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10: The Secretary of the Treasury

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Though the defeat of the Democrats at the polls in 1863 and the now definitely friendly attitude of England had done much to secure the stability of the Lincoln Government, this success was due in part to a figure which now comes to the front and deserves attentive consideration. Indeed the work of Salmon Portland Chase, Secretary of the Treasury, forms a bridge, as one might say, between the first and second phases of Lincoln's administration.

The interesting Englishman who is the latest biographer of Lincoln says of Chase: "Unfortunately, this imposing person was a sneak." But is Lord Charnwood justified in that surprising characterization? He finds support in the testimony of Secretary Welles, who calls Chase, "artful dodger, unstable, and unreliable." And yet there is another side, for it is the conventional thing in America to call him our greatest finance minister since Hamilton, and even a conspicuous enemy said of him, at a crucial moment, that his course established his character "as an honest and frank man."

Taking these contradictory estimates as hints of a contradiction in the man, we are forced to the conclusion that Chase was a professional in politics and an amateur in finance. Perhaps herein is the whole explanation of the two characteristics of his financial policy—his reluctance to lay taxes, and his faith in loans. His two eyes did not see things alike. One was really trying to make out the orthodox path of finance; the other was peering along the more devious road of popular caprice.

The opening of the war caught the Treasury, as it caught all branches of the Government, utterly unprepared. Between April and July, 1861, Chase had to borrow what he could. When Congress met in July, his real career as director of financial policy began—or, as his enemies think, failed to begin. At least, he failed to urge upon Congress the need of new taxes and appeared satisfied with himself asking for an issue of $240,000,000 in bonds bearing not less than seven per cent interest. Congress voted to give him $250,000,000 of which $50,000,000 might be interest-bearing treasury notes; made slight increases in duties; and Prepared for excise and direct taxation the following year. Later in the year Congress laid a three per cent tax on all incomes in excess of $800.

When Congress reassembled in December, 1861, expenditures were racing ahead of receipts, and there was a deficit of $143,000,000. It must not be forgotten that this month was a time of intense excitability and of nervous reaction. Fremont had lately been removed, and the attack on Cameron had begun. At this crucial moment the situation was made still more alarming by the action of the New York banks, followed by all other banks, in suspending specie payments. They laid the responsibility upon Chase. A syndicate of banks in New York, Boston, and Philadelphia had come to the aid of the Government, but when they took up government bonds, Chase had required them to pay the full value cash down, though they had asked permission to hold the money on deposit and to pay it as needed on requisition by the Government. Furthermore, in spite of their protest, Chase issued treasury notes, which the banks had to receive from their depositors, who nevertheless continued to demand specie. On January 1, 1862, the banks owed $459,000,000 and had in specie only $87,000,000. Chase defended his course by saying that the financial crisis was not due to his policy—or lack of policy, as it would now seem—but to a general loss of faith in the outcome of the war.

There now arose a moral crisis for this "imposing person" who was Secretary of the Treasury—a crisis with regard to which there are still differences of opinion. While he faced his problem silently, the Committee on Ways and Means in the House took the matter in hand: Its solution was an old one which all sound theorists on finance unite in condemning—the issue of irredeemable paper money. And what did the Secretary of the Treasury do? Previously, as Governor of Ohio, he had denounced paper money as, in effect, a fraud upon society. Long after, when the tide of fortune had landed him in the high place of Supreme Justice, he returned to this view and condemned as unconstitutional the law of 1862 establishing a system of paper money. But at the time when that law was passed Chase, though he went through the form of protesting, soon acquiesced. Before long he was asking Congress to allow a further issue of what he had previously called "fraudulent" money.

The answer to the question whether Chase should have stuck to his principles and resigned rather than acquiesce in the paper money legislation turns on that other question—how were the politician and the financier related in his make-up?

Before Congress and the Secretary had finished, $450,000,000 were issued. Prices naturally rose, and there was speculation in gold. Even before the first issue of paper money, the treasury notes had been slightly below par. In January, 1863, a hundred dollars in paper would bring, in New York, only $69.00 in gold; a year later, after falling, rising, and falling again, the value was $64.00; in July and August, 1864, it was at its lowest, $39.00; when the war closed, it had risen to $67.00. There was powerful protest against the legislation responsible for such a condition of affairs. Justin Morrill, the author of the Morrill tariff, said, "I would as soon provide Chinese wooden guns for the army as paper money alone for the army. It will be a breach of public faith. It will injure creditors; it will increase prices; it will increase many fold the cost of the war." Recent students agree, in the main, that his prophecies were fulfilled; and a common estimate of the probable increase in the cost of the war through the use of paper money and the consequent inflation of prices is $600,000,000.

There was much more financial legislation in 1862; but Chase continued to stand aside and allow Congress the lead in establishing an excise law, an increase in the income tax, and a higher tariff—the last of which was necessitated by the excise law which has been described as a bill "that taxed everything." To enable American manufacturers to bear the excise duties levied upon their business, protection was evoked to secure them the possession of their field by excluding foreign competition. All these taxes, however, produced but a fraction of the Government's revenue. Borrowing, the favorite method of the Secretary, was accepted by Congress as the main resource. It is computed that by means of taxation there was raised in the course of the war $667,163,247.00, while during the same period the Government borrowed $2,621,916,786.00.

Whatever else he may think of Chase, no one denies that in 1862 he had other interests besides finance. Lincoln's Cabinet in those days was far from an harmonious body. All through its history there was a Chase faction and a Seward faction. The former had behind them the Radical Republicans, while the latter relied upon the support of the moderates. This division in the Republican party runs deep through the politics of the time. There seems to be good reason to think that Chase was not taken by surprise when his radical allies in Congress, in December, 1862, demanded of Lincoln the removal of Seward. It will be remembered that the elections of the autumn of 1862 had gone against Lincoln. At this moment of dismay, the friends of Chase struck their blow. Seward instantly offered his resignation. But Lincoln skillfully temporized. Thereupon, Chase also resigned. Judging from the scanty evidence we have of his intention, we may conclude that he thought he had Lincoln in a corner and that he expected either to become first minister or the avowed chief of an irresistible opposition. But he seems to have gone too fast for his followers. Lincoln had met them, together with his Cabinet, in a conference in December, 1862, and frankly discussed the situation, with the result that some of them wavered. When Lincoln informed both Seward and Chase that he declined to accept their resignations, both returned—Seward with alacrity, Chase with reluctance. One of the clues to Lincoln's cabinet policy was his determination to keep both these factions committed to the Government, without allowing himself to be under the thumb of either.

During the six months following the cabinet crisis Chase appears at his best. A stupendous difficulty lay before him and he attacked it manfully. The Government's deficit was $276,900,000. Of the loans authorized in 1862—the "five-twenties" as they were called, bringing six per cent and to run from five to twenty years at the Government's pleasure—-the sales had brought in, to December, 1862, only $23,750,000, though five hundred million had been expected. The banks in declining to handle these bonds laid the blame on the Secretary, who had insisted that all purchasers should take them at par.

It is not feasible, in a work of this character, to enter into the complexities of the financial situation of 1863, or to determine just what influences caused a revolution in the market for government bonds. But two factors must be mentioned. Chase was induced to change his attitude and to sell to banks large numbers of bonds at a rate below par, thus enabling the banks to dispose of them at a profit. He also called to his aid Jay Cooke, an experienced banker, who was allowed a commission of one-half per cent on all bonds sold up to $10,000,000 and three-eighths of one per cent after that. Cooke organized a countrywide agency system, with twenty-five hundred subagents through whom he offered directly to the people bonds in small denominations. By all manner of devices, patriotism and the purchase of bonds were made to appear the same thing, and before the end of the year $400,000,000 in five-twenty bonds had been sold. This campaign to dispose of the five-twenties was the turning-point in war finance, and later borrowings encountered no such difficulties as those of 1862 and 1863.

Better known today than this precarious legislation is the famous Act of 1863, which was amended in the next year and which forms the basis of our present system of national banks. To Chase himself the credit for this seems to be due. Even in 1861 he advised Congress to establish a system of national banks, and he repeated the advice before it was finally taken. The central feature of this system which he advocated is one with which we are still familiar: permission to the banks accepting government supervision to deposit government bonds in the Treasury and to acquire in return the right to issue bank-notes to the amount of ninety per cent of the value of the bonds.

There can be no doubt that Chase himself rated very highly his own services to his country. Nor is there any doubt that, alone among Lincoln's close associates, he continued until the end to believe himself a better man than the President. He and his radical following made no change in their attitude to Lincoln, though Chase pursued a course of confidential criticism which has since inspired the characterization of him as a "sneak," while his followers were more outspoken. In the summer of 1863 Chase was seriously talked of as the next President, and before the end of the year Chase clubs were being organized in all the large cities to promote his candidacy. Chase himself took the adroit position of not believing that any President should serve a second term.

Early in 1864 the Chase organization sent out a confidential circular signed by Senator Pomeroy of Kansas setting forth the case against Lincoln as a candidate and the case in favor of Chase. Unfortunately for Chase, this circular fell into the hands of a newspaper and was published. Chase at once wrote to Lincoln denying any knowledge of the circular but admitting his candidacy and offering his resignation. No more remarkable letter was written by Lincoln than his reply to Chase, in which he showed that he had long fully understood the situation, and which he closed with these words: "Whether you shall remain at the head of the Treasury Department is a question which I do not allow myself to consider from any standpoint other than my judgment of the public service, and, in that view, I do not perceive occasion for change."

The Chase boom rapidly declined. The deathblow was given by a caucus of the Union members of the legislature of his own State nominating Lincoln "at the demand of the people and the soldiers of Ohio." The defeat embittered Chase. For several months, however, he continued in the Cabinet, and during this time he had the mortification of seeing Lincoln renominated in the National Union Convention amid a great display of enthusiasm.

More than once in the past, Chase had offered his resignation. On one occasion Lincoln had gone to his house and had begged him to reconsider his decision. Soon after the renomination, Chase again offered his resignation upon the pretext of a disagreement with the President over appointments to office. This time, however, Lincoln felt the end had come and accepted the resignation. Chase's successor in the Treasury was William Pitt Fessenden, Senator from Maine. During most of the summer of 1864 Chase stood aside, sullen and envious, watching the progress of Lincoln toward a second election. So much did his bitterness affect his judgment that he was capable of writing in his diary his belief that Lincoln meant to reverse his policy and consent to peace with slavery reestablished.

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