Duke University Libraries REPORT OF THE SECRETARY OF TREASURY. Treasury Department, > March 14th, 1862. I Sir : At the first meeting of the Congress of the Perma- nent Government, it seems proper to present to its members a review of the financial measures of the Provisional Gov- ernment, and of the position in Avhich they now stand. At the commencement of the Government a revenue sys- tem was adopted, which was deemed adequate to its support, had peace continued. The Tariff was greatly reduced, and all discriminating duties on ships and cargoes were abolish- ed. The free navigation of the waters of the Confederate States was offered to all the world, and the Mississippi river was recognized as a great highway of the States upon its waters. The action of the United States Government admonished us to prepare for war. The presumed dimensions of that war are exhibited by the financial measures which Congress adopted. They authorized an issue of one million of dol- lars in Treasury Notes, of denominations not less than fifty dollars, payable in one year, at an interest of $3.65 per cent. They also authorized a loan of fifteen millions of dollars, for ten years, at an interest of 8 per cent., secured by an export duty of one-eighth of a cent per pound on raw cotton, and directed the Secretary of the Treasury to devise a plan for its redemption. The plan adopted by the Secretary provided that the an- nual produce of the export duty should be applied first to pay the interest, and then to purchase from the lowest bid- ders so much of the principal as the surplus would reach, reserving a discretion to the Secretary of the Treasury as to the acceptance of bids where they demanded more than the face of the bonds. Considerable difficulty arose in disposing of this loan, from the fact that in some of the Confederate States the banks had suspended specie payments, while in others they were paying out coin. The suspended banks, however, by a joint and patriotic eftort determined to make their notes, when paid in, for the loan, equivalent to coin, and there- upon the loan was successfully negotiated. The war had now so much enlarged its proportions as to demand sums of far greater magnitude. On the 16th May, authority was given to issue twenty millions of dollars in Treasury Notes of smaller denominations, payable in two years, without interest, and intended to circulate as cur- rency ; and a further sum of thirty millions in 8 per cent, bonds. The holders of the Treasury Notes were allowed to fund them in the bonds of the Confederate States, payable in ten years ; and as an experiment, these bonds were allowed to be reconverted into Treasury Notes at the plea- sure of the holder. At this stage of our progress we were brought to a stand by the difficulty of preparing Treasury Notes in the Con- federate States. We had become so entirely dependent upon the North, that but a single bank-note engraver could be found in the Confederate States ; and none of the mate- rial necessary for a bank note was manufactured amongst us. We were, therefore, compelled to substitute lithographs for steel engravings, and to create the manufacture of bank note paper. The delays incident to such a state of things, produced many difficulties, and rendered it impossible to furnish an amount in notes adequate to meet the daily re- quisitions of the Departments. The banks were applied to for a loan of their notes to meet the exigency. They proraptly responded, and the balance due them is set forth in one of the schedules accompanying this report. The increasing dimensions of the war induced the Con- gress, at its next session, to expand the issue of Treasury Notes to one hundred millions, and to authorize a loan on bonds or stock for one hundred millions more. The notes were made payable six months after the ratification of a treaty of peace with the United States; and in order to pre- vent their redundancy, it was provided tliat any holder might fund them in eight per cent, bonds ; or, to the extent of twenty millions, might exchange them for bonds payable in ten years, at an interest not exceeding seven per cent., re- exchangeable for Treasury Notes. Throughout the Confederacy the banks and people prompt- ly responded ta these measures of the Government, and every- where the Treasury Notes were accepted as currency. These notes thus became part of the regular circulating medium, and furnished the Government with a large and available loan, free of interest- In return, the Government owed a duty to take all proper means to prevent an over-issue, and the depreciation consequent thereupon. It was therefore provided, that the notes might be funded at the pleasure of the holder in Confederate bonds at an interest of eight per cent. ; and to secure the punctual payment of the principal and interest of these bonds, a War Tax of one-half of one per cent, was imposed upon the chief articles of property in the Confederate States. The Fifteen Million Loan was taken up chiefly by the banks and by the comniercinl community. It was deemed proper to bring this second loan more particularly to the attention of the planters. Measures were taken to canvass the cotton region for subscriptions, payable from the pro- ceeds of the growing crop. These subscriptions amount to about twenty millions, and had our ports been open, would at this time have furnished available means for the support of the Government. But, in the present state of things, they stand only as a basis of credit, and are realized from time to time as sales of the crop are effected. These sales are sufficiently extensive to require the appointment of agents at the principal places of delivery to collect the sub- scriptions ; and they have accordingly been appointed. I herewith communicate a copy of the instructions given to them. The bonds for this One Hundred Million Loan were au- thorized to be issued for any period less than twenty years. The interest being at eight per cent., it was deemed best to make the period as short as possible. The War Tax had been adjusted to raise a sufficient amount to pay part of the principal as well as the Avhole interest of the debt ; and as soon as peace might be restored, a judicious economy would enable the Government to pa}- oft' the debt, if distributed over a series of ^^ears. And even should it not be found convenient to pay off the instalments as they became due, the improved credit of the Government in time of peace would enable it to raise money at a less rate of interest, 'wherewith it could discharge its obligations. These considerations induced me to arrange the debt upon the plan of Mr. James G. Holmes, of South Carolina ; the principle of which is the distribution of the debt into instal- ments, which call for the payment annually of a fixed sum for principal and interest, so adjusted as to extingiiisli the whole in twenty years. This is accomplished by making the first instalment of principal payable in two years, and ^the last in twenty, and distributing the payments into thirty- six semi-annual periods. This constant diminution of the princi-al annually diminishes the interest, and leaves a larger portion of the fixed payment applicable to the remain- ing principal, until the whole debt is discharged. This scheme of public debt (it is believed) will be found imore suitable to the wants of our community, particularly at the present time. The planting community will more readily be induced to take bonds Avhich they can use in pay- ment, or which will be paid up at short periods, and which from the small amount of money-capital usually seeking in- vestment in bonds, they cannot expect to realize promptly by the usual method of sale. I now proceed to exhibit the results of these measures and the present condition of the Treasury : The receipts into the Treasury from all sources during the existence of the Provisional Government, say from 17th February, 1851, to 18th February, 1862, are as follows: Customs" $1,270,875 48 Miscellaneous 988,888 20 Fifteen million loan 15,0()(),()00 00 Bank loan 9,813,515 49 One hundred million loan 16,152,GG0 02 Interest and premium 33,785 1 3 Treasury notes 95,790,250 00 $139,051,004 32 The total amount of expenditures is as follows : Civil, Miscellaneous, Foreign Intercourse and Public Debt $5,045,660 82 War 152,844,430 20 Navy 7,600,485 89 $165,490,576 91 The difference between these two aggregates to wit: $26,439,572 59 exhibits the balance remaining in the Trea- sury to the credit of disbursing officers throughout the Con- federacy. This balance will be paid in Treasury Notes as the same may be called for, and when paid will add that amount to the issue : making for the whole issue under the Provisional Government the sum of $122,229,822 59 The Provisional Congress has extended its appropriations for the support of the Government as far as the first of April ensuing. The total amount of appropriations made up to that period is $249,285,086 26 From which deduct those already paid as above 165,490,576 91 Leaves yet to be paid 83,794,509 39 The means which have been provided to pay this amount are: 1. The remainder of Treasury Notes authorized to be issued. Whole amount authorized $li50,000,000 Amount absorbed by expenditures of the Provisional Government 1 22,229,822 59 Balance 27,770,177 41 This balance is subject to further abatement on account of the temporary loan made by the banks, which they have the right to call for in Treasury Notes. This loan amounts to $9,813,545 49 Leaving the amount of Treasury Notes which may still be issued $17,956,631 92 2. The next item of means proyidcd by the Provisional Congress is the remainder of the one hundred million loan authorized by the War Tax Act. Whole amount authorized $100,000,000 Amount already issued 16,152,660 03 Balance 83,847,339 98 Add the balance of Treasury Notes author- ized 17,966,631 92 Total means 101,803,971 90 Balance of appropriations as above 83,794,509 35 Surplus 18,009,462 55 From this abstract it appears that it will require about sixty-six millions of the one hundred million loan, together with all the Treasury Notes authorized by law, to pay the ap- propriations already made. It is not probable, however, that all these appropriations will be required. Several of them are made upon contingencies ; and, in no event, is it likely that they will all be called for within the period for which they were appropriated. Continual accession to the means of the Treasury is already had from the Produce Loan. The subscriptions to this loan are portions of the One Hundred Million Loan, and are therefore applicable to the current expenditures. Treasury Notes too are deposited every day -with the Treasurer and Assistant Treasurers, upon the ar- rangement -which authorizes their deposit on call. And if we can preserve the confidence of the country, these de- posits will absorb a large portion of the bank deposits and much of the domestic exchanges of the country, as soon as it is understood that they can be drawn or transferred from place to place at the pleasure of the holder. It is obvious, too, that these call deposits will assist in relieving any redundancy in the currency, by withdrawing a part of the circulation; and it is hoped that, with the aid of funding in the permanent debt, this dangerous method of raising money will be rendered safe. To enable the Trea- sury to use the whole amount deposited, it would be well to give to that Department authority to hold in reserve and issue a certain surplus, in case of sudden and unexpected calls by depositors. The next matter in order is the consideration of the esti- mates for expenditures and supplies, for the period desig- nated by Congress, say, to the first of December next. The estimates of expenditure, furnished by the different Departments, arc as follows : Civil List $ 617,572 74 Miscellaneous 2,466,223 49 Foreign Intercourse 60,0!)!) 00 Public Debt 1,500,000 00 War 199,799,725 58 Navy 9,560,905 29 $214,004,427 10 The only means already provided, to supply these de- mands consist of — 1. The balance of the One Hundred Million Loan, above stated, which, when realized, would amount to $17,847,339 98. 2. And the nett proceeds of the War Tax. The amount of this item is rendered uncertain by the occupation of some of our territory by the enemy. It must be set down at a conjectural amount, sa}^ at twenty millions. The remainder of the supplies must be obtained by one or more of the following methods : One. Taxes Two. Treasury Notes. Three. Loans. 1. Taxes. Experience has fully established that the ex- penses of modern war cannot be maintained by the taxes to be levied during a state of war. The utmost that can be obtained by taxes, at such a time, is the establishment of a solid basis for loans, and the pledging a sufficient amount of annual income to discharge the principal and interest of such loans, as they become payable. The War Tax, levied by the Provisional Congress, stands upon this basis; its proceeds are too small for any other purpose. 2. Treasury Notes. Experience has also established that this is the most dangerous of all the methods of raising money. The danger arises from the fact that, in borrowing money in this form, the Government interferes with the measures of value. The amount of currency usually circu- lating in a country forms its measure of value. While this consists of gold and silver, it cannot become redundant, be- cause any excess would immediately be exported to other countries. But when a currency has no value except in one country, this security against excess is lost, and every addi- tion becomes permanent circulation. Every money-value must re-adjust itself to this increase, and the result is, that to obtain a comparatively small amount of money, the values of the entire pioperty of the community are changed. The Government itself, in time of war, becomes the greatest suf- ferer. Being the largest purchaser of commodities, it buys at the inflated prices which it has itself produced, and loses more in its payments than the amount it has attempted to raise by its currency. The relations of debtor and creditor are disturbed by every successive issue, and the result is a prostration of public credit and private confidence. The facility with which a government paper currency may be issued, offers 'strong temptations to resort to it in difficult times. But the disastrous consequences which have always attended its over-issue, warn us to mark with care the boun- daries within which it should be confined. With tliis view the Provisional Congress have anxiously sought for appropriate checks and absorbents. They began 8 with an issue of twenty millions, which has been gradually extended to one hundred and fifty millions. Feeling their way with each successive issue, they have provided two means of relieving redundancy. One is the permission to fund in permanent securities of the Government at 8 per cent. ; the other is a deposit on call at 6 per cent. It Avas supposd that any redundancy would be absorbed by one or the other of these outlets, and that the remainder wouhl justly measure the actual wants of the community. Within this limit a Government currency may be safely and even beneficially used. In a former report it was shown that the actual currency of the Confederate States, before the present war, might be estimated at eighty-five and a half millions, and it was sug- gested that it might safely be enlarged to one hundred mil- lions. Since that period it has been deemed necessary to extend the issue to one hundred and fifty millions. At the date of the statements above referred to the actual issuee amounted only to $95,790,250 ; but since that period they have been increasing daily, until at present they amount to $107,98 -",855. The evidence of redundancy begins to appear in the freedom with which call deposits are made, and the high prices of specie and foreign exchange are partly the result of that same cause. But on the other hand, the freedom with which Treasury Notes are circulated at par with Bank notes, indicates an equal confidence in both ; while the capacity they have of being funded, gives them a superior claim on public confidence. The fact that so large an issue can thus be supported, Avhilc at the same time tho States are increasing the circu- lation by their issues of Treasury Notes, seems to prove that the Treasury Notes of this Government perform some func- tion which was not foreseen; and that function is probably their agency in supplying domestic exchange for the Con- federacy. So long as the public confidence can be preserved, this effect would attend a currency receivable at all points at par. And while it affords a larger field of circulation, it admonishes us to use the utmost caution, lest the credit of the Government should be impaired. Under existing cir- cumstances, it seems to me that Congress might venture to authorize an issue of fifty millions more, if they will pro- vide means for absorbing redundancy similar to those al- ready provided for existing issues. This will raise the issue to tvro hundred millions, an amount at which we should pause in this direction, until we can see the effects upon the country. 3. A large balance of supplies remains to be provided, and this must be procured from the third resource, namely: Loans by means of funded debt. There is no limit to this resource short of the ability of the Nation to pay. ^ And the just measure of this ability is the amount which it can raise by taxes or revenues, to refund such loans. So long as the interest of a debt can be secured with certainty, to- gether with so much of the principal as will discharge the debt in a reasonable time, that debt may be made available. The firsc step then to be taken by the Government towards enlarging its loans, is to enlarge the means of repaying them ; in other words, the taxes must be increased. The War Tax has already put in motion all the machinery requisite for levying a tax. It has selected those articles which can best bear the burden, and it levies on their value the very moderate rate of one-half of one per cent. The simplest of all plans, therefore, would be an increase of this tax to a sufficient amount to pay the loan required upon the principles already adopted. The Permanent Constitution requires that this plan be modified. It difters from the Constitution for the Provi- sional Government, in re-enacting the clause Avhich pro- vided for an apportionment of direct taxes among the States. The arrangement of the tax is thus made more complex. But as soon as Congress shall declare the aggregate amount to be raised, the assessments already made may be assumed as a basis for its distribution, and will materially aid the further details. A sufficient tax will secure the lenders. But the enquiry naturally arises, where are these lenders to be found ? Our people have property in abundance, but they have no sur- plus capital in money. Our plans must be modified to meet this difficulty. We must accept products in exchange for the bonds wherever they can be made available for the wants of the Government. The farmer has supplies of food for the army ; the manufacturer has clothing or other commodities; the railroad company has transportation ; the miner has coal and iron ; all of which the Government needs. If these supplies can be obtained in exchange for Confederate Bonds, a loan in kind is effected on credit, to the satisfaction of of both parties. An exchange of Treasury Notes for the same article is a purchase for cash, inasmuch as Treasury 10 Notes are now money like bank notes. The issue of such notes must, of necessity, have narrower limits than the issue of bonds; and, like all cash assets, they are more readily exhausted. The wdiole amount of Treasury Notes which the Government can put in circulation will be re- quired for the pay of the army ; for the wages of mechanics, and for other expenditures, which cannot be paid with bonds. To use them, therefore, for other purposes, iti to leave these necessary items unpaid, and thereby to discredit the Gov- ernment. There is also another method to be considered, in which the bonds of the Government may be made available. Large sums must be paid abroad for purchases of arms, munitions of w^ar, and Army and Navy supplies. The cotton and tobacco crops have usually furnished the means of making foreign payments ; and they can probably now be used with advantage for the same purpose. The holders of cotton have already, to a large amount, agreed to accept bonds for the sales of their cotton. They may be induced to close their subscriptions at once, by delivering to the Govern- ment in kind at the market, or some equitable rate, the pro- duce which they have subscribed. If arrangements can be made by which this produce may be used by the Govern- ment, either as a remittance, or as a means of making re- mittances for the purchases required, it would enable the Government to make available, as cash, a large amount of its bonds. The extent to which this operation could be carried, can only be determined by actual experiment. It certainly would not exceed the amount of the Produce Loan. There w^ould be considerable difficulty in the administration of the details ; and a large confidence must be reposed in the agents. But if Congress should see fit to attempt the experiment, due efforts will be made to carry it into execu- tion. These various considerations may be reduced into form in the followino; suc-o-estions : 1 . That authority be given to increase the issue of Trea- sury Notes to fifty millions more. 2. That the Secretary of the Treasury be authorized to keep a reserve of Treasury Notes not exceeding t.en millions, and that he be authorized to issue the same to holders of de- posit certificates upon any sudden and unexpected call — the issue to be reduced within the reserve fund as soon as pos- sible. 11 3. That an additional issue of bonds or stock to the amount of $164,004,427 10, be authorized upon the plan already adopted. 4. That subscriptions in kind be taken for this loan of all articles required by the Government, to be exchanged for the said bonds. 5. That cotton and tobacco, and other agricultural pro- ducts, subscribed to the Produce Loan, may be accepted at a valuation in exchange for the bonds to such extent, and under such regulations as may be determined by Congress — the Secretary of the Treasury to have authority to ship or sell, or procure advances upon such produce for the use of the Government. 6. That Congress impose an additional War Tax for such amount as will sustain the additional loan which they may authorize; and that the said tax be collected at as early a day in the present year as may be practicable. 7. And, finally, to provide the machinery required for these plans, let the Secretary of the Treasury be authorized to employ such agents as may be necessary to carry out these plans, and direct the employment of such additional clerks by the Assistant Treasurers, and in the Treasury Department, as may become necessary. The various schedules and estimates to which reference is made in the above report, are herewith submitted in de- tail for the information of Congress. All which is respectfully submitted by Your obedient servant, C. G. MEMMINGER, Sec'y of TreLsury. Hon. Thos. S. Bocock, Speaker of the Hotise of Representatives of the Confederate States, pH8.5