FOR BETTER OR WORSE:

A HISTORY OF BANKING IN THE UNITED STATES

Part II --An Economic History Of The War Between The States

Text: "Thou shalt have a perfect and just weight, a perfect and just measure shalt thou have: that thy days may be lengthened in the land which the Lord thy God giveth thee." (Deuteronomy 25:15)

In 1719, South Carolinians deposed the proprietors’ Governor because would not allow the printing of paper money. Later, when the legislators found themselves still at odds with the royal Governor over the issue, they adjourned for 3 years leaving no means of support for the government. Britain knew well the evils that would plague indiscriminate printing of paper, and resisted, but the passionate colonists insisted.

In his History of South Carolina, David Ramsey comments upon the Act passed by the state legislature in 1736 that called for the printing of paper money.

"It is remarkable that though the American Revolution took place only 40 years after these events, they were so little known as to be never referred to in the debates relative to paper money. In the interval, a new race had sprung up who had no personal knowledge of them. Tradition was obscure. History was silent. Newspaper gave no information. Old official records were seldom or never referred to. From these causes the Carolinas of 1776 had little knowledge of what their forefathers had done in 1736 or 1719. It is hoped that in the consequence of the preset increasing means of diffusing and perpetuating knowledge, the like will not ever occur again." 1 (Italics ours)

This he wrote in 1809!

"After suffering economic anarchy, the colonists elected to continue this chaos by indiscriminately printing Continental Currency.

Peletiah Webster testified, "We have suffered more from this (paper money) than from every other cause of calamity; it has killed more men, pervaded and corrupted the choicest interests of our country more and done more injustice than even the arms and artifices of our enemies." 2 Thomas Paine, the infidel, showed he understood the true nature of paper money when he declared,

"There are a set of men who go about making purchases upon credit, and buying estates that they have not wherewithal to pay for; and having done this, their next step is to fill the newspapers with paragraphs of the scarcity of money and the necessity of a paper emission, then to have legal tender under the pretense of supporting its credit, get a deal of it for a little price and cheat their creditors; and this is the concise history of paper money schemes." 3 (Italics ours)

He then declares any member of the legislature who proposes a legal tender law ought to be put to death.

At the outbreak of the War Between the States, the Union enjoyed approximately $250,000,000 in circulating coinage. In 1861, in the first year of the War, an additional $45,000,000 was coined. Also in circulation was $130,000,000 in state bank notes, and $33,500,000 in Treasury notes.

In order to accommodate the War economy. Congress passed an

Act on July 17, 1861 authorizing the issuance of Demand Notes.

Like C.G. Memminger, Secretary of the Confederate Treasury, Salmon P. Chase, the Union’s Secretary of the Treasury, protested loudly against the use of paper money, but constantly turned to it as the answer to the country’s economic woes.

Demand Notes were commonly called "Greenbacks" because their reverse was printed in green, but their official name was given because the notes carried the promise to pay the bearer the value of the note on demand. They were issued from New York City, St. Louis, Cincinnati, Boston and Philadelphia. The notes however, had no gold or silver to substantiate their value, yet by August $50,000,000 was released into circulation. A Second issue of an additional $10,000,000 was authorized by the Act of February 12, 1862.

The Act of July 17, 1861 authorizing the Demand Notes, also authorized interest-bearing Treasury notes. For this reason, they were commonly known as "Interest-bearing Notes." They promised 7 3/10 percent annual interest --the highest rate the government had ever paid. They could be redeemed in 8 years. Five detachable coupons were used to collect interest at 6-month intervals. In order to collect the final interest payment, the note itself had to be redeemed. One and two year notes carrying! 5 percent interest were authorized by the Act of March 5, 1863. These were paid annually. By the Acts of June 30, 1864 and March 3, 1865 three year notes were again issued.

On account of insufficient gold and silver reserves, their value fluctuated according to the New York financial market. If short-term loans rose to 6 or 7 percent, the notes were less desirable when the percentage on loans decreased, the notes were in demand. Another problem with the notes was that they were hoarded when interest payments neared, and were then released once again into circulation.

On August 5th, Congress passed an Act authorizing Secretary of Treasury Chase to deposit public money into solvent specie paying banks. James Gallatin, President of the National Bank of New York reasoned with the Secretary. "Coin being the basis of credit," he said, "it is only in that way that the increased financial Operations of the government can be conducted, for it is impossible to maintain the superstructure of credit when the basis is withdrawn, for in destroying the basis, the super-structure is also swept away."

Mr. Chase responded to the bankers, "In what funds will my drafts be paid?"

"We in New York are entirely willing to pay in coin," was the reply.

"But how will it be in Boston? How in Philadelphia? How, if you in New York give a draft-holder a check on Cincinnati, or St. Louis, will the check be paid?" The Secretary asked.

"In whatever funds the holder of the draft or check is willing to receive."

The Secretary of the Treasury responded, "That is say in coin if the holder insists on coin, and the bank is able and willing to pay it, but in banknotes if he will consent to receive bank notes. I cannot consent to this, gentlemen." 4 He subsequently withdrew $170,000,000 in gold and scattered it throughout the country by means of sub-treasuries. He would not allow men to be robbed on account of their ignorance. He began well; what hindered him? For be left office with twice as much inflating paper money as he should have issued, and when $1 in paper had only, 35 to 40 cents purchasing power. 5 "Thou shalt have a perfect and just weight; a perfect and just measure shalt thou have."

Free men have always been loath to accept paper money, because it is but a gentle step between accepting paper as "representing" real money, and accepting paper as if it were real money. For this reason, Northerners were converting their paper money into gold and silver so rapidly the banks panicked, and on December 50, 1861 they suspended specie payments. Four days later, on January 3rd, the Treasury followed. With paper money no longer convertible into metals that carried intrinsic value, gold and silver "rose" in value --(Not really; the value of gold and silver was constant. What happened was the value of the paper depreciated, and now required more paper for an exchange.)

It was now profitable to melt coins for their bullion value. Specie payments were not again resumed until 1879-- 14 years after the War ended; and, to use the words of Horace White, "By then the people had, to a large extent lost sight of the fundamental principles of money. "6

The year 1862 was the beginning of a new chapter in the history of banking in this country. One month after suspending specie payments, that is, the redemption of paper money in gold and silver, on February 25th Congress passed the Legal Tender Act, and the country embarked in a dingy upon the wide ocean of inflated currency The American people ever since have had to struggle unmercifully against nature’s elements. This explains why the public mind in our own generation is filled with grave misconceptions regarding money and the economy. Americans have indeed lost sight of the fundamental principles of what constitutes money! Having rejected God’s Word on the subject, Americans have accepted the principles invented by men. Is it any wonder John Q. Public is at the mercy of the bankers?

On March 1, 1781, the Articles of Confederation conferred upon the government the authority to print paper money. The framers of the Constitution, however, prohibited the use of paper money by forbidding states to accept anything but gold and silver as tender. Neither did they delegate to Congress the authority to issue paper money. Consequently, only once before the fateful year of 1862 was it even proposed in Congress to issue legal tender notes. During the War of 1812, the country experienced the darkest days since the winter at Valley Forge. On November 12, 1814, Bolling Hall of Georgia introduced legislation in the House that called for the issuing of Treasury notes that would be legal tender for all debts. By a vote of 42 to 95 the House refused even to consider the resolution.

On account of the immeasurable evils of dishonored public faith and national bankruptcy, Secretary of Treasury Chase, in his annual report dated December, 1861, dismissed the idea of passing a legal tender bill.7 Nevertheless, on January 22, he wrote Elbridge Spalding of Buffalo a half-hearted approval of the bill he sponsored.

On January 7th, the Ways and Means Committee agreed to report the proposed legal tender bill. It would be absurd to propose a law declaring gold and silver "legal tender." Such a law is necessary only in an attempt to legitimize fiat money. Reader, have you ever taken the time to read the paper currency you carry about in your pocket as money?

The bill did not win the approval of the Committee, but suddenly

Stratton of New Jersey, one of the dissenting members, recommended the bill be presented to the House, though he did not commit himself to support it. The leaders of our banking institutions were in an uproar. Mr. Gallatin, in behalf of the bankers, proposed an alternate plan for financing the War, and pleaded in vain against the use of a legal tender bill.

Four years after the War, in December 1869, Salmon P. Chase publicly admitted his errors. Now a Supreme Court Justice, he declared in Hepburn vs. Griswold, "The making of notes or bills of credit a legal tender is not a means appropriate, plainly adapted, or really calculated to carry into effect any express power vested in Congress, is inconsistent with the spirit of the Constitution, and is prohibited by the Constitution." 8 He went on record saying, "Examination and reflection have satisfied me that this opinion (referring to his approval of the Legal Tender bill in 1862) was erroneous and I do not hesitate to declare it." 9 And again, "The legal tender quality was only valuable for purposes of dishonesty." 10

In December the following year (1870), the Supreme Court reversed its decision. Justice Grier had resigned and placed by Justice William Strong. In addition, a new member, Justice Bradley, had been added. Justice Strong delivered the opinion that "value is an ideal thing." 11 If true value is regarded as relative, it is little wonder that in March 1884, in Julliard vs. Greenman, the Supreme Court justices held that Congress has the Constitutional power to make United States Treasury notes legal tender.12 Justice Horace Gray erroneously declared,

George Bancroft referred to this statement in a pamphlet he published the same year. It was entitled, "The Constitution Of The United States of America, Wounded In The House Of Its Guardians. "14

In it, he labeled the statement by Justice Gray "a stupendous error."

Nevertheless, on February 6, 1862, by a vote of 95 to 59, the Legal Tender bill cleared the House. It narrowly escaped defeat in the Senate when it received a vote of 22 to 17. On February 25th, it became law, and provided for the issuing of $150,000,000 in paper money. On June 7th, Mr. Chase requested an additional $150,000,000. "Legal Tender Notes" also known as "United States Notes" carried the same green reverses as the old Demand Notes, and the popular name "Greenbacks" was continued. A third issue calling for an additional $100 million was authorized by the Act of January 15, 1865.

Two amendments were attached to the Legal Tender bill. One required the government to pay in coin the interest accrued on its loans, The other authorized the Secretary Of the Treasury to issue bonds any time at 6 percent interest. Therefore, by the Act of March 5, 1863, Compound Interest Treasury notes were issued. They were redeemable after 5 years, and like the Interest-Bearing notes before them, their interest was collectable at 6-month intervals. A Second issue was authorized by the Act of June 30, 1864. A total of $226,000,000 of these Treasury notes was authorized. When people balked at accepting the bonds, Secretary of Treasury Chase threatened that if he could get money in no other way, he would flood the country with so many Greenbacks that a breakfast would cost $1000. 15

The Act of March 5, 1863 not only authorized the Compound-Interest notes. Legal Tender notes had been convertable into 6 percent gold-interest bonds at par. By this Act in 1863, less than one year after the pledge was made, Mr. Chase abolished it. He stated his reason was to reduce the rate of interest on future issues of bonds. Congress reluctantly agreed and fixed the period of redemption as ending July 1st.

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This issue of "The Angelus" is being mailed to 2100 people. Of this number 1700 are pastors or churches. We have the addresses of 2500 other churches representing congregations of over l00 people, but we have not yet been able to add them simply on account of finances.

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REBUKE, AND HOW TO BEAR IT

Text: "Let the righteous smite me; it shall be a kindness."

-Psalm 141:5-

Solomon declares "The tender mercies of the wicked are cruel;" and "The kisses of an enemy are deceitful." Cruel are their flatteries, and cruel are their kindnesses. Rather than that he should enjoy their favor, David says, "Let the righteous smite me." (Proverbs 12:10; 27:6)

The verbal "smite" or "stroke" may shake us, and cause us to tremble, but "it is a kindness" nonetheless. It is given on account of concern for us and is administered on account of love to us. It is therefore an act of kindness, and so given, it is given by our friend. "Faithful are the wounds of a friend." (Proverbs 27:5)

"A friend loveth at all times." He will reprove without rancor. His purpose is to reclaim a brother, and not to disgrace him. He will reprove the wanderer and will not divulge the matter because "Love covereth all sins." It is the whisperer who "separateth chief friends." The nail of reproof must be well oiled with kindness or it will not accomplish the desired purpose. (Proverbs 17:17; 10:12; 16:28)

"Rebuke a wise man," said Solomon, "and he will love thee" because "A wise man will hear and will increase learning." "Open rebuke is better than secret love" because "Reproofs of instruction are the way of life." It is the scorner who "heareth not rebuke." It is fools who "despise wisdom and instruction." It is the wayward who cry "How have I hated instruction and my heart despised reproof." Such as hate reproof are said to be "brutish" --they are even as the beasts of the field. "He that hateth reproof shall die." The indictment of the Lord

against Sinners is they have "set at naught all My counsel, and would none of my reproof." "The ear that heareth the reproof of life abideth among the wise," but "He that refuseth instruction despiseth his own soul." (Proverbs 9:8; 1:5; 27:5; 6:23; 13:1; 1:7; 5:12; 12:1; 15:10; 1:25; 15:31,32)

Just rebuke should be received in love. Our most faithful friends are they who tell us the truth. They must love us much who would care enough to tenderly tell us our faults.

Christian maturity is measured by our ability to receive rebuke.

Grace teaches us how to receive these evident tokens of love. They only rebel who are not spiritually mature. It is therefore one of the greatest scandals in the church today that professing Christians are so unprepared to receive rebuke. It is an act of mercy that would bring back the wanderer, or that would recover the sick, or awaken the lazy, or that would reclaim the lost.

"Let the righteous smite me;" says the man of God, "it shall be a kindness."

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