Lincoln’s choice for the cabinet post of treasury, Salmon P. Chase, was no financial expert yet he was to advise Congress on the framing of financial bills, obtaining money from “keen-minded bankers and investors” like Jay Gould, as well as loans and paper money. The taxes collected were far smaller than expenditures and throughout the war the total amount received in loans was 2621 million dollars, against 667 million dollars obtained from taxation.
Bernhard Thuersam, www.Circa1865.com
Voodoo Economics Circa 1864
[Diary Entry] July 2, 1864:
“There is discord in the Cabinet. Mr. Seward represents the moderates, while Mr. Chase, the abolitionist and the inventor of paper money, represents the Radicals. He is regarded here, rightly or wrongly, as the greatest financier in the world. It seems to me that his entire science has consisted of keeping the ship afloat by throwing the provisions overboard. It is easier to borrow than to repay, and I fear Mr. Chase is leaving the difficult task to those who will follow him.
The failure of his financial policy and the defeat of a bill on gold that he recently submitted to Congress have led Mr. Chase to hand in his resignation.”
[Diary Entry] July 5, 1864:
“A financial crisis can, from one day to the next, reduce the value of paper money to virtually nothing. Everything now hangs on the hope of taking Richmond. But because Grant moves this way and that without gaining ground, because Petersburg, a town defended by children and schoolmasters, continues to stand firm against a hundred thousand men, and because the Confederates, far from giving in, are threatening Maryland with an invasion which is forcing the President to call up the militia and because, in a word, nobody sees an end to the war, public confidence is growing weaker.
The government itself, obliged to pay interest on the public debt in gold, is requiring that all customs duties be paid in gold. Nothing depreciates the currency so much as this self-distrust manifested in the Treasury. Until now the “greenbacks” have had more value in actual trading than that indicated by the rates quoted for them on the official gold market. But if ever the small businessmen should refuse to take them and if ever they should cease to circulate freely among the people, the poor Mr. [William P.] Fessenden (who has just succeeded Mr. Chase) will have to take over the direction of the Treasury only to associate his name with the impending national bankruptcy.
Let us return to Mr. Chase. He had a single obsession: to strangle speculation and force down the price of gold. He thought that to do this he needed only to decree an increase in the value of paper money, and that economic interests could be manipulated so easily as the parts of a machine. Thus he proposed a law prohibiting overdraft operations, speculative transactions which result in a paper loss or gain on balance. Judge for yourselves whether the waving of the Treasurer’s wand has had the magical effect he expected it to have.
By the very next day the speculators had taken fright and activity was concentrated in a small number of hands; now it is continued in secret, without competition, and this quasi-monopoly has immediately raised the price of gold by 40 percent. Congress wanted the bill withdrawn. Mr. Chase insisted that it be acted upon, and it was himself who had to withdraw.
If the moment of crisis ever comes when paper money is forced into the hands of only a few holders, the public will think only of getting rid of it, and America will offer to the world in a twofold sense the spectacle of “hideous bankruptcy.”
(A Frenchman in Lincoln’s America, Ernest Duvergier de Hauranne, Donnelly & Sons, 1974, pp. 77-88)