an element that should be taken account of in estimating what the greenbacks cost the taxpayers.

During the war the government negotiated three kinds of loans: (1) loans of which the kind of money in which they should be repaid was not stipulated; (2) loans expressly payable in coin; (3) loans expressly payable in "lawful money." The terms on which the government could borrow were not the same for these different classes of securities. Obligations payable in lawful money never sold on such favorable terms as similar obligations payable in gold. There was always a discount against them in the shape either of a higher rate of interest or a lower price in the market. Thus the use of lawful money securities increased the amount of debt which was owing at the close of the war above what it would have been had all the obligations been made payable in coin.

The increase of debt from this cause should be included in the indictment against the greenbacks. How great this increase was, however, can only be conjectured. For this reason no estimate will be made of the amount by which the sale of lawful money securities increased the debt, although this sum should properly be deducted from the following calculation of the saving effected by using this kind of obligations. This omission tends to make the estimate of the saving too large.

After the war was over and the reduction of the debt had begun, the policy was adopted of paying all loans in coin, except when it had been expressly stipulated by the law authorizing them that they should be paid in lawful money. Of these lawful money obligations there were outstanding August 31, 1865, when the debt was at its maximum, some 1273.2 millions. Most of these bore a high rate of interest. and ran for but short terms. They were therefore the first part of the debt to be paid. Much the greater part of the whole amount had been retired by July 1, 1868. During these years the currency was at a discount of about 30 per cent. Above $1,000,000,000 of debt were paid in dollars depreciated to this extent.

This very rapid redemption of the lawful-money debt was accomplished by a process of refunding. While one obligation

was paid off, a new debt in part took its place. Thus the net reduction of the debt was a much slower process than one would think from looking merely at the rapid redemption of the currency obligations. In 1868 nearly $550,000,000 of these debts were paid; but new obligations were created to such an extent that at the end of the year the principal of the public debt was but 66.4 millions less than it had been at the beginning. The 547.7 millions of currency obligations were all paid and paid in paper money; but this paper was obtained only by issuing 483.3 millions of new obligations, and since these new debts were all payable in coin, it is only on the balance of 66.4 millions that the government made a saving by paying in depreciated currency.

Proceeding on the principle just explained that where the redemption of lawful-money obligations exceeded the net reduction of the debt, a saving was really made only on this latter sum, the conclusion of the estimate is that it required some 71.6 millions less of wealth to redeem the lawful-money obligations than would have been required had they been paid in specie.

One estimate has shown that the use of the greenback currency made a needless addition to the public debt of the country at the close of the war amounting to 600,000,000 of "dollars." The last estimate has led to the conclusion that by paying a certain portion of the debt in "dollars" made of paper, the government saved in wealth to the taxpayer 71.6 millions of gold dollars. The difference between this saving and the addition to the public debt gives the real amount of wealth measured in gold dollars which the paper money plan of finance cost the country. This amount is 528.4 millions.

The first legal-tender act confused a fiscal with a monetary purpose. Financial affairs had been allowed to drift into a crisis. To relieve the Treasury the government sought to utilize its prerogative of determining upon a standard of value and of coining money, for its own financial advantage. To attain this end, the interest which the community has in the maintenance of a standard free from sudden and violent fluctuations, was

openly sacrificed. That the people suffered is not surprising. But it seems equally true, unless these conclusions are wholly wrong, that the Treasury suffered likewise. Instead of profiting by the attempt to use the medium of exchange as a financial engine, the government, because of this attempt, incurred a vastly greater debt, which eventually had to be paid by the people.

EFFECT OF PAPER ISSUES UPON PRICES.

312. It must not be expected in studying the variations in prices consequent upon the issue of United States notes, that these fluctuations could follow closely the value of the paper money. A greatly enlarged government demand and an entirely new demand for certain kinds of commodities, with a decreased demand on the part of the nation, a large portion of which was engaged in carrying on war, and whose wants were consequently different from what they otherwise would have been, introduced serious changes in the value of commodities not assignable to the character of the currency. These, however, it is impossible to separate from those which result from depreciation, although it is not difficult to see very nearly where they lie. In the case of products coming from the Southern states, many prices naturally rose very considerably, since their supply was cut off on account of the hostile relations between the North and South. For example, the average level of prices in 1864 was about 190.5 per cent. of what it was in 1860. Some typical Southern products, however, were vastly higher than this. Tar was 720 per cent. of its price in 1860, and turpentine was 900. The same was true in a lesser degree of rice, molasses, and sugar. Cotton stood at 1,090.9 per cent. in 1865, as compared with its price in 1860.

Again, the increase in taxation both in the way of higher import duties and of higher, or entirely new, internal revenue taxes, naturally made the prices of the commodities upon which they were imposed higher than before. This, likewise, had no reference to depreciation in the currency. Some possible exceptions may appear in the case of imported commodities, the duties upon which must be paid in gold. Inasmuch as gold had to be bought in New York for greenbacks, the higher the premium upon greenbacks the higher the price in paper which the importer would have to charge when he sold his goods.

There were also important changes in the direction of

demand, due to the changed conditions brought about by the war. Thus articles used by the government for the support of the army, such as ship biscuit, codfish, mackerel and hams, rose largely in price on account of the increased government demand falling upon a supply no greater than before. There was less building during the war, and consequently building material declined, comparatively speaking, in price. In 1864, bricks sold for but 160 per cent. of the price in 1860, and other building materials stood at similar figures, although gold was quoted in greenbacks at 258.1.

313. But while some weight must be allowed to these various changes in prices which had no connection with the currency, there was an alteration in general prices, due to the depreciation of the notes, so great and general as to exert a most important influence upon the well-being of the community at large. All commodities rose enormously in price. There was thus a permanently injurious influence upon those who had fixed incomes. In the accompanying table the variations in the prices of commodities during the war period, have been represented:

COMPARISON OF THE DEPRECIATION OF THE CURRENCY WITH THE

RISE OF PRICES OF COMMODITIES, 1862-1865.1

'See Commerce, Finance, and Immigration of the United States, No. 4, Series 1895-6; p. 518; and Journal of Political Economy, 1894–5, p. 158.