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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