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Chapter 13:

  • Extracts from my inaugural
  • -- our financial system -- receipts and expenditures of the first year -- resources, loans, and taxes -- loans authorized -- notes and bonds -- funding notes -- Treasury notes guaranteed by the States -- measure to reduce the currency -- operation of the General system -- currency fundable -- taxation -- popular aversion -- compulsory reduction of the currency -- tax law -- successful result -- financial condition of the Government at its close -- sources Whence revenue was derived -- total public debt -- system of direct taxes and revenue -- the tariff -- war tax of fifty cents on a hundred dollars -- property subject to it -- every resource of the country to be reached -- tax paid by the States mostly -- obstacle to the taking of the census -- the foreign debt -- terms of the contract -- premium -- false charge against me of repudiation -- facts stated.

In my inaugural address in 1862 I said:
The first year of our history has been the most eventful in the annals of this continent. A new Government has been established, and its machinery put in operation over an area exceeding seven hundred thousand square miles. The great principles upon which we have been willing to hazard everything that is dear to man, have made conquests for us which could never have been achieved by the sword. Our Confederacy has grown from six to thirteen States; and Maryland, already united to us by hallowed memories and material interests, will, I believe, when enabled to speak with unstifled voice, connect her destiny with the South. Our people have rallied with unexampled unanimity to the support of the great principles of constitutional government, with firm resolve to perpetuate by arms the rights which they could not peacefully secure. A million of men, it is estimated, are now standing in hostile array and waging war along a frontier of thousands of miles. Battles have been fought, sieges have been conducted, and, although the contest is not ended, and the tide for the moment is against us, the final result in our favor is not doubtful. . . . Fellow-citizens, after the struggles of ages had consecrated the right of the Englishman to constitutional representative government, our colonial ancestors were forced to vindicate that birthright by an appeal to arms. Success crowned their efforts, and they provided for their posterity a peaceful remedy against future aggression.

The tyranyy of an unbridled majority, the most odious and the least responsible form of despotism, has denied us both the right and the remedy. Therefore, we are in arms to renew such sacrifices as our forefathers made to the holy cause of constitutional liberty. [416]

The financial system which had been adopted from necessity proved adequate at this early period to supply all the wants of the government and of the people. An unexpected and very large increase of expenditures had resulted from the great enlargement of the necessary means of defense. Yet the government enterd on its second year without a floating debt and with its credit unimpaired. The total expenditures of the first year, ending February 1, 1862, amounted to one hundred seventy million dollars. A statement of the Secretary of the Treasury, comprising the period from the organization of the government to August 1, 1862, presents the following results:

Expenditures:War Department $298,376,549.41
Navy Department    14,605,777.86
Civil and miscellaneous     15,766,503.43
Total $328,748,830.70
Outstanding requisitions     18,524,128.15
Total expenditures  347,272,958.85
Total receipts  302,482,096.60
Deficient Treasury notes authorized     16,755,165.00
Deficient Treasury notes to be provided    28,035,697.25

The receipts were derived as follows:

Custom $  1,437,399.96
War tax  10,539,910.70
Miscellaneous    1,974,760.33    $13,952,079.99
Loans, bonds, February, 1861  15,000,000.00
Bonds, August, 1861  22,613,346.61
Call certificates, December, 1861  37,515,200.00
Treasury notes, April, 1861  22,799,900.00
Demand notes, August, 1861187,130,670.00
One and two dollar notes       846,900.00
Due banks    2,645,000.00   $288,551,016.61
Total receipts  $302,503,096.60

Such was the result presented by the treasury of a government that had been in existence only eighteen months. It commenced that existence without a treasury, and, without the sinews and the munitions of war, was in less than two months invaded on every side by an implacable foe. Its ways and means consisted in loans and taxes, and to these it resorted. On February 28th I was authorized by Congress to borrow, at any time [417] within twelve months, fifteen million dollars, or less, as might be needed. It was to be applied to the payment of appropriations for the support of the government, and for the public defense. Certificates of stock or bonds, payable in ten years at eight per cent interest, were issued. For the payment of the interest and principal of this loan a tax or duty of one-eighth of one per cent per pound was laid on all cotton exported. On March 9th an issue of one million dollars in treasury notes of fifty dollars and upward was authorized, payable in one year from date, at 3.65 per cent interest, and receivable for all public debts except the export duty on cotton. A reissue was authorized for a year. On May 16th a loan of fifty million dollars in bonds, payable after twenty years at eight per cent interest, was authorized. The bonds were “to be sold for specie, military stores, or for the proceeds of sales of raw produce or manufactured articles, to be paid in the form of specie or with foreign bills of exchange.” The bonds could not be issued in fractional parts of a hundred dollars, or be exchanged for treasury notes or the notes of any bank, corporation, or individual. In lieu of any amount of these bonds, not exceeding twenty million dollars, an equal amount of treasury notes, without interest, in denominations of five dollars and upward, was authorized to be issued. These notes were payable in two years in specie, and were receivable for all debts or taxes except the export duty on cotton. They were also convertible into bonds payable in ten years at eight per cent interest. On August 19th another issue of treasury notes, amounting with those then issued to one hundred million dollars, was authorized. They were of the denominations of five dollars and upward. They were receivable for the war tax and all other public dues except the export duty on cotton. These notes were convertible into twenty-year bonds, bearing eight per cent interest, of which the issue was limited to one hundred million dollars. Thirty millions were to be a substitute for the same amount, authorized by the act of May 16, 1861. These bonds could be exchanged for specie, military and naval stores, or for the proceeds of raw produce and manufactured articles. On December 19th ten million dollars in Treasury notes were issued to pay the advance of the banks. On December 24th an additional issue of fifty millions of treasury notes like those of the act of August 19th was authorized. An additional issue of thirty millions of bonds was also authorized. On April 12, 1862, an issue of treasury notes, certificates of stock and bonds, as the public necessities might require, to the amount of two hundred and fifteen millions, was authorized. Of these, fifty millions in treasury notes were issued without reserve, ten [418] millions in treasury notes retained as a reserve fund to pay any sudden or unexpected call for deposits, and one hundred and sixty-five millions certificates of stock or bonds. Bonds to the amount of fifty million dollars, payable in ten years at six per cent interest were authorized and made exchangeable for any of the above treasury notes. All these notes and bonds were subject to the same conditions as those of the acts of August 19 and December 24, 1861. On April 17th five millions of treasury notes were authorized to be issued in denominations of one and two dollars, which were receivable for all public dues except the cotton duty. An amount of treasury notes bearing interest at two cents per day on each hundred dollars, as a substitute for as much of the one hundred and sixty-five millions of bonds authorized, was also authorized to be issued. On September 19, 1862, three million five hundred thousand dollars in bonds was authorized to be issued to meet a contract for six ironclad vessels of war. On September 23, 1862, the amount of treasury notes under the denomination of five dollars was increased from five million to ten million dollars, and a further issue of bonds or certificates of stock, to the amount of fifty million dollars, was authorized.

On March 23, 1863, an effort was made to remove from circulation some of the issues of treasury notes by funding them. For this purpose it was provided that all treasury notes not bearing interest, issued prior to December, 1862, should be fundable in eight per cent bonds or stock during the ensuing thirty days, and during the succeeding three months in seven per cent bonds or stock, after which they ceased to be fundable. All treasury notes not bearing interest, and issued after December 1, 1862, until ten days after the passage of the act, were made fundable in seven per cent bonds or stock during the ensuing four months, and afterward only in four per cent thirty-year bonds. Call certificates were made fundable in thirty-year bonds at eight per cent, and all outstanding on the ensuing July 1st were deemed bonds at six per cent, payable in thirty years. A monthly issue of treasury notes, without interest, to the amount of fifty million dollars, was also authorized. These were made fundable during the first year of their issue in six per cent thirty-year bonds, and after the expiration of the year in four per cent thirty-year bonds. The further issue of call certificates was suspended; but treasury notes fundable in the six per cent bonds might be converted, at the pleasure of the holder, into such certificates at five per cent interest, which were reconvertible into like notes within six months, or afterward exchanged for thirty-year six per cent bonds. Treasury notes fundable in four per cent bonds were convertible in like manner at four per cent. All disposable [419] means in the treasury were to be applied to the purchase of treasury notes, bearing no interest, until the amount in circulation did not exceed one hundred seventy-five millions. The issue of five million dollars, in notes of two dollars, one dollar, and fifty cents, was also authorized. It was further provided in this act that six per cent bonds, as above mentioned, might be sold to any of the states for treasury notes, and, being guaranteed by any of the states, they might be used to purchase treasury notes. The whole amount of such bonds could not exceed two hundred million dollars. Treasury notes so purchased were not to be reissued. The issue of six per cent coupon bonds to the amount of one hundred million dollars, which were to be applied only to the absorption of treasury notes, was also authorized. The coupons were payable either in the currency in which interest on other bonds was paid, or in cotton certificates pledging the government to pay the same in cotton of New Orleans middling quality, delivered at the rate of eight pence sterling per pound.

An important measure was adopted on February 17, 1864, the object of which was to reduce the currency and to authorize a new issue of notes and bonds. All treasury notes above the denomination of five dollars, and not bearing interest, were, if offered within a short period, made fundable in registered twenty-year bonds at four per cent. At the same time a new issue of treasury notes was authorized, and made receivable for all public dues, except customs duties, at the rate of two dollars for three of the old. The issue of other treasury notes, after the first of the ensuing April, was prohibited.

To pay the expenses of the government an issue of five hundred million dollars in six per cent bonds was authorized. For the payment of interest the receipts of the export and import duties, payable in specie, were pledged.

A review of this statement of the legislation of Congress will clearly present the financial system of the government. The first action of the provisional Congress was confined to the adoption of a tariff law, and an act for a loan of fifteen million dollars, with a pledge of a small export duty on cotton, to provide for the redemption of the debt. At the next session, after the commencement of the war, provision was made for the issue of twenty million dollars in treasury notes, and for borrowing thirty million dollars in bonds. At the same time the tariff was revised, and preparatory measures taken for the levy of internal taxes. After the purpose of subjugation became manifest by the action of the Congress of the United States, early in July, 1861, and the certainty of a long war [420] was demonstrated, there arose the necessity that a financial system should be devised on a basis sufficiently large for the vast proportions of the approaching contest. The plan then adopted was founded on the theory of issuing treasury notes, convertible at the pleasure of the holder into eight per cent bonds, with the interest payable in coin. It was assumed that any tendency to depreciation, which might arise from the overissue of the currency, would be checked by the constant exercise of the holder's right to fund the notes at a liberal interest, payable in specie. The success of this system depended on the ability of the government constantly to pay the interest in specie. The measures, therefore, adopted to secure that payment consisted in the levy of an internal tax, termed a war tax, and the appropriation of the revenue from imports.

The first operation of this plan was quite successful. The interest was paid from the reserve of coin existing in the country, and experience sustained the expectations of those who devised the system.

Wheat, in the beginning of the year 1862, was selling at one dollar and thirty cents per bushel, thus but little exceeding its average price in time of peace. The other agricultural products of the country were at similarly moderate rates, thus indicating that there was no excess of circulation. At the same time the premium on coin had reached about twenty per cent. But it had become apparent that the commerce of our country was threatened with permanent suspension by reason of the conduct of neutral nations, who virtually gave aid to the United States government by sanctioning its declaration of a blockade. Those neutral nations treated our invasion by our former limited and special agent as though it were the attempt of a sovereign to suppress a rebellion against lawful authority. This exceptional cause heightened the premium on specie, because it indicated the exhaustion of our reserve, without the possibility of renewing the supply.

At the inauguration of the permanent government, in February, 1862, a popular aversion to internal taxation had been so strongly manifested as to indicate its partial failure. This will be further explained presently in our statement of the system of taxation.

Under all these circumstances the effort was made to avoid the increase in the volume of notes in circulation, by offering inducements to voluntary funding. The measures adopted for that purpose were but partially successful. Meanwhile the intervening exigencies from the fortunes of war permitted no delay. The issues of treasury notes were increased until, in December, 1863, the currency in circulation amounted to more than six hundred million dollars, or more than threefold the amount required [421] by the business of the country. The evil effects of this financial condition were but too apparent. In addition to the difficulty presented to the necessary operations of the government, and the efficient conduct of the war, the most deplorable of all its results was, undoubtedly, its corrupting influence on the morals of the people. The possession of large amounts of treasury notes led to a desire for investment; with a constantly increasing volume of currency, there was an equally constant increase of price in all objects of investment. This effect stimulated purchase by the apparent certainty of profit, and a spirit of speculation was thus fostered, which had so debasing an influence and such ruinous consequences that it became our highest duty to remove the cause by prompt and stringent measures.

I therefore recommended to Congress in December, 1863, the compulsory reduction of the currency to the amount required by the business of the country, accompanied by a pledge that, under no stress of circumstances, would the amount be increased. I stated that, if the currency was not greatly and promptly reduced, the existing scale of inflated prices would not only continue, but by the very fact of the large amounts thus made requisite in the conduct of the war, these prices would reach rates still more extravagant, and the whole system would fall under its own weight, rendering the redemption of the debt impossible, and destroying its value in the hands of the holder. If, on the contrary, a funded debt, with interest secured by adequate taxation, could be substituted for the outstanding currency, its entire amount would be made available to the holder, and the government would be in a condition, beyond the reach of any probable contingency, to prosecute the war to a successful issue.

This recommendation was followed by the passage of the act of February 17, 1864, above mentioned. One of its features is the tax levied on the circulation. Regarding the government when contracting a debt as the agent of the people, its debt is their debt. As the currency was held exclusively by ourselves, it was obvious that, if each person held treasury notes in exact proportion to the valuation of his whole estate, each would in fact owe himself the amount of the notes held by him; were it possible to distribute the currency among the people in this exact proportion, a tax levied on the currency alone, to an amount sufficient to reduce it to its proper limits, would afford the best of all remedies. Under such circumstances, the notes remaining in the hands of each holder after the payment of his tax would be worth quite as [422] much as the whole sum previously held, for it would have an equal purchasing capacity.

After this law had been in operation for one year, it was manifest that it had the desired effect of withdrawing from circulation the large excess of treasury notes which had been issued. On July 1, 1864, the outstanding amount was estimated at two hundred thirty million dollars. The estimate of the amount funded under this act, about this time, was three hundred million dollars, while new notes were authorized to be issued to the extent of two-thirds of the sum received under its provisions. The chief difficulty apprehended in connection with our finances, up to the close of the war, resulted from the depreciation of our treasury notes, which was to be attributed to the increasing redundancy in amount and the diminishing confidence in their ultimate redemption.

The financial condition of the government, near its close, is very correctly represented in the report of the Treasury Department. The total receipts of the treasury for the two quarters ending September 30, 1864, amounted to $415,191,550, which sum, added to the balance, $308,282,722, that remained in the treasury on April 1, 1864, formed a total of $723,474,272. Of this total, not far from half—that is to say, $342,560,327—were applied to the extinction of the public debt; while the total expenditures were $272,378,505, leaving a balance in the treasury on October 1, 1864, of $108,435,440. The sources from which this revenue was derived were as follows:

Four per cent registered bonds, act of February 17, 1864 $13,363,500
Six per cent bonds, $500,000,000 loan, act of February 17, 1864    14,481,050
Four per cent call certificates, act of February 17, 1864    20,978,100
Tax on old issue of certificates redeemed    14,440,566
Repayments by disbursing officers    20,115,830
Treasury notes, act of February 17, 1864  277,576,950
War tax    42,294,314
Sequestrations      1,338,732
Customs           50,004
Export             4,320
Coin seized by the Secretary of War      1,653,200
Premium on loans      4,822,249
Soldiers' tax         908,622

The total amount of the public debt on October 1, 1864, on the books of the register of the treasury, was $1,147,970,208, of which $530,340,090 was funded debt, bearing interest, and $283,880,150 was treasury notes of the new issue, and the remainder consisted of the former issue of treasury notes which were converted into other forms [423] of debt, and ceased to exist on December 31st. In consequence, however, of the absence of certain returns from distant officers, the true amount of the debt was less by $21,500,000 than appeared on the books of the register; so that the total public debt, on October 1st, might have been fairly considered to have been $1,126,381,095. Of this amount $541,340,090 consisted of funded debt, and the balance unfunded debt, or treasury notes. The foreign debt is omitted in these statements. It amounted to $2,200,000, and was provided for by about two hundred and fifty thousand bales of cotton collected by the government.1

The aggregate appropriations called for by the different departments of the government for the six months ending on June 30, 1865, amounted to $438,416,504. It was estimated that the remains of former appropriations would, on January 1, 1865, amount to a balance of $467,416,504. No additional appropriations were therefore required for the ensuing six months.

A system of measures by which to obtain a revenue from direct taxes and duties was commenced at the first session of Congress under the provisional government. The officers who, at the time of the adoption of the provisional Constitution, held any officer connected with the collection of the customs, duties, and imposts in the several states of the Confederacy, or as assistant treasurers entrusted with the keeping of moneys arising therefrom, were continued in office with the same powers and subject to the same duties. The tariff laws of the United States were continued in force until they might be altered. The free list was enlarged so as to embrace many articles of necessity; additional ports and places of entry were established; restrictive laws were repealed, and foreign vessels were admitted to the coasting trade. A lighthouse bureau was organized; a lower rate of duties was imposed on a number of enumerated articles, and an export duty of one-eighth of one cent per pound was imposed on all cotton exported in the raw state. At the second session, in May, a complete tariff law was enacted, with a lower scale of duties than had previously existed. On August 19, 1861, a war tax of fifty cents on each hundred dollars of certain classes of property was levied for the special purpose of paying the principal and interest of the public debt, and of supporting the government. The different classes of property on which the tax was levied were as follows: real estate of all kinds; slaves; merchandise; bank stocks; railroad and other corporation stocks; money at interest, or invested by individuals in the [424] purchase of bills, notes, and other securities for money, except the bonds of the Confederate States, and cash on hand, or on deposit; cattle, horses, and mules; gold watches, gold and silver plate, pianos, and pleasure carriages. There were some exemptions, such as the property of educational, charitable, and religious institutions, and of a head of a family having property worth less than five hundred dollars. An act was passed for the sequestration of the property of alien enemies, as a retaliatory measure, to offset the confiscation act of the United States.

On April 24, 1863, a new act was passed relative to internal or direct taxes. It was designed to reach, as far as practicable, every resource of the country except the capital invested in real estate and slaves, and, by means of an income tax and a tax in kind on the produce of the soil, as well by licenses on business occupations and professions, to command resources sufficient for the wants of the country. On February 17, 1864, an amendment to this last-mentioned act was passed. It levied additional taxes on all business of individuals, of copartnerships and corporations, also on trades, sales, liquor dealers, hotel keepers, distillers, and a tax in kind on agriculturists. On June 10, 1864, an act was passed which levied a tax equal to one-fifth of the amount of the existing tax upon all subjects of taxation for the year.

Within six months after the passage of the war tax of August 19, 1861, the popular aversion to internal taxation by the general government had so influenced the legislation of the several states that only in South Carolina, Mississippi, and Texas were the taxes actually collected from the people. The quotas of the remaining states had been raised by the issue of bonds and state treasury notes. The public debt of the country was thus actually increased instead of being diminished by the taxation imposed by Congress.

At the first and second sessions of Congress in 1862 no means were provided by taxation for maintaining the government. The legislation was confined to authorizing further sales of bonds and issues of treasury notes. An obstacle had arisen against successful taxation. About two-thirds of the entire taxable property of the Confederate States consisted in land and slaves. Under the provisional Constitution, which ceased to be in force on February 22, 1862, the power of Congress to levy taxes was not restricted by any other condition than that “all duties, imposts, and excises should be uniform throughout the States of the Confederacy.” But in the permanent Constitution, which took effect on the same day (February 22d), it was specially provided that “representatives and direct taxes shall be apportioned among the several States according [425] to their respective numbers, which shall be determined by adding to the whole number of free persons—including those bound to service for a term of years, and excluding Indians not taxed—three fifths of all slaves.” According to the received construction of the Constitution of the United States, which had been acquiesced in for sixty years, taxes on lands and slaves were direct taxes. In repeating, without modification, in our Constitution this language of the United States Constitution, our convention necessarily seems to have intended to attach to it the meaning which had been sanctioned by long and uninterrupted acquiescence—thus deciding that taxes on lands and slaves were direct taxes. Our Constitution further ordered that a census should be made within three years after the first meeting of Congress, and that “no capitation or other direct tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be taken.”

So long as there seemed to be a probability of being able to carry out these provisions of the Constitution fully, and in conformity with the intentions of its authors, there was an obvious difficulty in framing any system of taxation. A law which should exempt from the burden two-thirds of the property of the country would be as unfair to the owners of the remaining third as it would be inadequate to meet the requirements of the public service. The urgency of the need, however, was such that, after great embarrassment, the law of April 24, 1863, above mentioned, was framed. Still, a very large proportion of these resources was unavailable for some time, and, the intervening exigencies permitting of no delay, a resort to further issues of treasury notes became unavoidable.

The foreign debt of the Confederate States at the close of the war was twenty-two hundred thousand pounds. The earliest proposals on which this debt was contracted were issued in London and Paris in March, 1863. The bonds bore interest at seven per cent per annum, in sterling, payable half-yearly. They were exchangeable for cotton on application, at the option of the holder, or redeemable at par in sterling, in twenty years, by half-yearly drawings, commencing March 1, 1864. The special security of these bonds was the engagement of the government to deliver cotton to the holders. Each bond, at the option of the holder, was convertible at its nominal amount into cotton at the rate of sixpence sterling for each pound of cotton—say four thousand pounds of cotton for each bond of a hundred pounds, or twenty-five hundred francs; this could be done at any time not later than six months after the ratification of a treaty of peace between the belligerents. Sixty days after the notice, the cotton was to be delivered, if in a state of peace, at the ports of [426] Charleston, Savannah, Mobile, or New Orleans; if at war, at points in the interior of the country, within ten miles of a railroad, or a stream navigable to the ocean. The delivery was to be made free of all charges, except the export duty of one-eighth of one cent per pound. The quality of the cotton was to be the standard of New Orleans middling. An annual sinking fund of five per cent was provided for, whereby two and a half per cent of the bonds unredeemed by cotton should be drawn by lot half-yearly, so as finally to extinguish the loan in twenty years from the first drawing. The bonds were issued at ninety per cent, payable in installments. The loan soon stood in the London market at five per cent premium. The amount asked for was three million pounds. The amount of applications in London and Paris exceeded fifteen million pounds.

Great efforts had previously been made by agents of the United States government to reflect upon the credit of the Confederate States, by resuscitating an almost forgotten accusation of repudiation against the state of Mississippi, and especially by an emissary sent to Great Britain, than whom no one knew better how false were the attempts to implicate my name in that charge. The slanderous tongues of Northern hatred even went so far as to style me “the father of repudiation.” How unjust all such assertions were, will be manifest by a simple statement of the case.2

We should not omit to refer once more to the most prolific source of sectional strife and alienation, which is believed to have been the question of the tariff, or duties upon imports. Its influence extended to and affected subjects with which it was not visibly connected, and finally assumed a form surely not contemplated in the original formation of the Union. In the Articles of Confederation, the first Constitution of the United States, the theory was that of direct taxation, and the manner was to impose upon the states an amount which each was to furnish to the common treasury to defray expenses for the common defense and general welfare.

During the period of our colonial existence, the policy of the British government had been to suppress the growth of manufacturing industry. [427] [428] It was forcibly expressed by Lord North in the declaration that “not a hobnail should be made in the American colonies.” The consequence was that in the War of the Revolution our armies and people suffered so much from the want of the most necessary supplies that General Washington, after we had achieved our independence, expressed the opinion that the government should, by bounties, encourage the manufacture of such materials as were necessary in time of war.

In the convention which framed the Constitution for a “more perfect union,” one of the greatest difficulties in agreeing upon its terms was found in the different interests of the states, but among the compromises which were made, there prominently appears the purpose of a strict equality in the burdens to be borne, as well as the blessings to be enjoyed, by the people of the several states. For a long time after the formation of the “more perfect Union,” but little capital was invested in manufacturing establishments; though in the early part of the present century the amount had considerably increased, the products were yet quite insufficient for the necessary supplies of our armies in the War of 1812. Government contracts, high prices, and to some extent, no doubt, patriotic impulses, led to the investment of capital in the articles required for the prosecution of the war. With the restoration of peace and the renewal of commerce, prices naturally declined, and it was represented that the investments made in manufacturing establishments were so unprofitable as to involve the ruin of those who had made them. The Congress of the United States, in 1816, from motives at least to be commended for their generosity, enacted a law to protect from the threatened ruin those of their countrymen who had employed their capital for purposes demanded by the general welfare and common defense. These good intentions, if it be conceded that the danger was real which it was designed to avert, were most unfortunate as the beginning of a policy the end of which was fraught with the greatest evils that have ever befallen the Union. By the Constitution of 1789 power was conferred upon Congress—

To lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts, and excises shall be uniform throughout the United States.

In the exercise of this delegated trust, tariff laws were enacted, and had been in operation to the satisfaction of all parts of the Union, from the organization of the government down to 1816; throughout that period all of those laws were based upon the principle of duties for revenue. It was true, and of course it was known, that such duties would [429] give incidental protection to any industry producing an article on which the duty was levied; while the money was collected for the purposes enumerated, and the rate kept down to the lowest revenue standard, the consumer had no cause to complain of the indirect benefit received by the manufacturer, and the history of the time shows that it produced no discontent. Not so with the tariff law of 1816: though sustained by men from all sections of the Union, and notably by so strict a constructionist as Calhoun, there were not wanting those who saw in it a departure from the limitation of the Constitution, and sternly opposed it as the usurpation of a power to legislate for the benefit of a class. The law derived much of its support from the assurance that it was only a temporary measure, and intended to shield those whose patriotism had exposed them to danger, thus presenting the not uncommon occurrence of a good case making a bad precedent. For the first time a tariff law had protection for its object, and for the first time it produced discontent. In the law there was nothing which necessarily gave to it or in its terms violated the obligation that duties should be uniform throughout the United States. The fact that it affected the sections differently was due to physical causes—that is, geographical differences. The streams of the Southern Atlantic states ran over wide plains into the sea; their last falls were remote from ocean navigation; their people, almost exclusively agricultural, resided principally on this plain, and as near to the seaboard as circumstances would permit. In the Northern Atlantic states the highlands approached more nearly to the sea, and the rivers made their last leap near to harbors of commerce. Water power being relied on before the steam engine had been made, and ships the medium of commerce before railroads and locomotives were introduced, it followed that the staples of the Southern plains were economically sent to the water power of the North to be manufactured. This remark, of course, applies to such articles as were not exported to foreign countries, and is intended to explain how the North became the seat of manufactures, and the South remained agricultural. From this it followed that legislation for the benefit of manufacturers became a Northern policy. It was not, as has been erroneously stated, because of the agricultural character of the Southern people, that they were opposed to the policy inaugurated by the tariff act of 1816. This is shown by the fact that anterior to that time they had been the friends of manufacturing industry, without reference to its location. As long as duties were imposed for revenue, so that the object was to supply the common treasury, it had been cheerfully borne, and the agriculture of one section and the manufacturing of [430] another were properly regarded as handmaids, and not infrequently referred to as the means of strengthening and perpetuating the bonds by which the states were united. When duties were imposed, not for revenue, but as a bounty to a particular industry, it was regarded both as unjust and without warrant, expressed or implied, in the Constitution.

Then arose the controversy, quadrennially renewed and with increasing provocation, in 1820, in 1824, and in 1828—each stage intensifying the discontent, arising more from the injustice than the weight of the burden borne. It was not the twenty-shilling ship-money tax, but the violation of Magna Charta, which Hampden and his associates resisted. It was not the stamp duty nor the tea tax, but the principle involved in taxation without representation, against which our colonial fathers took up arms. So the tariff act in 1828, known at the time as “the bill of abominations,” was resisted by Southern representatives because it was the invasion of private rights in violation of the compact by which the states were united. In the last stage of the proceeding, after the friends of the bill. had advocated it as a measure for protecting capital invested in manufactures, Drayton of South Carolina moved to amend the title so that it should read, “An act to increase the duties upon certain imports, for the purpose of increasing the profits of certain manufacturers,” and stated his purpose for desiring to amend the title to be that, upon some case which would arise under the execution of the law, an appeal might be made to the Supreme Court of the United States to test its constitutionality. Those who had passed the bill refused to allow the opportunity to test the validity of a tax imposed for the protection of a particular industry. Though the debates showed clearly enough the purpose to be to impose duties for protection, the phraseology of the law presented it as enacted to raise revenue, and therefore the victims of the discrimination were deprived of an appeal to the tribunal instituted to hear and decide on the constitutionality of a law.

South Carolina, oppressed by onerous duties and stung by the injustice of a refusal to allow her the ordinary remedy against unconstitutional legislation, asserted the right, as a sovereign state, to nullify the law. This conflict between the authority of the United States and one of the states threatened for a time such disastrous consequences as to excite intense feeling in all who loved the Union as the fraternal federation of equal states. Before an actual collision of arms occurred, Congress wisely adopted the compromise act of 1833. By that the fact of protection remained, but the principle of duties for revenue was recognized by a sliding scale of reduction, and it was hoped the question had been [431] placed upon a basis that promised a permanent peace. The party of protective duties, however, came into power about the close of the period when the compromise measure had reached the result it proposed, and the contest was renewed with little faith on the part of the then dominant party and with more than all of its former bitterness. The cause of the departure from a sound principle of a tariff for revenue, which had prevailed during the first quarter of a century, and the adoption in 1816 of the rule imposing duties for protection, was stated by McDuffie to be that politicians and capitalists had seized upon the subject and used it for their own purposes—the former for political advancement, the latter for their own pecuniary profit—and that the question had become one of partisan politics and sectional enrichment. Contemporaneously with this theory of protective duties arose the policy of making appropriations from the common treasury for local improvements. As the Southern representatives were mainly those who denied the constitutional power to make such expenditures, it naturally resulted that the mass of those appropriations were made for Northern works. Now that direct taxes had in practice been so wholly abandoned as to be almost an obsolete idea, and now that the treasury was supplied by the collection of duties upon imports, two golden streams flowed steadily to enrich the Northern and manufacturing region by the impoverishment of the Southern and agricultural section. In the train of wealth and demand for labor followed immigration and the more rapid increase of population in the Northern than in the Southern states. I do not deny the existence of other causes, such as the fertile region of the Northwest, the better harbors, the greater amount of shipping of the Northeastern states, and the prejudice of Europeans against contact with the negro race; the causes I have first stated were, I think, the chief, and those only which are referable to the action of the general government. It was not found that the possession of power mitigated the injustice of its use by the North, and discontent therefore was steadily accumulating, and, as stated in the beginning of this chapter, I think was due to class legislation in the form of protective duties and its consequences more than to any or all other causes combined. Turning from the consideration of this question in its sectional aspect, I now invite attention to its general effect upon the character of our institutions. If the common treasury of the states had, as under the Confederation, been supplied by direct taxation, who can doubt that a rigid economy would have been the rule of the government; that representatives would have returned to their tax-paying constituents to justify appropriations for which they had voted by [432] showing that they were required for the general welfare, and were authorized by the Constitution under which they were acting? When the money was obtained by indirect taxation, so that but few could see the source from which it was derived, it readily followed that a constituency would ask, not why the representative had voted for the expenditure of money, but how much he had got for his own district, and perhaps he might have to explain why he did not get more. Is it doubtful that this would lead to extravagance, if not to corruption? Nothing could be more fatal to the independence of the people and the liberties of the states than dependence for support upon the public treasury, whether it be in the form of subsidies, of bounties, or restrictions on trade for the benefit of special interests. In the decline of the Roman Empire, the epoch in which the hopelessness of renovation was made manifest was that in which the people accepted corn from the public granaries: it preceded but a little the time when the post of emperor became a matter of purchase. How far would it differ from this if constituencies should choose their representatives, not for their integrity, not for their capacity, not for their past services, but because of their ability to get money from the public treasury for the benefit of their local interests; how far would it differ from a purchase of the office if a President were chosen because of the favor he would show to certain moneyed interests?

Now that fanaticism can no longer inflame the prejudices of the uninformed, it may be hoped that our statesmen will review the past, and give to our country a future in accordance with its early history, and promotive of true liberty.

1 These bales were the security for the foreign cotton bonds, and were seized by the United States government. Was it not liable to the bondholders?

2 The facts with regard to the Mississippi Union bank bonds may be briefly stated as follows:

The constitution of Mississippi required that no law should ever be passed “to raise a loan of money on the credit of the State, or to pledge the faith of the State for the payment or redemption of any loan or debt,” unless such law should be proposed and adopted by the legislature, then published for three months previous to the next regular election, and finally reenacted by the succeeding legislature. The object was to enable the people of the state to consider the question intelligently, and to indicate and exercise their will upon it by the election of representatives to the ensuing legislature, whose views upon the subject would be known, and with such instructions, express or implied, as they might think proper to give.

In 1837 a law was passed by the legislature for incorporating the “Union bank of Mississippi,” with a capital of fifteen million five hundred thousand dollars, “to be raised by means of a loan to be obtained by the directors of the institution.” In order to secure this loan, the stockholders were required to give mortgages on productive and unencumbered property, to be in all cases of value greater, by a fixed ratio, than the amount of their stock. When the stock had been thus secured, as a further guarantee for the redemption of the loan, the governor was directed to issue bonds, in the name and behalf of the state, equal in amount to the stock secured by mortgage on private property. No bonds as thus directed were ever issued.

This act was duly promulgated to the people, and duly reenacted by the succeeding legislature on February 5, 1838, in strict accordance with the constitution.

Ten days afterwards, however, viz., on February 15th, the legislature passed an act supplemental to the act chartering the Union Bank, which materially changed or abolished the essential conditions for the pledge of the credit of the state. By this supplemental act the governor was instructed, as soon as the books of subscription should be opened, to “subscribe for, in behalf of the State, fifty thousand shares of the stock of the original capital of said bank, to be paid for out of the proceeds of the State bonds to be executed by the said bank, as already provided for in the said charter.” This act was passed in the ordinary mode of legislation, and was not referred, published, nor reenacted, as prescribed by the constitution. As soon as the directory was organized and the books of subscription were opened, and before the mortgages required by the charter were executed, the governor, in behalf of the state, subscribed for fifty thousand shares of the stock, and issued the bonds of the state for five million dollars, payable to the order of the bank.

These bonds were sold to Nicholas Biddle, President of the United States Bank of Pennsylvania, and by him sent to Great Britain as collateral security for a loan previously made. None of the money received for them went into the treasury of the state of Mississippi, nor was any of it used for a public improvement. All the consideration ever received by the state was its stock in the Union Bank. The bank soon failed, and the stock became utterly worthless.

Before the bonds became due, the governor of the state had declared them to be null and void, among other causes, in consequence of the failure to sell them at par, as required by the “supplemental act,” under which they were issued.

It is not necessary here to discuss the question of the validity or nullity of the bonds. The object is merely to state the principal facts.

While these events were occurring, and until a period several years subsequent to their consummation, I, who had just resigned my commission in the army, was a private citizen, had never held any civil office, and took no part in political affairs. Indeed, I have never at any time before, during, or since those events held any civil office under the state government, and neither had nor could have had any part in shaping the policy of the state. When brought out as a candidate for office, my nomination was opposed by that section of my party which advocated “repudiation,” on account of my opinions in favor of the payment of the bonds.

As a private citizen, it may be stated that I held that the question of the validity of the bonds should be decided by the courts. The constitution of Mississippi authorized suit to be brought against the state in such cases in her own courts, and this I regarded as the proper course to be pursued by the bondholders, holding that the state would be bound by the judicial decision, if it should sustain the validity of the claim. This course, however, was not adopted until long afterward, when the question had become complicated with political issues, which rendered the effort to obtain a settlement entirely nugatory.

When I was a member of the Senate of the United States, my official influence was exerted to promote the objects of a citizen of Mississippi, who, with quasi-credentials from the United States Secretary of State, Buchanan, went to London to propose to the bondholders an arrangement by which the claim, or the greater portion of it, might be paid by private subscription, on consideration of the cancellation of the bonds. This effort failed, from a mistaken estimate on the part of some of the principal bondholders, to whom the proposition was made, of the extent to which state pride would induce our citizens to contribute, and to the belief in a power to coerce payment. The gentleman who bore the proposal, indignant of the offensive manner of its rejection, and conscious of the disinterestedness of his motives, abandoned the negotiation in disgust, and the opportunity was lost.

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