Edward Alfred Pollard, The lost cause; a new Southern history of the War of the Confederates ... Drawn from official sources and approved by the most distinguished Confederate leaders.

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[419] corporation, having a capital of hundreds of millions of dollars, able to “place” the public bonds as rapidly as funds were needed; and, by means of large discounts, establishing a steady reflux current of circulation back into its own coffers. It is one of the plainest maxims of finance that if a currency be issued in a continuous stream, without any measure being taken to establish a counter-current of the same circulation back into the source from which it issued, depreciation is inevitable. Where a circulation is put forth through the agency of a bank, it is done in the process of discounting the negotiable paper of punctual men of business; and the reflux is created by the return of the same amount of circulation into the bank in payment of the discounted paper when it falls due. Every piece of paper that is discounted, has its pay-day; and the reflux of currency corresponds with the efflux. The bank may fail; but this efflux is not relaxed by that fact alone; for the necessity of paying the negotiable paper which it held under discount, will absorb precisely the amount of circulation which was issued in the act of discounting it. A powerful bank of exchequer, however unnecessary or vicious a part of our Federal machinery it may be in periods of peace, is an admirable agency in time of war for regulating the heavy circulation which is always found to be one of the necessary attendants of a state of warfare.

Neither of the two belligerent governments in the American war took the proper pains, if they took any pains at all, to ensure a healthful reflux current into the Treasury of the circulation which they so profusely issued. The outgo of circulation was enormous and continuous; while there was no income at all, or if there was any, none sufficient to create any sensible demand for the currency, or to impart any stable value to it.

Let us see briefly, for purposes of illustration, what was the financial condition of the two belligerents at the close of the war. The aggregate debt incurred by the Federal government, in the progress of the war, has been officially stated, in frequent monthly bulletins from the Treasury Department, at about two thousand eight hundred millions of dollars. It is the generally received opinion in financial and official circles that the debt, when all audited and settled, will reach the round sum of three thousand millions of dollars. There was outstanding in the United States in the form of currency issued from the Federal Treasury, on the 31st of July, 1865, the aggregate sum of seven hundred and eleven millions of dollars; composed of five per cent. notes, six per cent. compound interest notes, greenbacks not bearing interest, and fractional currency. Up to that date, the circulation of the National Banks had reached one hundred and fifty seven millions, and the supposed amount of the notes of State banks still in circulation, was about eighty millions. The aggregate circulation in the Northern States, therefore, had reached, at the end of the war, the prodigious amount of about nine hundred and fifty millions of