America's Fiscal Constitution (71 page)

24
. Bureau of the Census,
Historical Statistics, 1789–1945
, Series L 1–14 (Prices) and Series N 19–26 at 263 (Bank Note Circulation).

25
. Ibid., Series P 89–98 at 297.

26
. Shultz and Caine,
Financial Development
, 216 and 232. See also
Annual Reports of the Secretary of Treasury
.

27
. See Appendix C.

28
. See Appendix C.

29
. Van Buren, “Special Session Message.”

30
. John C. Calhoun quoted in Timberlake,
Monetary Policy
, 73.

31
. Secretary of the Treasury Levi Woodbury reported to Congress that in 1837–1839, the Treasury had issued notes of $11.79 bearing low or little interest and interest-bearing notes of $7.44 million. Though the short-term notes allowed the administration to deny that it had increased long-term debt to banks, the Treasury was forced to keep recirculating those notes when they came back to the Treasury in payment of taxes. However, most of these amounts were paid off, or redeemed, by January 1, 1840, when after two years of cutting expenses the Treasury reported that only $1.5 million in long-term debt and $1.08 million in notes remained outstanding.

32
. Kimmel,
Federal Budget and Fiscal Policy
, 22.

33
. Dewey,
Financial History
, 255.

34
. Polk, “Second Annual Message.”

35
. Secretary of the Treasury,
National Loans
, 73–74.

36
. Miller,
Great Debates
, vol. 12, 77.

37
. North,
Economic Growth
, Table 7 at 98 compared to census data.

38
. Ibid., Table H-IX at 255.

39
. Ibid., Series P 89–98 at 297.

40
. Ibid., Series I at 233.

41
. Ibid., Series P 89–98 at 297.

42
. See Appendix A.

43
. Van Buren quoted in Wilentz,
The Rise of American Democracy
, 615.

44
. Salmon Chase quoted in Wilentz,
The Rise of American Democracy
, 610.

45
. Frederick, “Buffalo Platform,” 20.

46
. In the summer of 1848 upstate New York would be the site of yet another remarkable convention, this one organized by women. The Seneca Falls Convention passed a Declaration of Sentiments urging female suffrage.

47
. Chase, “An Appeal.”

C
HAPTER
5

1
. Sherman,
Recollections of Forty Years
, 45.

2
. Smith,
History of the Republican Party
, 22.

3
. Tom Ewing quoted in Gienapp,
The Origins of the Republican Party
, 91.

4
. Salmon Chase quoted in Gienapp,
The Origins of the Republican Party
, 114.

5
. Sherman,
Recollections
, 111–112.

6
. Ibid., 110.

7
. Buchanan, “Inaugural Address.”

8
. Huston,
The Panic of 1857
, 114–117.

9
. By fiscal year 1857 postal expenses amounted to almost one-sixth of federal spending. After the Civil War, “on budget” postal expenses were reduced at a high “off budget” price when the United States granted more than one hundred million acres of federal land to railroads in return for lower rates for postal transportation. The postal service since 1974 has been financed with dedicated trust funds from its own revenues.

10
. Huston,
The Panic of 1857
, 183–184.

11
. Ibid., 193.

12
. Ibid., 43.

13
. Cross,
Justin Smith Morrill
, 46.

14
. Ibid.

15
. Sherman,
Recollections
.

16
. Flaherty, “Incidental Protection,” 112.

17
. William Fessenden quoted in Foner,
Free Soil, Free Labor, Free Men
, 213.

18
. Fessenden,
Life and Public Services
, 128–129.

C
HAPTER
6

1
.
Sherman: Memoirs
, 221.

2
. Ibid. In April 1862, at Shiloh, Tennessee, Sherman proved his toughness by holding a position against waves of assaults. He had four horses shot out from under him.

3
. Davis,
Confederate Government
, vol. 1, 416.

4
. Bureau of the Census,
Historical Statistics, 1789–1945
, Series P 89–98 at 297 Series P 99–108 at 300.

5
. Lincoln, “July 4th Message.”

6
. Bureau of the Census,
Historical Statistics, 1789–1945
, Series N 152–165 at 276.

7
. Studenski and Krooss,
Financial History
, 140–141.

8
. Ibid., 142–143.

9
. Ibid., 141–142.

10
. Sherman,
Recollections
, 281.

11
. Ibid., 279.

12
. Niven,
Salmon P. Chase
, 262.

13
. Ibid., 269.

14
. Cleveland,
Alexander H. Stephens
, 727.

15
. The Confederate Congress in 1861 did enact import taxes (similar to those in the 1846 Walker Tariff) and even some export taxes. Because of the US embargo on trade from the Confederacy, and the unwillingness of smugglers to pay taxes, the Confederate states collected less than $4 million in import taxes—less than a couple of weeks of military spending.

16
. Taussig,
Tariff History
, 167.

17
. Cross,
Justin Smith Morrill
, 61–62.

18
. Seligman,
The Income Tax
, 436.

19
. Dewey,
Financial History
, 305.

20
. Seligman,
The Income Tax
, 472.

21
. Bureau of the Census,
Historical Statistics, 1789–1945
, Series P 89–98 at 297.

22
. President Lincoln used Walker in other ways. He sent the former Mississippi senator to Great Britain with the assignment of shutting down Confederate financing and maintaining US trade credit. Walker assured British bankers that the United States would pay its debt in currency convertible to gold as soon as possible after the war. He also reminded them that his own state of Mississippi, home of Confederate president Jefferson Davis, had repudiated its debts from the 1830s. Walker would play one more significant role in US history, when he lobbied for Russia to arrange the sale of Alaska.

23
. Burton,
John Sherman
, 14.

24
. Bureau of the Census,
Historical Statistics, 1789–1945
, Series P 99–108 at 300.

25
. Dewey,
Financial History
, 308. (Net increase in debt minus non–interest-bearing demand notes, legal tender notes, fractional currency, temporary loans, and certificates of indebtedness.)

26
. Grant,
Mr. Speaker!
, 105.

27
. McCulloch,
Men and Measures
, 206.

28
. Cross,
Justin Smith Morrill
, 85.

29
. John Sherman quoted in Gould,
Grand Old Party
, 54.

30
. Noyes,
Forty Years of American Finance
, 16–17.

31
. McCulloch,
Men and Measures
, 208.

32
. Savage,
Balanced Budgets
, 127.

33
. From 1867 to 1869, the Treasury refunded more than $800 million in Civil War bonds, at yields ranging between 4.16 and 5.87 percent. “Repayment was promised in ‘coin’ and not in gold, which opened the way for the silver controversy of the last decades of the century” (Homer and Sylla,
Interest Rates
, 408).

34
. Stabile and Cantor,
Public Debt
, 59.

35
. Within three years of the war’s end, Congress lowered taxes on imported coal and low-grade iron, as well as taxes on professions, transactions, and the gross receipts of corporations. Excise taxes were retained on oil, gas, whiskey, and tobacco. Congress also eliminated the unpopular taxes on tea and coffee, which produced steady revenue.

36
. Studenski and Krooss,
Financial History
, 167n5.

37
. John Sherman quoted in Seligman,
The Income Tax
, 464.

38
. Taussig,
Tariff History
, 173.

39
. From 1868 to 1873 rail construction and related debt exploded. The bonded debt of US railroads increased from $416 million in 1867 to over $2.2 billion in 1874, an amount equal to the interest-bearing federal debt.

40
. According to the federal Bureau of Economic Statistics, the United States from 1873 to 1879 was part of a worldwide depression, one particularly severe in England. The downturn’s duration would qualify as a depression, but it is referred to in this text as a recession because US output actually increased in the period. For more on this subject, see Wicker,
Banking Panics
, 3. One scholar estimated unemployment at 570,000, a small fraction of the relative level of unemployment experienced during the most severe downturns, especially the Great Depression (Frels, “The Long Wave Depression,” 72).

41
. Bureau of the Census,
Historical Statistics, 1789–1945
, Series P 89–98 at 297.

42
. Ibid., Series P 99–108 at 300.

43
. Stampp,
The Era of Reconstruction
, 128.

44
. Grant, “First Inaugural Address.”

45
. Brands,
American Colossus
, 167.

46
. Noyes,
Forty Years of American Finance
, 29.

47
. This interest rate is calculated by dividing the gross interest on debt paid each fiscal year by the beginning and ending balance of outstanding interest-bearing debt. For gross interest, see Department of the Treasury,
Statistical Appendix
(1970), 8–5. For interest-bearing debt, see Appendix A and note 3.

48
. In 1873 Congress authorized the minting of only gold coins because silver coinage had disappeared. After the price of silver dropped, advocates of silver coinage claimed that this decision resulted from a gold conspiracy.

49
. Noyes,
Forty Years of American Finance
, 45.

50
. Davis, “U.S. Industrial Production Index.”

51
. Bureau of the Census,
Historical Statistics, 1789–1945
, Series B 304–330 at 33.

52
. See Appendix A.

53
. Debt reduction combined with high import taxation on consumer goods lowered both the relative price of capital goods and financial investment (Williamson, “Watersheds and Turning Points”). Economic output accelerated after the Civil War, with more extensive production of capital goods and an increasing share of workers employed in manufacturing (Gallman, “Commodity Output”).

54
. Associations of banks in the largest urban centers developed into mature “clearinghouses.” Interbank balances that had been reconciled every Friday began clearing daily. As envisioned by the National Bank Act, New York banks became the “lenders of last resort” for regional banks. By 1880 New York banks supported surging US international trade and became a major hub in the world’s financial system.

C
HAPTER
7

1
. Kelley,
The Transatlantic Persuasion
, 287.

2
. William Gladstone quoted in McCulloch,
Men and Measures
, 220.

3
. Republican leader James Blaine formulated his party’s response to Tilden’s policy of retrenchment. The impressive orator defended federal spending for higher military pensions and survivor benefits, as well as the import taxes used to pay for that spending. Blaine and other congressional leaders tried to separate themselves from both the corrupt patronage machines and the reformers who supported Tilden and his predecessor as New York’s governor, liberal Republican Carl Shurz.

4
. Cleveland later worked with Roosevelt on a bill to protect the rights of exploited workers who made cigars by hand in New York City. The cigar union’s young organizer, Samuel Gompers, would go on to shape the American labor movement. Gompers’s organizing efforts thrived when he obtained medical benefits for his workers.

5
. See Appendix A.

6
. Dewey,
Financial History
, 432.

7
. Ibid., 430.

8
. From the opening of the gold window in 1879 until the outbreak of World War I, various treasury secretaries supplemented expansion of bank credit with silver and gold certificates that were issued in exchange for private deposits of precious metals. The Treasury Department listed these certificates as part of calculated “gross debt” even though they earned no interest and served essentially
as another form of currency. Appendix A distinguishes between interest-bearing and non–interest-bearing debt. The “official” historical statistics found to this day on the Treasury’s website inflate the amount of debt by including all paper money.