Increase their money expenditures. Laborers may demand

an increase of wages because the price of food has risen. But

the employer cannot accede to the request, without injuring

himself, until the price of his products has advanced. If he

sell to other dealers, they object strenuously to paying

higher prices unless sure the increase can be shifted onto

others. And consumers exceedingly dislike paying more

for their goods especially if their own money incomes have

not risen. So at every step the advance in the scale of

money payments is impeded.

4. The readjustment in the scale of money payments,

then, that is necessitated by an alteration in the standard

money works itself out in a period of economic stress and

strain. During the Civil War the tenseness of the situation

was increased by the constantly varying degrees of deprecia-

tion. There was not a single shift from a higher to a lower

level; the standard of value was fluctuating all the time.

140

HlSTOBY OF THE GREENBACKS

Before a readjustment of money payments to a scale that, at

the existing value of a dollar, would restore real incomes

approximately to what they had been could be worked out,

the value of the dollar had changed again and a new adjust-

ment on a new basis began. 1 The price level was constantly

changing, and each new change unsettled real incomes afresh

and precipitated a new struggle for a readjustment of money

payments. While the war continued no adjustment could

be even tolerably stable, for the next week's war news might

raise or lower the value of the government's notes which

served as the community's money several per cent., and so

produce new confusion.

A study of the economic consequences of the issue of legal-

tender paper currency as a measure of "war necessity"

becomes, then, primarily an examination of the intricate

effects of the changes in the purchasing power of the standard

money upon the distribution of what Marshall calls the

"national dividend." The most important problem is to dis-

cover how the real incomes of laborers, landlords, capitalists,

and active business managers were affected. Beyond this

problem lies the question what effect these changes in real

Income had upon the consumption and production of wealth.

Such in brief are the subjects discussed in chaps, v-ix.

1 The rapidity and violence of these fluctuations may best be seen from the

following tabular statement of the percentage of alternating depreciation and

appreciation in the specie value of the greenback dollar :

Month

Average

Gold Value

of $1 in

Paper

Money

Rise (+),

or

Fall (-)

Per Cent, of Appreciation or Depre-

ciation in Gold Value of the Cur-

rency

December, 1861

$1.00

February, 1862

.966

0.034

Fall of 3.40 per cent, in 2 months

April, 1862

.985

+ .019

Rise of 1.97 per cent, in 2 months

February, 1863

623

.362

Fall of 36.75 per cent, n 10 months

August, 1863

.795

+ .172

Rise of 27.61 percent, n 6 months

July, 1864

.387

.408

Tall of 51 .32 per cent, in 11 months

May, 1865

.737

+ .350

Rise of 90.44 per cent, n 10 months

December, 1865

.684

.053

Fall of 7.19 per cent, in 7 months

CHAPTER II

THE CIRCULATING MEDIUM

I. Gold and Silver Coin:

Money in Use Before Suspension Disappearance of Gold After

Suspension in East Continued Use in California.

II. Bank Notes:

Exceptions to Rule of Suspension Obstacles to Free Circulation

of Bank Notes Redemption in Greenbacks Increase of Note

Issues.

III. Old Demand Notes :

Attitude of Banks Demand Notes at a Discount Temporary

Loan Scheme Effect of Legal -Tender Act.

IV. "Shinplasters" and Fractional Currency:

Disappearance of Silver Coin Issues of "Shinplasters" Postage

Currency Fractional Currency.

V. Minor Coins :

The Premium on Nickel Cents Its Cause New Bronze Cents

Other Minor Coins.

VI. Treasury Notes :

Greenbacks One and Two Year Notes of 1863 Compound

Interest Notes Use of Certificates of Indebtedness and Seven-

thirties as Currency.

VII. Recapitulation :

Chaotic Condition of Circulating Medium Uncertainty Regard-

ing Volume.

I. GOLD AND SILVEB COIN

BEFORE the banks and the treasury suspended specie pay-

ments, December 30, 1861, 1 the monetary circulation of the

United States consisted of (1) gold coin, (2) subsidiary sil-

ver coins for fractional parts of a dollar, (3) one-cent pieces

of a copper and nickel alloy, (4) treasury notes of the gov-

ernment payable on demand, and (5) circulating notes issued

i See Part I, chap, i, pp. 40, 41.

141

142 HISTORY OP THE GREENBACKS

by banks chartered under state laws. 1 The specie in circu-

lation was estimated by the director of the mint in October,

1861, at from $275,000,000 to $300,000,000, of which he

thought not more than $20,000,000 was at the South ; a the

demand notes outstanding were $33,500,000," and the bank

notes reported as issued by the 1,289 institutions in the

loyal states amounted to about $129,000,000.*

Suspension threw this whole system into disorder. Gold

coin, the only full legal-tender money in use, was withdrawn

from general circulation as soon as the banks and the treasury

ceased paying it out, and the country was left dependent upon

a currency of paper money which the issuers were not pre-

pared to redeem in specie.

It is not quite accurate to say that gold coin ceased to

circulate. The banks continued to hold large amounts of

specie in their reserves, 5 while the government paid interest

on a large portion of its debt in gold and required the use

of gold by importers in payment at the customs houses.

More than this, there was a section of the country where the

greenbacks did not succeed in displacing coin even in com-

mon business transactions.

In 1862 there were but very few banks in states west of

Kansas and Nebraska. 6 Indeed, in California, the wealthiest

and most populous of the far western states, the existence

of banks of issue was expressly prohibited by the state

1 Silver dollars had not been in common use for many years, because they were

worth more as bullion than as money. See the table showing the average value of

an American silver dollar each year from 1834 to 1862 in H. R. LINDEKMAN'S Money

and Legal Tender in the United States (New York, 1879), p. 161, and compare

L A uc ; H 1. 1 N , History of Bimetallism in the United States, chaps, iv, v.

2 Finance Report, 1861, p. 62. 3 ibid., 1862, p. 9.

* Compiled from the "Synopsis of the Returns of the Banks in the Different

States," published in the Finance Report for 1862, pp. 189 ff.

5 According to the "Annual Reports on the Condition of the Banks," the amount

of specie held by institutions in the loyal states increased from $76,400,000 at the

beginning of 1862 to $81 ,500,000 at the beginning of 1863. H. R. Executive Document

No. 25, 37th Cong., 3d Sess., p. 209; and No. 20, 38th Cong., 1st Sess., p. 211.

6 See the bank reports cited in preceding notes.

THE CIRCULATING MEDIUM 143

constitution. 1 "Suspension" was, therefore, a much less

momentous occurrence for these communities than for those

of the East, where business centered around highly developed

banking systems. West of the Rocky Mountains men con-

tinued to buy and sell for coin, giving little thought to the

fact that bank notes in circulation elsewhere were no longer

redeemed in specie.

But when Congress, by the act of February 25, 1862,

provided for the issue of $150,000,000 of United States

notes and made them a legal tender between individuals, the

currency troubles of the rest of the country were brought

home even to Californians. Under this law it was techni-

cally possible for a person who had bought goods from a San

Francisco jobbing merchant to compel his creditor to accept