight per cents,. . . . . $207,128,750 00
• Seven per cents,. . . . . 42,745,600 00
• Six per cents. . . . . 41,006,270 00
• Six per cotton interest bonds,. . . . . 2, 035,000 00
• Total,. . . . . $292,915,620 00

UNFUNDED.

• Treasury notes:
• General currency,. . . . . $603,632,798 50
• Two year notes,. . . . . 8,477,975 00
• Interest notes at 3.65,. . . . . 627,450 00
• Interest Notes at 7.30. . . . . 122,582,200 00
• Under $5,. . . . . 4,887,095 50
• Five per cent. call certificates,. . . . . 26,240,000 00
• Total,. . . . . $766,447,519 00
• Deduct amount of treasury notes funded and cancelled, above referred to. . . . . 65,000,000 00
• $701,447,519 00

        In order to estimate the amount of Treasury notes in circulation at the date of this report, there must be added the further sum of one hundred millions for the two months which have elapsed since the date of the above schedules.

        The balances of appropriations already made by Congress, and not drawn on 30th September, stood as follows:

• War Department,. . . . . $395,502,698 00
• Navy,. . . . . 24,413,645 00
• Civil, miscellaneous, &,. . . . . 56,240,996 00
• Customs,. . . . . 294,460 00
• Total,. . . . . $476,451,799 00

        The estimates submitted by the various Departments for the support of the Government, are made to 1st July, 1864, the end of the fiscal year, and are as follows:

• Legislative Department,. . . . . 309,005 00
• Executive Department,. . . . . 52,350 00
• Treasury Department,. . . . . 25,583,359 00
• War,. . . . . 438,078,870 00
• Navy,. . . . . 13,624,945 00
• State,. . . . . 544,409 00
• Justice,. . . . . 222,587 00
• Post Office,. . . . . 82,968 00
• Total,. . . . . $475,498,493 00

        If these estimates be extended to embrace the remaining six months of the calendar year, they must be doubled, and that sum added to the undrawn appropriations would make an aggregate ot $1,427,448,778, which Congress is formally called upon to provide. It is obvious, however, that the amounts to the credit, of uudrawn appropriations cannot be called for, inasmuch as there remain but three months of the present calender year to be provided for, and the expenditures are limited to fifty millions per month. So too as to the estimates. Any measures which will promptly reduce the currency will act upon prices and thereby materially reduce the estimates. But the larger figures exhibit to us in a distinct and tangible form the problem which we are now

required to solve. The currency has, by this time, attained dimensions of-five times its proper size. The estimates are based upon prices fixed by this condition :of the currency. If these estimates are to be supplied by new issues of currency, prices must again increase and large editions must be made to the figures which represent both currency and estimates. It is obvious, therefore, that some other mode of raising supplies must be devised; and the necessity is equally obvious of reducing the currency. We are thus distinctly presented with these two conditions, as necessary elements of the problem to be solved, namely: reduction of the existing currency, and a supply of means from some source other than Treasury notes.

        In a former report, it was shown that 150 million of dollars was probably the amount of currency which could be put in circulation under existing circumstances, in the Confederate States, without material derangement of values. The currency in circulation when the estimates for the ensuing year were made up, was about four times that amount; and it may be fairly assumed that the prices were then nearly four times what they would have been if the currency had been restored to its original condition. A reduction of the currency should, therefore, be a preliminary measure. It is substantially the most efficient means of raising supplies; far more so than either taxes or loans. These last serve only to provide the amount which they nominally raise, but a reduction of the currency by reducing prices furnishes three or four times the amount of such reduction. It may be fairly assumed that a reduction of the currency to 200 millions would enable the government to sustain itself with an expenditure of only 400 millions in money, and if our problem be then stated in figures, it requires the apparently opposite conditions of raising 400 millions of supplies and of retiring an equal amount of currency.

        But there is also one further condition, involved. The support of the government requires continued supplies. Any delay in the action of measures to relieve the currency,

aggravates all the difficulties. In the interval, other issues must be made, and those issues re-act on prices and increase the Government expenditure. Promptness and certainty in the reduction are, therefore, as important as the reduction itself. Thus are we fairly confronted with the three difficulties to be surmounted.

• 1. The currency must be reduced.
• 2. The supplies must be raised.
• 3. The measures to attain these ends must be prompt and certain.

        1. The currency must be reduced.

        In the present expanded state of the currency it would not be expedient to reduce the circulation to its proper normal standard. In order to effect the results demanded by the public interests the contraction must of necessity, be great and sudden. But it is presumed that a reduction of the entire volume to 200 millions will be sufficient. After the war, measures may be adopted for such further reduction as may then be proper. The excess of currency over this proposed standard is now about 500 millions. The reduction of prices which would follow the retiring of this excess would in all probability, so reduce the expenses of the Government, that 400 millions of money would be a sufficient supply. Thus we have before us a demand for 900 millions in the course of the ensuing year.

        In the present state of the country, it is manifestly impossible to raise this large sum by taxes alone, and we are, therefore, compelled to resort to the only other resource presented by experience, namely: a loan.

        In the voluntary form, loans have already been tried by the Government, and have succeeded to the extent of upwards of 300 millions, since the commencement of the war For an agricultural country like ours, this, under the unexpected pressure upon our people, would justly be deemed a large contribution. At the commencement of the war no one foresaw the extent to which it would be carried. It was not expected that we would be called upon to check the advance

of half a million of men, supported by the whole outer world, while we were shut into our own soil and resources. Our products were thought essential to the rest of mankind, and it was believed that they would come and buy them. Our financial measures were commenced with these views and were founded upon the basis of specie values. We issued treasury notes without interest, and then offered to exchange them for bonds whose interest was paid in coin. This interest was made as high as eight per cent. because the legal rate of interest in the greater number of the original Confederate States was at and over seven per cent.

        This system was based upon sound principles, and if we could have exported our produce and thereby have procured specie, or its equivalent, the plan would have effected the objects intended. Unfortunately the blockade was accepted by neutral powers, and our just expectations were disappointed. The specie of the world could not flow in upon us, and, when ours was exhausted, we were compelled to pay interest on our bonds in treasury notes. The foundation of the system was thus lost. Paper money rested on other paper, and as both accumulated, they acted and re-acted on each other, until both have been reduced to the rate at which they now stand.

        The obvious mode of recovery is to restore the specie foundation, or to obtain a substitute approaching specie values. This was attempted at the last session of Congress by the issue of cotton interest bonds, and by the proposal to obtain the guaranty of the States on the bonds of the Confederate States. These bonds, if negotiated in Europe, it was expected, would provide funds for the redemption of the currency, and thus replace it upon a firm foundation. As late as the fall of Vicksburg, the credit of the Confederacy was so good in Europe that it is believed that bonds with such a guaranty could have been negotiated at a rate which would have enabled the Secretary of the Treasury to control both the currency and the foreign exchanges. Unfortunately, some of the States refused their concurrence, and the measure

failed. While these various measures were in progress, efforts were made by the government to put in action the only other mode of raising money, namely: taxes. The first tax was laid in August, 1861 and although not collected until 1862, yet so little were the people prepared to respond, that the tax was actually collected from them in only three States. In the rest, the States themselves advanced the amount due by their citizens, and aggravated existing evils by issues of their own notes and bonds.

        The small avails of this tax left the Government no resourse but to continue the issue of treasury notes, and to sustain them, as far as possible, by funding them in bonds. Efforts were made by inducements and limitation of privileges, to promote funding. These efforts added to those which had preceded them, led to the funding of upwards of three hundred millions as already stated--a sum which would have been deemed satisfactory in any ordinary war, but which is wholly inadequate for the present.

        At the last session, Congress passed another tax bill, which is now in the course of being executed. But the large increase in prices, and the consequent increase of demands on the government clearly show already that the tax, if even now realized, would be wholly inadequate to supply these demands. A further issue of treasury notes is, indeed, a necessity, until other measures can be adopted; but the public mind has at last become awakened to the stronger necessity of devising such measures, and seems prepared to adopt any remedy, however sharp, if it can be satisfied that such a remedy will be effective.

        I have already stated that there are but two legitimate sources of supply, to wit: taxes and loans. No nation engaged in a war like the present has ever been able to sustain itself by taxes alone. Loans, also, are necessary; but in order to negotiate them, an assurance must be given that the interest will be paid in a medium of certain value. The departure for this principle has undermined our credit, and our first effort should be to recover our first position.

We must make the interest of any loan, which is to be offered, payable in specie or its equivalent.

        The fifteen million loan has taught us a mode of effecting, at least in part, this desirable result. A duty, payable in coin, is allowed to be discharged by the coupons of this loan, and the result is that the bonds have maintained a steady value--their market price being nearly twice that of other public securities. If, then, it loan were established, the interest coupons of which would be available to pay specie dues, a foundation in the nature of a specie value would be secured, and upon it might be reconstructed the sound financial policy with which we started. To effect this, it is only necessary to levy a tax payable in coin, and as such a tax would not be required to pay more than the interest, its amount would obviously be within the power of the Government to collect. A loan of five hundred millions would be sufficient to reduce the currency to two hundred millions, and would require a tax of not more than thirty millions annually. Such a tax could be readily borne by the country, and if this were all that is required, the remedy would be easy. But a simple reduction of the currency, while it would abate the existing evils, would not preserve the country from their recurrence. In twelve months the currency would again become redundant. It is necessary, therefore, that an absolute limitation shall be fixed upon issues. A guaranty must be given that the two hundred millions left in circulation shall in no event be increased; or, in other words, that whatever supplies may be necessary, shall be raised by other means than by issues of treasury notes.

        2. And this brings us to the consideration of the second point of our enquiry, to wit: the raising of the necessary supplies.

        It has already been stated that, if the currency could be reduced to two hundred millions, the annual money expenditure of the Government could probably also be reduced to four hundred millions. This amount is proposed to be

raised partly by taxes, and the remainder by an extension of the loan already proposed, say one hundred millions by taxes, and three hundred millions by the loan. The returns to the tax act of August, 1861, have been completed for nine States; two more have been partly completed and can be estimated. The total values of property in these eleven States amount to four thousand two hundred and twenty millions of dollars. If we deduct from these values the conjectural value of property lost and in possession of the enemy, and add the increased rate of present prices, the valuation upon which a tax could be rated may be fairly set down at three thousand millions. A tax, ad valorem, of five per cent. on this value would nominally produce one hundred and fifty millions. Allowing an abatement of twenty per cent. for evasions, failures to make returns, expenses and contingencies, there would remain one hundred and twenty millions. A loan of one thousand millions would be sufficient to absorb the currency, and to furnish three hundred millions for supplies; and the interest of this loan would require one-half of the amount raised by the tax. This would leave the other half, or sixty millions, for the supplies; and to this would be added the proceeds of the income and profit tax, payable after 1st January. A tax of this kind is so uncertain and so easily evaded that it cannot be estimated beforehand. It will, in no event, however, be sufficient to induce any change of other measures; and, therefore, we must rely for any deficiency upon that portion of the treasury notes which will be substituted for the old issues. The sixty millions, or one-half, which is to support the loan, if made payable in coin, or in the interest coupons of the loan, will furnish the means as well for the interest for the seven hundred millions required for the currency, as of the three hundred millions to be applied for expenditure. In the same manner, by making further additions to the tax, the loan can be increased from time to time so as to consolidate the whole public debt; or, as the war continues, to obtain further

supplies for carrying it on. By these means the credit of the Government will be firmly established, confidence will be restored, and the embarrassments which now oppress us will be removed.

        But, thirdly. The measures to be adoptod must be prompt and certain.

        Delay in retiring the currency would aggravate all the evils which are in existence, by adding new issues to the mass already in circulation. Uncertainty as to the effect of the measures in withdrawing the excess, would be equally injurious. No one would be willing to accept a loan which might again be depreciated by a redundant currency. Even with all the inducements which may be offered, and the caution which may be observed, the loan itself may not be taken in sufficient portions to secure the result . Voluntary loans have already been offered and have not been taken. It is, therefore, necessary to provide some mode which will absolutely secure the final result in any event; and this can only be done by providing compulsory measures for use as a last resort. The measures may be adjusted so as not to press upon the willing, while they merely compel the unwilling to take their just portion of the burthen. With these explanations, I respectfully submit the following measures as those which I would recommend for adoption:

SCHEME PROPOSED.

        1. That Congress forthwith authorize a loan of one thousand millions in six per cent. bonds, the principal payable in twenty years, the interest semi-annually; to be extended hereafter, from time to time, so as to consolidate the whole public debt.

        2. That the Secretary of the Treasury be authorized to sell at par as many of the said bonds as will be sufficient to take up the outstanding currency, and to pay the appropriations made by Congress.

        3. That deposits of Treasury notes on account of the said loan may be received at the Treasury or any of its depositories, or by commissioners to be appointed; said deposits to be

in sums of one hundred dollars, or of which one hundred is a perfect divisor.

        4. Certificates shall be issued for such deposits, which shall entitle the holder to bonds for the amount, with interest from the date of deposit. If the deposit be made in the month of January, the bonds issued for the same shall be exempt from the tax of five per cent. for the present year, hereinafter mentioned; if made in the month of February, they shall be exempt from one-half of the tax, and if made in the month of March, they shall be exempt from one-fourth of the tax. Officers, soldiers, and seamen, in service, shall be entitled to exemptions from the whole tax for sums paid at any time before the 1st of April, 1864.

        5. A tax of five per cent. shall be imposed on all property and credits, (other than the new issue of notes hereinafter mentioned,) which may be held on the 1st April next, to be paid on the 1st July, one-half in Treasury notes, and one-half in coin or in the coupons of the bonds issued for this loan.

        6. In case the coupons should advance in the market to a premium exceeding 25 per cent., any tax payer shall be permitted to pay his tax in Treasury notes of the new issue, with 25 per cent. added.

        7. Within six months a new and improved issue shall be made of two hundred millions of Treasury notes in substitution for that amount of old issues, and all the old issues shall be cancelled, and the faith of the Government is pledged not to increase said issues.

        8. Notice shall be given to the holders of Treasury notes, (other than the said two hundred millions,) requiring them to present their notes at the Treasury, or at some of its depositories, on or before the 1st day of April next, and receive payment thereof in bonds of the said consolidated loan, or in default thereof, the notes not so brought in shall cease to be current or receivable at the Treasury for dues; but shall remain evidences of debt, payable by the Confederate States according to their tenor.

        9. In the States beyond the Mississippi, the time mentioned in the last clause shall be extended until the 1st day of July.

        10. Six months more shall be allowed all holders of Treasury notes to come in and register and verify their notes as demands against the Treasury, and exchange the same for a certificate of debt; or, if they prefer to keep the notes, the name of the holder shall be endorsed thereon, after which the said notes shall be negotiable only by special assignment; and all notes not so registered within the said time shall be barred from any further claim on the Government.

        11. Any holder of a bond of the Confederate States may convert the same into one of the bonds under this loan; the eight per cent. bonds at par, and the others at a proportionate rate; and the loan shall be extended so as to absorb all bonds which may be offered in exchange.

        12. The interest coupons of this loan shall be held equivalent to specie in all future dealings of the Government, and shall be accepted in payment of any tax hereafter made payable in coin.

        13. The faith of the Government is pledged to make adequate provision for the payment of the principal and interest of the said loan, by the continuance of the tax mentioned in article five, until a census shall be taken, after which, like provision shall be made by direct taxes or by duties on imports and exports.

        14. The notes of denominations under five dollars shall not be affected by the provisions of this scheme.

        It will be perceived that the measures proposed naturally divide themselves into two distinct characters, the one voluntary, the others involuntary. The former are deemed adequate to induce the voluntary aid of every good citizen. It cannot be considered a just objection that the others are added when such addition merely gives unity to the plan, and like a tax execution, affects only those who are negligent or delinquent in performing a public duty.

        The first class of measures, or those which induce voluntary action are the following:

        1. The offer of a loan on bonds, with interest coupons, receivable as coin or its equivalent.

        2. The means by which this is effected, namely: a tax upon all values to be paid in coin or in the interest coupons of the said bonds.

        3. The exemption of the bonds from the tax for one year in consideration of a prompt advance of the purchase money in anticipation of their delivery.

        4. The reduction of the prices of all articles of subsistence, and the permanent restriction of the volume of the currency.

        The measures which are involuntary are chiefly two, which will be considered under the following heads:

        5. A limitation of time beyond which Treasury notes now in circulation, shall cease to be receivable as currency and for public dues.

        6. The registration of the notes as evidences of public debt.

        1. And first, as to the character of the proposed loan. It is intended to consolidate all the various forms of public debt. Every holder of a bond, call certificate, or Treasury note, may exchange his security for bonds under this loan. The Treasury note holder, for reasons applicable only to that kind of security, is required to make the exchange within three months from the 1st January. The bond holders are allowed their own time, or if preferred, they may retain their own securities. It is hoped that the inducements offered will bring them all in.

        The necessity, which will be on each tax payer, to find specie or the coupons of these bonds, will induce him to invest part of his means in them. And the fact that the whole of the coupons will be required to pay the tax will create a demand which will impart to them a fixed value approximating to specie.

        2. The means adopted to effect this result are the laying

a tax upon all values, to be paid in coin or in the interest coupons of the said bonds.

        A loan of 1,000 millions would require a tax of sixty millions to pay the interest, and if such loan could be relied on to supply all demands for money for the current year, no larger tax need be imposed. But it will be found that at least sixty millions more, in addition to the existing taxes, will be required. It is therefore proposed to levy a tax of one hundred and twenty millions, and to allow one half to be paid in treasury notes, while the other half is made payable in coin or in the coupons of the said bonds. To raise this amount, it has already been shown that a tax of five per cent. on all values will be required. This tax is laid at a date just twelve months subsequent to the tax of the present year. It is proposed to lay the tax equally upon every object of value, so that each person will contribute in exact proportion to his means.

        The existing taxes, it is assumed, have been enacted with just relation to the income arising from real and personal property. The new tax, therefore, imposes a uniform duty ad valorem, on all property. In doing so, it encounters the objections which have been raised under the provisions of the permanent constitution against such a tax upon lands and negroes. It is contended that the provision which declares that no direct or capitation tax shall be laid unless in conformity with an enumeration which, by a previous clause, is directed to be actually paid within three years, prevents the imposition of any tax upon lands and negroes until the enumeration shall be made. The land and negroes in the Confederate States constitute two-thirds of taxable values; and if this objection prevail, it would establish the surprising conclusion, that all the States which ratified the constitution, while engaged in war which put at hazard the lives and fortunes of all their citizens and their own independence, excepted from the contribution to maintain that war, the very property for which the were contending. Such a construction is manifestly erroneous, and could never have

been intended. The more consistent interpretation is, that a principle was established which should operate as soon as the basis for its action was obtained. As soon as the enumeration could be taken, there was to be an apportionment. But if an enumeration became impossible, then the tax must be laid according to the other rule of uniformity declared by the constitution. There is a general power to lay taxes which becomes subject to a special limitation as soon as an enumeration can be had. That enumeration is ordered to be taken within three years, but it is prevented from being taken by the presence of the public enemy. Under such a state of things, the limitation must be considered as in suspense, and the general power may be exercised. It seems to me, therefore, that the ad valorem tax is no infringement of the constitution.

        In the present condition of the country, such a tax is more equitable and beneficial than any apportioned tax would be. The occupation of large portions of the States by the enemy would cast the whole quota of any State upon the unoccupied portions. The States which are in this condition would have the largest quotas to pay on account of their larger representation, and thus the burden of the tax at present would be inverted. The greatest sufferers would be required to bear the heaviest burden. In either view, then, the ad valorem tax is greatly to be preferred.

        The requirement to pay one half the tax in coin or in the coupons of the consolidated loan will create in every tax payer a desire to possess these bonds. Just in proportion to the extent of his property will he have occasion for the bonds, and universal demand for them will be created by making the tax universal. Those who have small amounts to pay will purchase the coupons, as is now done with the fifteen million loan. And an exemption being given to small property holders, there is but little danger from speculation or inability to procure a supply. All uncertainty on this point, however, is removed by the provision which authorizes payment in treasury notes, if the market price of

the coupons should advance twenty-five per cent. premium. It is necessary to allow some advance in order to furnish inducement to purchasers of the bonds. It is believed that the range proposed will secure this object, while it affords sufficient protection to the tax payer from any combination of capital. The tax, therefore, while it induces large purchases of bonds by large property holders, is adjusted to the wants of those who are unable to purchase the bonds. It also offers the strongest inducements to holders of commodities to offer them for sale instead of hoarding for higher prices. They will perceive that, if they retain their commodities until the currency becomes contracted, it will require a much larger quantity of them to be afterwards sold in order to pay their quota of the tax.

        3. The next subject of consideration is the exemption offered for an advance of the purchase money of the bonds.

        The five per cent. tax is proposed to be laid upon all values held on 1st July, 1864, excepting the two hundred millions of new currency. The bonds to be issued for the consolidated loan are, therefore, included with all other bonds and securities. But the advantage to the public is so great from retiring the circulation promptly, that an offer of exemption for one year from the whole tax on these bonds, is made to any person who will pay in treasury notes on account of the loan in the month of January; an exemption of one half is offered those who will make such payment in the month of February, and of one fourth to those who will pay in the month of March. It will not be practicable to deliver so large an issue of bonds within this period of time, and the exemption, therefore, not only compensates for the advance, but for the delay in furnishing the bonds. The officers and soldiers in the army being prevented by their duties from attending promptly to their private business, are allowed the privilege of the entire three months for profiting by the exemption. Any payment made by them before the 1st of April will entitle them to exemption from the tax on the bonds thereby purchased. On the 1st of

April the privilege of conversion is taken away on this side the Mississippi river, but it continues for three months more on the other side.

        These measures, it is believed, will be sufficient to procure a prompt and active reduction of the currency. Each person in the possession or currency will thus be enabled to convert into bonds, based on specie values, notes which, at the time, cannot command more than one-fourth of those values. Those who hold commodities are in a still better condition to profit by the loan. A farmer may sell his grain for five times the ordinary price, and invest the whole amount in a bond payable, in twenty years, in specie, the interest coupons of which are available to discharge a liability to pay in coin.

        4. There remains one other inducement to voluntary subscription yet to be considered, namely: the reduction of the price of subsistence, and the permanent restriction of issues of Treasury notes.

        The parties who are most likely to be the largest contributors to the loan are banks, manufacturers, railroad companies, and persons of capital. To all these in an especial degree, the establishment of the currency upon a permanent footing, is of the utmost value. No such permanence can be bad if new issues are continued. A restriction which keeps the currency within just bounds increases the value of every railroad fare; adds to the rate of interest; reduces the price of all labor and subsistence, and restores confidence and stability to all transactions. The amount at which the currency is to stand is set down at two hundred millions. This is about twice the amount required before the war. It is supposed that the large amounts which are suspended in the hands of public officers and in transit, will call for a much larger amount of circulation than in time of peace. Moreover, after so large an expansion, it would be unwise to contract the currency in a compass as small as its natural bounds. In order, also, to prevent the evils incident to too rapid a contraction, it is proposed that the two hundred

millions of new currency shall be issued from time to time during the period of contraction, and only in substitution of that called in; so that when the 1st of April shall arrive, at which time the old circulatou shall become uncurrent, there may be a new currency to take its place. It may be added, that if the contraction should become too stringent, the banks will be able, and will probably find it expedient to relieve the pressure by the reissue of their own notes.

        Such are the inducements which are offered to recommend the consolidated loan to public favor. They are so large and beneficial that they will, in all probability, secure its success. Unfortunately the consequences of failure are so perilous to the public welfare that nothing can be left at risk. Even the time which will be consumed in the effort to procure voluntary subscription cannot be recovered in case of failure. The measures of prevention must therefore, accompany the invitation to voluntary action. They will be harmless and inoperative if not required; absence of them would be ruinous, if the occasion for them should arise.

        5. We come, therefore, next to consider the measure which limits the time within which the notes must be brought in for redemption, or be debarred the privilege of being circulated as currency or received for public dues.

        It cannot be denied that this provision infringes upon two of the rights which are created by the contract. The note itself is a simple promise to pay a sum of money two years after a ratification of a treaty of peace. The promise being to bearer, the note, by operation of law, became negotiable by mere delivery. Its currency as money is therefore, not a part of the express contract, though it was clearly implied; and Congress has constantly refused to make the currency of the notes obligatory by rejecting every proposal to make them a legal tender. Interference, therefore, with this portion of the contract, affects no right of the people as between each other; it is, without doubt, however, a direct interference with the contract implied between

the Government and the holder, when the note was taken. Besides this, there is a direct infringement of the express contract of the Government to receive the notes in payment of public dues.

        These positions being clear upon what grounds is it justifiable to pass them by?

        Let us consider the measure which it is proposed to adopt. The Government has provided a fund as nearly equal to specie as is within its power. It advertises that it will pay every treasury note from this fund, if presented within ninety days; and it is only in case of default, that it postpones the acceptance of the notes until after the war. Test the principle by supposing the payment was actually to be made in coin. Suppose the Government should advertise in the same form, and should actually pay every holder who came in. Would it be deemed unjust to postpone those who refused to come in and accept payment? Could the Government, in such case, be justly charged with the want of good faith? and, if not, then the question becomes one not of good faith, but of the difference of value between bonds payable in specie with interest coupons received as specie, and specie itself. In the worst possible view, it is only an offer by a debtor, to pay down his debt in the best securities he has, or to postpone the actual payment until better times; and such an offer has never been deemed inconsistent with justice or honesty.

        The reasons which induce the measures proposed, will, it is believed, present a complete justification of them.

        1. The first which will be considered is that unless the action proposed or something similar to it be immediately taken, the value of the notes will be extinguished. The country is engaged in it war which involves the security of all property and the safety of every family. To carry it on it has been obliged to issue notes, and unless a substitute is immediately found, the continuance in this course will destroy the value of every note already issued. The measures proposed are intended to save the notes, and nothing short

of them will have that effect. If some other mode could be devised, if a tax, or any other means of relief could be found, it would be preferred. But they are all inadequate, and the Government finds itself unable to comply with the letter of its engagement. It endeavors, then, to comply with its spirit. It tenders the creditor payment of its debt, before it is due in a security of greater value. It gives him time to accept the payment, and, if he should prefer to retain the obligation, it, allows the alternative upon the simple condition that he shall forego the privilege of demanding payment until after the war. It does exactly what an honest debtor in distress is bound to do, it recognizes its debt, offers the best security for payment in its power, and asks for time. This, in plain terms, is the proposal of the Government; and if it were the case of an individual, his creditors would meet, and, as a body, would accept his offer. In the case of the public the creditors cannot meet. But they have representatives who can. The Congress represents the people as well as the Government, and, although it may be difficult to act for both parties, yet it is not difficult to ascertain the claims of justice, and Congress is the proper tribunal to adjust them. Their judgment in the matter should stand as a composition between the parties.

        2. The next reason which will be considered is, that the continuance of the notice as a circulating medium to their present extent, involves the ruin of public and private credit, and will deprive the government of the means of defending the lives and property of its citizens. If the currency remains in its present expanded state, no measure of relief can be made effectual. Prices must advance, and the means of the government to pay these prices must daily loose efficiency. Taxes become fruitless, by reason of the depreciation of the money. The army can neither be paid, clothed nor fed; arms and munitions of war can no longer be supplied; the officers of the government cannot be supported, and the country must succumb. Calamities so disastrous must certainly be averted by every means within the power

of the government. No contract, however solemn, can require national ruin; and, in such case, the maxim must prevail that the public safety is the supreme law.

        The objection to these measures of compulsion is greatly modified by the certainty that but a small portion of the notes will be brought under their influence. The inducements to the loan are so many that the greater part of the currency will be voluntarily converted; and the true question is, whether the fraction which remains shall be permitted to gain an undue advantage over the rest, and to defeat the great public interests, which are involved in the withdrawal of the entire amount.

        These measures, it will be perceived, contemplate a permanent financial policy, capable of expanding to suit the future wants of the Government. It is obviously, therefore, of the utmost importance that the ultimate payment of the bonds now issued, and of those which may be added, should be completely secured. Confidence is one of the largest elements which enter into public credit, and in this case the means are at hand to secure it. The South is in possession of products which are desired by the whole world.

        For at least five years after peace, the demands for these products will probably so far exceed the supply, that a duty on exports would fall upon the consumer. For the five years following, the usual contest between producer and consumer will possibly divide the burthen; but the necessities of the country offer a controlling reason for the continuance of the duty. To this may be added a certain portion of the duties on imports; and the two together, if now pledged to a sufficient extent, would provide an adequate security for the payment of the debt. Assuming that, when trade is re-established, we shall have the same products to export, and, in a few years thereafter, the same quantity to sell, our exports and imports may each be set down at three hundred millions. Any export duty of ten per cent. on all products of the field and forest would, upon this assumption,

produce thirty millions annually; and, if an equal portion of the duties on imports be added, the aggregate would be sufficient to pay the whole interest of the debt. If Congress would now pass a law to this effect, as it is perfectly competent to do, the public credit would instantly revive, and probably to such a degree as to render inoperative the measures of constraint which have been recommended.

        The guaranty which it would afford to the bonds of the consolidated loan, would induce a prompt exchange for them of all other securities, except, probably, the fifteen million loan, which is already protected by a similar pledge. An exchange of the one hundred million loan will, of itself, cause an annual saving of $2,000,000, and, if to this be added the saving which would be made on other portions of the public debt, the sum total will be about five and a half millions. The annual saving of this sum certainly presents another strong inducement to the immediate enactment of the proposed law.

        Such a law would still leave unpledged such other taxes and import duties as it may be found expedient to levy, and which will furnish a sufficient and appropriate means of supporting the Government, and of discharging the principal of the public debt.

        Thus a system of properly adjusted measures would be set in action, which would secure the public credit, and enable us to carry on the war with energy and success.

        In case, however, there should be any doubt as to the efficiency of the plan in raising the supplies required for the ensuing year, two further measures of relief may be added. It is possible that the severe contraction attending a reduction of the currency to two hundred millions, may limit the sale of the bonds after the effect of such contraction shall be fully felt. It may, on that account, be necessary, for a time, to sell the bonds below par, to supply any deficiency in the means of the Treasury. I would, therefore, suggest as a measure of precaution, that such a power should be granted to the Secretary of the Treasury. Another measure

of similar character could be provided by authorizing certificates of indebtedness, payable after the war, to be issued in part payment of supplies necessary for the army. It is not probable that either of these measures will be required. Still it is a wise precaution that they should be provided for any case of necessity.

        The large issue of bonds which is called for by these measures, together with the new issue of treasury notes, present a field of labor amply sufficient to occupy the attention of another bureau officer. I would respectfully renew new the recommendation heretofore made, of establishing a separate bureau for the issue of bonds and notes, and for taking charge of all the arrangements connected with such issues.

        The number of coupons which will be required is so great that unless they are allowed to be prepared by machinery, the delay in getting out the bonds will be very great. The same difficulty attends the notes isued as currency. The number of persons who are necessarily employed to sign notes renders the signatures of no value in detecting counterfeits. No one can become acquainted with all the signatures, and but few of the officers know even the names of the signers. The genuineness of each note must be determined by the plate and not the signatures. I renew, therefore, my recommendation that the notes and coupons may be issued with engraved signatures, under such precaution as experience may advise.

        In connection with this subject, I would respectfully bring to the attention of Congress the inequality which has arisen between the bonds and registered stock of the fifteen million loan. An export duty on cotton was imposed to pay the principal and interest of this loan, and the coupons of the bonds were authorized to be received in payment of that duty. The registered stock, having no coupons, did not enjoy this advantage, and the result has been a difference of as much as fifty per cent. between the two portions of the same loan. This inequality can be remedied by authorizing the Secretary of the Treasury to cause checks to be issued for the interest,

as it accrues, semi-annnally upon the stock, and allowing these checks to be received for the duty in the same manner as the coupons. It will be necessary to add a few precautions for preventing the frauds and forgeries to which such checks would be exposed, all of which could be adjusted by regulations of this department.

        The report of the commissioner of Taxes, herewith submitted, will exhibit the details of the war tax of August, 1861, and of the taxes the present year, as far as progress has been made. The tax of 1861 had been actually collected from the people in only three States--South Carolina, Mississippi and Texas. In the other States the tax was paid by the State Governments. Assessments were actually made in only ten of the States, and the results are exhibited in the schedules annexed to the report. The total value of the property assessed is four thousand two hundred and twenty millions, of which, real estate is set down at one thousand three hundred and ninety-three millions, and slaves at one thousand four hundred and eighty millions. The total amount of the tax assessed is $21,142,662, of which, $19,418,393 have been collected; leaving a balance uncollected of $2,044,275; of this balance $705,233 is absorbed by an unadjusted difference in assessment claimed by the State of Tennessee; and a large portion of the remainder is due in counties overrun by the public enemy. The amounts actually collected have been paid over by the collectors with commendable exactness and punctuality.

        The tax imposed at the last session of Congress is now being rapidly collected. From present appearances, the commissioner estimates its probable collections at one hundred millions in money, and he reports that it is paid with general cheerfulness and alacrity. The novelty of many of the provisions of the law has given rise to questions which are presented in detail in the report of the commissioner, to which I respectfully invite your attention.

        The report of the chief clerk for the produce loan and

agency for the purchase of cotton and tobacco, herewith submitted, will exhibit the details of that branch of the Department.

        The general results are, that the whole amount of subscriptions realized from the produce loan is $32,758,875, and that there yet remains uncollected about $12,2688,080. This is a large proportion of the whole amount, and the greater part is probably due from persons whom the calamities of war and the destruction of property have deprived of the means of meeting their engagements. There are many others, however, who may have been tempted by the high prices to neglect their engagements, and to reach these it is proposed by the chief clerk to publish the lists in the neighborhoods where they were subscribed. The measure is submitted for the consideration of Congress.

        The purchases of cotton made under the act of April 30th, 1863, amount to 399,753 bales at the date of the reports last received, at a cost of $30,314,769. The average price paid was $16 85 per pound, exclusive of Sea Island cotton; the lowest price being 6 1/2 and the highest 36 1/2; and five-sixths of the entire purchase money have been paid in bonds. The difficulty of procuring reports in detail from the agents in Louisiana, Mississippi, Arkansas and Texas, has prevented a precise return of the cotton which has been destroyed; but from the estimates made by each of them it may be assumed that the entire loss is not more than 30,000 bales. To this must be added several thousand bales used for military and naval defences; and also several thousand more turned over to the ordnance and quartermaster's departments to fulfil contracts for supplies, and also for shipments made by the Treasury Department. The whole of these deductions may be set down at 70,202 bales, leaving on hand an aggregate of about 329,500 bales. Of this amount about 30,000 bales are stored in warehouses in cities, and the remainder in cotton houses on the plantations where they have been purchased.

        The time which has elapsed since much of this cotton was purchased has damaged the rope and bagging of a portion

thereof; and the aid of Congress is asked in procuring the means of renewing it I had hoped that the skill of our people would discover a substitute for rope and bagging, and probably an offer of a reward for the best plan would produce beneficial results. If resort must be had to foreign supplies, the plan, which may be adopted to ship the cotton, will furnish the means of importing the rope and bagging, and in either view, it will be necessary to make an appropriation to cover the expense.

        The amount of tobacco purchased is two thousand and ninety hogsheads, costing $772,846, at average of twenty-nine cents per pound. These various purchases have, nearly exhausted the appropriation if thirty-five millions made by the act of 20th April, 1863. In order to meet the objects stated in other reports, if these objects are approved, it will be necessary to increase the stock in the hands of the Government, by an additional appropriation of at least the same amount heretofore appropriated.

        The collection of the tax in kind on cotton and tobacco has been deemed so germain to the business of this branch of the Department, that I have made arrangements for uniting them. Wherever cotton is collected, it is to be turned over to the chief agents already appointed in each of the cotton States. The same plan is pursued with tobacco, and I have appointed chief agents in the States of Virginia and North Carolina, at a commission with a maximum limit of four thousand dollars per annum. These agents are to appoint subordinate agents in each county for the purpose of receiving, sorting, prizing and preparing the same for market. The details of these processes require much care and attention, and the constant supervision of a competent officer. It appears also that the parcels should not be delivered as early as the month of March, as now required by law, and it will be, therefore, proper to extend this period. The compensation of these subordinate agents has not yet been adjusted, owing to the Department not having sufficient information as to their duties.

        The cotton interest bonds will naturally fall within the management of this division of the Treasury Department, and it is proposed that they shall take that course. It is not clear what was the design of Congress in authorizing these bonds. The first law passed was in connection with the funding act, and the coupons were thereby made payable at the option of the holder of the bond in coin, or cotton valued at eight pence sterling per pound. The object of this law was obviously to provide means of raising money abroad; and after it was passed I recommended that the rate, at which the cotton was to be taken, should be reduced to six pence, or the average price at Liverpool before the war. At this rate purchasers could have been procured at any time before the fall of Vicksburg.

        The amendment which was made to the law by Congress reduced the price as proposed, but shifting the option of being paid in cotton from the purchaser to the Government. This converted the bond in the view of a European purchaser into a simple six per cent. money bond, with the interest payable here. The absence of the right to require cotton for the bonds took away their availableness in the foreign market. On the other hand, the option which they allowed the holder to receive cotton at six pence when it was selling at three or four times that price, made the operation very unfavorable for the Government, unless the bonds were sold at a large advance. For this reason, I deemed it my duty, after due explanation ef the nature of the bonds, to advertise for bids; and as an experiment I accordingly offered five millions. The bids ranged at various rates from par up to one hundred per cent.

        I accepted all the bids at and over fifty per cent. premium, and issued a second advertisement. The bids which were offered in both cases, were far below the amount of bonds offered for sale. But those bids which came from persons of known intelligence and patriotism, indicated that fifty percent was the probable value of the bonds. I, therefore, adopted that rate, and authorized sales to be made accordingly.

These sales have been made to a very limited extent, chiefly because it was believed that the blockade would prevent the shipment of any cotton to be received in payment. This impediment was so serious, that, in the judgment of men of business, even a reduction of the price of bonds to par would not induce large sales.

        The scheme of finance hereinbefore proposed, will, if adopted, render unnecessary any other effort to call in the currency. These cotton bonds will therefore not be required for that purpose, and, as they are not available to raise funds abroad, I recommend that the law authorizing their issue be repealed.

        I must again ask your attention to the necessity of increasing the compensation of the treasurer, assistant treasurers, depositaries, and clerks attached to each of them. Each of these officers discharge the duties of a bank, and its officers must have qualifications which would fit them to discharge like offices in banks. Such qualifications cannot be commanded, unless at the same rate of compensation paid by banks. Congress has limited the salary of a teller in these offices to $1,200, where $3,500 is paid for like services. The result is, that the Government cannot procure competent men to do its work. With the higher officers the difficulties are greater. Several of those in office desire to retire, and it has been found impracticable to procure competent successors. These embarrassments are greatly increased, when we come down to the rank and file of the clerks. The amount of their salaries does not furnish them with support, and it is distressing to know the suffering which some of them encounter. I trust that the measures recommended for the relief of the currency will remedy the evil; but, until these measures can be brought into action, these clerks will be sadly straightened to support themselves and their families. I would, therefore, respectfully recommend, as a temporary means of relief, that they be allowed to draw from the commissary's stores in the same manner as if they were detailed on duty in the army.

        The various estimates and schedules, which contain details of the general statements above made, are hereunto appended, together with a report of the proceedings of a convention of banks, at Augusta, Georgia, which I have been requested by it to submit to your consideration.

All of which is respectfully submitted.

C. G. MEMMINGER,
Secretary of Treasury.