A. P L A. N"
FINANCIAL RELIEF
ADDRESSED TO THE
LEGISLATURE OF GEORGIA,
t
AND
U
CONFEDERATE STATES CONGRESS,
AS ORIGINALLY PUBLISHED IN THE ATLANTA SOUTHERN CONFEDERACY,
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J31T J". IT. CABDOZO.
X. »> >. V^.%-
£"
ATLANTA, GA.:
J. II. SEALS & CO.'S POWER PRESS.
. •
1863.
TO THE LEGISLATURE OF GEORGIA.
Excessive Legislation.
NUMBER ONE.
Y ou are about to re-assemble at a juncture, we will not say. in
stererotyped phrase, requiring wisdom and patriotism, but a
knowledge of what is not within the sphere of legislation, and
that which properly falls within its province. The halls of our
legislative bodies have within a few months, been the theatre of
much discussion of a variety of remedies for the social evils with
which the community is afflicted. Devices of the most contrast¬
ed character are offered as cures or correctives. Restriction is
the rule, and its absence the exception, in the diversity of schemes
soliciting the attention of the legislator and the public.
The impossibility of extending regulative legislation over
every branch of production and species of labor, with a view to
their equalization, shows how untenable is the theory on which
such legislation is founded. But legislation cannot stop here.
It must embrace all those things that enhance the costs of pro¬
ducts, from the period that they leave the hands of the producer
to the period that they reach the hands of the consumer, wheth¬
er near or distant from markets. The expense of transportation,
the profits of the intermediary or middle-man are among these
elements of enhanced price. The gains of the engrosser and ex¬
tortioner, as of the speculator in any branch of industrial effort,
during that period in which there is an inevitable tendency to a
disturbance in the level of prices, and during which there are
obstructions to a due distribution of commodities—must meet
with reprehension wherever moral sentiment is uncorrupted; but
we could not, reasoning from the abuse against the use, proceed
to abolish the business of the trader—he who, confining himself
to the legitimate purpose of speculation, relieves the wants of
sections of the gkbe or divisions of the same country, from the
superfluity of some-other section or division. The impossibility
of succeeding in any such endeavor, if it was even right in prin¬
ciple, demonstrates liow complicated in practice would be such a
problem in legislation.
The futility of such a legislative process cannot butbe seen by
the most superficial inquiry on the subject. A maximum that
would suit at present, would" not be suitable three months hence.
There would be the necessity for a revision at short periods, to
square with the fluctuations of price consequent on the ever
changing character of a circulating medium without check or
balancing force. The conception of such a tariff of prices, ad¬
justed not only according to a constant change in the currency,
but to the relative value of labor and commodities, so as to pre¬
serve a due level between them, could only have entered the
minds of those who have not investigated the economical laws
which govern the subject.
Historical Coincidence.
It must have struck all observers that there is a remarkable
coincidence in the history of legislation between those periods
which are deemed semi-civilized, and those which, thougn com¬
paratively enlightened, are marked by a derangement of their
economical and financial relations, the effect of war or revolu¬
tion. They are both characterized by excessive legislation.
There is an extraordinary parallelism between them. The statute
book, in countries scarcely emerged from barbarism, and those
distinguished for enlightened ideas of commercial liberty, are
alike crowded with regulative enactments.
Although we would not bring into comparison with our own
such a period as that in which the statute of laborers was passed,
in the days ot Queen Elizabeth, of England, or the statute
against Engrossing, in the reign of Edward the Sixth, of the
same realm, yet it offers to us an intellectual phenomenon, that
the two periods should have been identical in their systems of
legislation for the correction of similar social evils. The only
resort in both appears to be restraint and regulation. The sole
succedaneuni is law. Why, at a period in which the principles
of economical science were so imperfectly comprehended, and
that wherein they have been so thoroughly digested^ and, gen¬
erally, so correctly applied, should be assimilated in this respect,
is a subject of curious inquiry.
Difficult to Draw the Line Between the Due and Undue EX-
ercise of the Law Making Power.
It has, in fact, long been a problem in legislation, where the
line should bo drawn between the due and tha undue exercise of
the law-making power. Those who are averle to excessive leg-
n
lslation, view it as the source of much public mischief. Those
who deem it the remedy for every evil in the State, imagine that
laws cannot be too greatly*multi plied.
In a period of pecuniary embarrassment the law is looked to
for relief by many classes of persons—regulation is regarded as
its proper source. War or revolution is prolific of legislative
schemes of this character. A knowledge, therefore, of the due
limits of legislative power—of the boundary line where legal in¬
terference in private pursuits is beneficial or injurious, is as
essential to the functions of the legislator as a knowledge of
what should be the true character of the laws themselves, as
remedial or preventive. It seems natural that what the people
regard as the only source of relief—the law-making power—
should be called on to interpose those checks that seem to be the
natural correctives of avarice and extcytion. All that cento of
enactments, intended not only to be regulative but repressive,
that fill the statute book with penalties, at such a juncture, and
which have so largely occupied the attention of our legislative
bodies, for some weeks past, must fail of their intended effect,
because they do not reach the origin of the evil. The grand
souree of mischief, which is not only corrupting the people, but
impairing the springs of public virtue, lies beyond the causes as¬
signed for these evils, and the proposed remedies for their re¬
moval. These all look to proximate and secondary and not to
primary and original circumstances, as the parent of the offenses,
by which the moral sense is perverted, through sordid impulses.
The appetite for wealth, which is latent and unexcited under or¬
dinary temptations, is stimulated by incentives that address
themselves to the corrupt parts of human nature, by the agency
of irredeemable paper money.
This is the great corrupter. This is the original source of all
debasing instincts that follow in the train of avarice, and assume
so many of its forms. Let the legislator, instead of consuming
weeks in discussing every variety of projects, to redress mischiefs
that spring from this primary source, address himself to the task
of removing this gigantic evil—this abuse of paper money. Let
this be done with a vigorous hand, and the whole progeny of
sordid passions will disappear. The avarice which is eating into
the vitals of the body-politic will perish out of the land. The
discussions which are arming orators in conflicting debate will
cease. The disputations of the press that shame the principles
of commercial freedom, will be admitted on all hands to be friv¬
olous, and the legislation of the country will be placed on that
basis of truth and philosophy that ie adapted to the liberality of
the epoch in which we live. We shall, in short, cease to exhibit
6
the spectacle of enjoying- a free constitution, and professing de¬
votion to the doctrines of free trade, in one breath, and those of
restriction in another.
Standard of Value.
NUMBER TWO.
The subject of a standard of value has been much discussed
in connection with the question of the currency since the com¬
mencement ©f the war. There is much popular misconception
in relation to it. It is our purpose to explain, as briefly as possible,
the principles by which it is governed. The two questions more
immediate^ relating to it, are, 1. Is there an invariable standard
of value ( 2. If there is not such an invariable standard, what
are the variations to whi(^i it is liable '( Gold and silver have
been chosen by all civilized nations as standards of value. They
possess properties by which they are inherently suited for this
purpose. Their almost universal use as mediums of exchange
and measures of value attests their utility as currency. But
they are not without the fluctuations that attend all commodities
affected by increased or diminished cost of production and a
change in the relation of demand to supply. They are liable to
these variations, however, only at long intervals, and there are
no objects which preserve their value so uniformly as gold and
silver. This, combined with their other qualities, have made
them almost universally acceptable as the material of money.
They are, therefore, approximate, but not invariable, standards
of value.
Perhaps this1 phrase, standard of value, is viewed in too literal
a signification. It has, in this sense, a figurative meaning only.
We speak of a yard as the standard or measure of length, the
pound as that of weight, and the bushel as that of capacity.
These are expressions when applied to value metaphorical.
They are the occasions of mistake when gold and silver are
deemed invariable measures or standards of value, as are the
yard, the pound and the bushel as invariable measures or stand¬
ards of length, weight and capacity.
Various methods have been devised to discover in Nature a
standard or unit as a basis for standards of length, weight and
capacity. 1. The measurement of an arc of the meridian ; 2.
the length of the pendulum vibrating in seconds, in some given
latitude; 3. the weight of distilled water at the temperature of
maximum density of water. These are all methods in Nature
for the standards of length, weight and capacity. They alone
approach to invariability, because founded in nature. The
weights and measures of most commercial nations have been
deduced from one or tlie other of these natural standards as their
basis.
One principal source of misconception on this subject is the
mental association by which the idea of invariable value is con¬
nected with coin, in consequence ®f the Government stamj; ;>r
impression. That device, which has been adopted as a general
convenience, to save the labor of weighing and assaying, has
been falsely conceived to attach an invariable value to the
pieces of coined money put into circulation with a public stamp.
This is a delusion of wide influence, even among strong minds
who have not looked into the subject; but in former periods of
ignorance, it was the means of cheating the people by public
authority, through a degradation of the coin, who received it,
unsuspectingly, at its former nominal value.
The principles that regulate this matter are .the same that
govern all exchangeable values. The law of demand and sup¬
ply affects the material of money, as it does the paper currency
by which it is often represented. A redundancy of paper money
changes that level with the currencies of other countries which
is necessary to be maintained, to prevent the exportation of coin
• or bullion. The suspension of specie payments separates coined
money from paper money, and it becomes profitable to export
the former, to rind for it a better than the domestic market. It
then loses its property of money, and becomes merchandise—the
gold or silver of which it is composed takes its place in the cat¬
egory of commodities. The pract: :°,1 conclusion from this view
is that being subject to . ^ law of demand and supply, it is not
within the domain of legislative regulation. To limit the price
of the precious metals would be as vain and fruitless, as it would
violate the maxims of justice to make it a penal offence, to traffic
in them, as has been proposed in cert.^n quarters.
Exchange.
The same principles apply to Exchange, inland and foreign.
It would be no less nugatory to fix the rates of drafts and bills
as to regulate the value of specie, for they have an intimate re¬
lation to each other. The same causes that elevate or depress
the one elevate and depress the other. If the debts of a country
* exceed its credits—in consequence of its imports surpassing in
value its exports—if there is a balance of payments again , it,
whether that balance arises from public or commercial debts, it
must be paid in specie, or its equivalent. Its Equivalent may be
cotton or any other exportable product for which there is a de¬
mand abroad, or bills of exchange, which represent such product,
H
drawn against it. If tliel'e is a debt or balance due, oil tlie otlief
side, the reverse takes place—specie or some equivalent is im¬
ported. Whatever, therefore, augments the debts of a country
abroad beyond the means of immediate payment, advances the
rate of foreign exchange, pari passu, with the price of specie,
with this difference, that in this case there is a limit beyond
which the rate of exchange cannot pass. That limit is the
freight and insurance of specie from the debtor to the creditor
country, for no one will pay a higher premium on exchange than
the expense of a specie remittance. This is what is technically
called the real exchange. It is governed exclusively by the law
ot' demand and supply. But when the currency of a country is
mixed or constituted of paper and coin, and is depreciated, or, if
composed exclusively of gold or silver, is debased, the rates of
foreign exchange advance with the prices of commodities gene¬
rally. This is called the nominal exchange. There is no limit
to the advance of the nominal exchange.
But the limit to the expense for freight and insurance of specie
is occasionally greatly enlarged from the obstructions to commer¬
cial intercourse. The ordinary rates for freight and insurance
of specie during peace form no criterion for the same expense
during war, if accompanied by a suspension of specie payments.
In the year 1809, the freight and insurance of specie from Eng¬
land to the Continent of Europe, were £7 per ton. The ordina¬
ry rates were £2 to £2|- per ton. At the present period of
impediment to intercourse with Europe the premium on foreign
exchange is of course large, because bearing a relative propor¬
tion to the advance of specie. Now, how much of this premium
is assignable to the real advance in the rates, and how much to
the nominal advance, from the depreciation of the cuarency,
what legislation can determine? If this cannot be determined,
what rule could govern in imposing a legal limit on the price of
specie, and of %what effect would it be except to advanee the
rates of exchange. Even if it were possible to prohibit by law
the traffic in specie and its export, the only effect of such pro¬
hibition would be the proportionate elevation of tile rate of bills,
for the whole burden of payment would fall on the exchange
which represents exportable products, and against which it is
drawn. The advanced premium must be drawn back in the in¬
creased price of imported merchandise, or if the exports, con¬
sisting of Cotton, Rice, Tobacco or Naval Stores, are raised in
price the benefit accrues to the grower at the expense of the
consumer of such merchandise. We have entered on this ex¬
planation to show how unavailing would be all legislation in
limiting the price of gold or silver, or prohibiting traffic in them,
ft
because tliat price is influenced solely by the law of demand and
supply, which no human enactments can control. In our next,
we will apply the same law to the prices of commodities, show¬
ing also the futility of legislation in this direction.
Real and Nominal Prices.—Depreciation.
NUMBER THREE.
Effect of a Nominal Rise of Prices.
Commodities, like exchange, are said to have &real and nomi¬
nal value, the former depending on the relation of the demand
to the supply ; the latter on the state of the currency. This dis¬
tinction is, in some respects, more verbal than solid. It is not
difficult of demonstration that it is a difference of degree rather
than of hind, in the ultimate effect—the rise of prices. The in¬
fluence on prices is identical, whether money be unduly increas¬
ed, or there is a more than usual demand for any particular
commodity, ©r class of commodities. There can be no change of
price unless there is a previous alteration in the relation of the
demand to the supply. The influence of a redundant currency,
whether mixed or exclusively of gold or silver, is, in the first
instance, to cause prices to advance from augmented competi¬
tion and the increase of the power to purchase, placed in the
hands of a larger number of purchasers. This is attended by
that state of the demand, as compared with the supply, which
gives rise to what is called an advance of nominal prices. But
this is soon succeeded, if prices rise from this cause, by such a
degree of scarcity, by withholding commodities from market, or,
in other words, speculation, as further to stimulate the advance
of prices.
Effect of a Nominal Fall of Prices. *
The opposite result follows from lessened demand, from a de¬
ficiency of currency, diminished competition and a reduction of
purchasing power. There is, we thus see, when money is un¬
duly increased, an augmented competition, an advance of price
in those articles to which is applied this new power of purchase.
The advance is not simultaneous, as would be supposed, from
the expression, nominal rise of commodities, but successive, first
of those articles in succession for which the demand has arisen,
and then of other articles to which the demand has extended.
As there was an elevation of price from increase of money, and
enhanced competition, so there is a further elevation of price
from limitation of the supply—in other words, in withholding
commodities from market. - Time is here an important element,
1(i
us well as the relative amount of purchases and sales. A trader
or commission merchant sells within a given time, say three
months, §1000 worth of merchandise, at 25 per cent, profit, his
household and personal expenses within the same time increas¬
ing- by a successive rise of prices 50 per cent.; he would be a loser
unless he proportionately increased the amount of his sales. 1>,
a farmer, produces 1000 bushels of corn, worth, at the coming in
of the harvest, an advance on the former price, ($1 per bushel,)
of 100 per cent., or obtains for his product $200(1. "Within that
period his purchases of salt, iron, and all other articles necessary
for his annual consumption, cost him the same advanced price as
the trader or merchant, but the amount of his sales exceeds that
of his purchases in a much higher proportion than the prices he
has to pay for his supplies. There is, evidently, in these cases
none of that equality of advantage that is supposed to arise from
an advance of merely nominal prices. If we could imagine
prices to advance simultaneously, and not successively, of all
commodities from excess of money, this supposed equality would
exist, but as this is impossible, in the nature of things, there is
no conceivable difference between the rise of nominal and real
prices, or a rise from the excess of money, and one produced by
any other change in the relation of demand to supply. Now, in
what does this process differ from increased demand arising from
any other cause besides an undue increase of money ? The same
series of consequences is produced. More ability to purchase,
additional competition, and finally advanced prices. The pro¬
cess is identical, though a diversity of causes may exist to pro¬
duce an extension of demand and rise of prices. There is first,
in all cases of an advance of prices a change in the relation of
demand to supply, and then an increase of purchasing power,
with this difference between a real and nominal enhancement of
prices that the increased demand in the instances of a real ad¬
vance is simply the effect of such increased demand, and is the
measure of such increase, while in, the case of enhancement of
prices from the redundancy of paper money, the enhancement is
in a compound ratio of increased demand and lessened supply, as
we shall show hereafter. The reverse order of effects follows from
the diminution of paper money after its undue increase.
Distinction between Natural and Artificial Scarcity.
The results we have deduced follow from tli6 additional de¬
mand produced from the undue increase of money, which may
be called artificial, leading to inflation of prices, and which is
prolonged by speculation, or withholding commodities from mar¬
ket—in other words, by limitation of the supply. The cireum-
li
stances winch lead to natural scarcity occasionally co-operate in
the same direction and aggravate that inflation, but this rise may
also be prolonged by speculation and withholding articles from
market, although much more limited in its range of influence.
The price of grain, or that of any other commodity cr labor,
from the deficiency of supply, may so advance from natural defi¬
ciency as to render it difficult to decide1 how much of the differ¬
ence is due to such deficiency and how much to a redundant cur¬
rency.
Some of the advance in certain articles of daily consumption
and of certain descriptions of labor, has been produced by the
war, and would have existed if the currency had not been redun¬
dant from the waste incident to the consumption of armies, al¬
though that redundancy has aggravated theevils of an inordinate
rise of prices. We might instance among these the article of
Flour. Beef and Bacon come within the same description. The
abstraction of labor from agricultural to warlike pursuits has had
the same effect—producing scarcity, irrespective of any action
from the currency.
The practical conclusion from this theoretical view is precise¬
ly the same as that deduced from what has been taken of specie
and exchange, to wit: the futility, if not mischief, of all legisla¬
tion that attempts to regulate the prices of commodities, because,
1st, there is implied in their alteration of value, from a redundant
currency, an antecedent change in the relation of supply to de¬
mand ; and, 2d, it is at times impossible to discriminate between
a rise from natural causes or from such redundancy. The law¬
making power would, therefore, be employed in a vain attempt
to control the great law of demand and supply, and the Legisla¬
ture of Georgia is called upon not only to arrest all future
schemes of interference with this law, but to revise their legisla¬
tion and expunge from their statute book those enactments that
are adverse to it.
Depreciation.
Discussing the subject of the currency recalls a distinction
which has been too much overlooked in economical inquiries—
the distinction, to wit: between Depreciation from Discredit
and Depreciation from Excess. Depreciation from the first
source may arise from distrust of the stability or permanence of
the authority that exercises the privilege of issue or the discredit
of the issuing power, whether a government or corporation. The
mere excess of such a currency will not affect its credit. The
Bank of England suspended its specie payments in 1797, and its
notes fell to 25 per cent, discount. > Its credit at the highest
u
point of depreciation stood as unimpeached. as at any otlier period
<>f its history. The British Government, notwithstanding its
large debt, has never in any degree fallen, in this respect, from
its high estate. To what extent the Confederate States' discre¬
dit has superadded to the depreciation of its floating securities
from excess, it will be impossible by any test to determine. That
this has been the case to some extent in the Confederacy can
scarcely be denied. It will not do to bKnk the truth. There
are parts of the Confederate States in which there has been .so
little public spirit that the paper of the Government has been
refused in exchange for produce. The effect has been that a
larger quantity of this paper has found its way to our cities and
towns than constituted their due proportion if there had been a
more equal distribution. It has consequently given rise to a
higher local rise of prices than would have existed but for this
discredit. Another cause of discredit, no doubt, has been the
coercive'iinancial policy of the Government, which forces, under
the menace of loss, the conversion of unfunded into funded debt.
As regards that source of discredit that originates in political
and military circumstances—in disasters and mischances to our
arms, and the inefficiency of political administration—it is inse¬
parable from revolution. To what extent the discredit of our
public securities, funded and unfunded, is attributable to this
cause can be only matter of conjecture.
We shall next address ourselves to the subject of the Confede¬
rate States' Finances, offering a scheme of relief which, although
not, perhaps, the most expedient, under a different condition of
affairs, is the best and most practicable, in our opinion, in the
present state of circumstances.
TO THE CONGRESS OF THE CONFEDERATE STATES.
The Confederate States Finances.
NUMBER FOUR.
The rapidly increasing depreciation of the currency, and the
more than proportionate advance of prices, begin to excite the
highest degree of alarm in the public mind. The evil of redun¬
dancy of paper money, with its attendant mischiefs, appears to
augment daily with an accelerated momentum. We have, in
fact, arrived at that stage in the progress of depreciation that
threatens discredit and collapse, without speedy relief. This can
only come from the most immediate and energetic action of Con¬
gress. The President, in our humble opinion, should have called
that body together early in November, which would be one month
earlier than the constitutional period.
There have been two modes of relief suggested : that by State
co operation, and that by taxation adequate to the absorption of
the greater part of the Treasury note currency. Whatever may
be the abstract propriety or expediency of the States lending
their credit to the Confederacy, by the endorsement of its bonds,
or in any other form of assistance—and whatever may be the
promised extent of relief from taxation, these methods would be
too slow in their operation to meet the exigency. Before the
co-operation of the States could be secured, if practicable, and
before the proceeds of taxation coulc^ be paid into the Treasury,
in sufficient amount, the evil of a collapse might be upon us.
Mr. Tyler, the Register of the Treasury, early in July made a
statement, from the books of the Treasury, of the amount and
particulars of the Confederate debt, funded and unfunded, to that
date. His figures stand as follows :
DERT OF THE CONFEDERATE STATES.
Whole amount of Treasury Notes issued by the Gov-
ment $621,000,000
Funded in Bonds and Stocks %■ 125,000,000
Cancelled in connection with War Office and Post Office 1,000,000
Outstanding Treasury Notes 497,000,000
Invested in Bonds and Stocks $200,000,000
Interest bearing Treasury Notes 125,000,000
Funded debt $325,000,000
Whole Public Debt
$843,000,000
14
It appears to us that the remedy lies almost 011 the surface of
the subject. It can only be found in one of two measures : 1st
—The increase of taxation. 2d—Funding on a proper plan.
To augment taxation, above the present rate, under existing
circumstances, seems impracticable. Ten per cent, on gross
income should be its maximum, rate while commerce is ob¬
structed and we are compelled to have recourse. exclusively to
Internal taxation. The only expedient, therefore, that is left us
is : Funding by borrowing the sums required for the public
service, on the best terms the loan market affords, with the
semi-annual payment of i nterext secured by al ien on some branch
of the revenue. This is the only plan of relief that seems to pro¬
mise success.
Funding ought to take place, by the issue of bonds or stocks
at 6 per cent, per annum having 20 or 30 years to run. It should
be combined with a gradual absorption of the war debt that re¬
mains unfunded, and a rate of taxation not beyond the rate sug¬
gested on gross income. It appears to us impracticable that any
plan for the absorption of the Confederate floating debt can be
effective, but one that abandons the principle of not selling stock
under its par or nominal value. The great purpose of a public
loan, in the existing state of distrust, is to offer such inducements
tp moneyed capitalists as to overcome that distrust. It is vain
to appeal to patriotism by a voluntary loan. Such a plan as that
which filled the coffers of Louis Napoleon, in the Crimean war,
may constitute an auxiliary, but could never form a principal
mode of relief. We must address ourselves to the interest as
well as more lofty instincts of the people. Js or, in fact, is it capi¬
tal, in the proper sense of Jhat term, that is wanted t« absorb the
unfunded debt. It is money, in the form of circulating credit,
in excess, and when funded will consist in the exchange of one
description of public credit for another and better—of one species
of security th^it is fluctuating in value for another that is com¬
paratively stable, when a loan is made on terms and conditions
that are voluntary. 4
Gradual Reduc tion of the Unfunded Debt.
A part of the scheme we propose for the absorption of the
floating debt is its gradual reduction. This was the ground¬
work of the plan suggested in this paper, in some articles insert¬
ed a few months since, and afterwards published in pamphlet
form. A gradual reduction of the unfunded debt will lead to a
progressive fall of prices and a proportionate reduction of the
public expenditure. A too rapid reduction would be attended
by a revulsion of prices and too burdensome a charge on the
15
ptiblic revenue. The rate of reduction should not exceed, for the
first fiscal year, ending June 30, 1863, one-fifth of the amount of
that debt, and the rate subsequently to be regulated, in the dis¬
cretion of the Secretary of the Treasury, according to circum¬
stances.
EXPENDITURE AXJ> RESOURCES.
The annual expenses of the Government are said to be
($50,'000,000 per month,) $600,000,000
The amount received for taxes to date is
estimated at' '25,000,000
We learn from a correct source, that only
a limited amount has been funded since
the date of Mr. Tyler's statement. Let
us compute it at.; 25,000,000
150,000,000
$450,000,000
These figures have been obtained by approximation, but they
are as near the truth as can be deduced *n a subject which is so
much within the region of conjecture. On the basis of the above
statement of expenses, $600,000,000 per anhum, the sum that
will be required until the commencement of the fiscal year, to
July 1, 1863, a period of nine months, will be $450,<»<><>,0(t(i
If we suppose, taking the most unfavorable view of
the credit of the Government, that its Bonds when
put on the market will not command more than
seventy-five cents in the dollar, this would aug¬
ment the principal of the funded debt by the sum
of " 150,000,000
$600,000,000
The interest on this sum, at 6 per cent, per annum, is $36,-
000,000.
As the semi-anniial payments on account of interest will be
payable out of the revenue from taxation, no further provision
will be necessary than that it be secured as a specific pledge and
lien, to be preferred before all other claims. Stock at $75 in the
$100 will yield 8 per cent.
This is put hypothetically. It may be necessary to sell stock
at a discount of more than 25 per cent. The principle of relief
is to sell Bonds at whatever price will meet the wants of the
Government, in supptying a deficit in the revenue and gradually
absorbing the excess of Treasury Notes. If the rate of Bonds at
75 oents in the dollar will not effect these objects, sales at 60, at
16
50, and even at greater discount, may be imperative, having
these two ends in view. To the investerthe inducement will be
considerable, for he would, supposing he obtained Bonds at 75
dollars on 100, derive an annual interest of 6 per cent, on their
face; and the market rate of interest, whatever that might be, on
twenty-five dollars, until the period arrived for recovering his
•capital, when he would receive the nominal amount of his Bond,
$100.
If we suppose, then, that by the end of the present fiscal year,
June 30, 18(13, nine months, one-fifth of the existing amount,
(§500,000,000) $100,000,000 of Treasury Notes are funded, it
will reduce prices in a greater ratio than the reduction of the
currency, as we shall show presently, and consequently lessen
the expenses of Government. There is every probability on
the volume of money being reduced one-fifth, that prices will be
so lessened as to diminish the public expenditure one-third, or
from §600,000,000 to §400,000,000—that by the end of the fiscal
year 1864, if not sooner, the reduction will be one-half or $300,-
000,000; and the currency brought back to nearly its normal
condition.
We are aware of the objections to this system of funding, i. e.,
incurring debt in a depreciated currency to be discharged here¬
after in a currency appreciated perhaps ten-fold. This objection
lies, however, against funding altogether in a currency that is de¬
preciated, and unless objected to, in toto, becomes a question of
degree. But, as we have always contended, the present is a war
for the preservation of the liberties of posterity as well as If he
liberties of the present generation, and it is only equitable that the
former should bear its distributive share of the heavy expenditure,
the latter bearing all the burden of suffering from the waste and
desolation of present hostilities of an unusually destructive char¬
acter, in addition to the loss of valuable lives. The financial
question presents, in fact, a choice of evils—taxation to an ex¬
tent injurious to reproduction, or funding in the mode we
have suggested. In what degree the burden should be placed
on the present and on the future is the financial problem to
be solved. To assume that those wTho have expended their
blood freely and borne all the suffering should pay the whole
expense of the war would be adverse to every. dictate of jus¬
tice. In the -pecuniary aspect of the question—the present
generation if required to submit to taxation adequate to the dis¬
charge of the whole unfunded debt of the war, §600,000,000
would be subject to an impost on an estimated valuation of in¬
come of 2,000,000,000 of thirty per cent., or 3 per cent., if im¬
posed on capital or property. It is needless to say that this
17
would seriously impair the sources of production, and materially
diminish the funds for the maintenance of labor. The question
then is resolved into this: how much should be imposed on ex¬
isting property or income that will not produce this effect ? We
have stated that the maximum rate of taxation ought to be 10
per cent.
Op. the plan we have suggested of deferred payments of a fund¬
ed debt at 6 per cent, there would be a compensatory benefit to
those who may be subject to future burthens in discharging such
a debt, should the privilege be reserved of liquidating it at the con¬
venience of the government when the market rate of interest de¬
clined. The interest of money falls in Europe sometimes to 1^
and 2 per cent., frequently to 4 and 5 percent. The opportuni¬
ties being presented, new loans may be effected, saving one or
two per cent, to discharge old obligations.
In our next we shall offer evidence that on reducing the vol¬
ume of the currency one-fifth, prices will fall in a greater propor¬
tion than in this ratio.
The Confederate Finances.
NUMBER FIVE.
We have in our plan presented two of the most powerful in¬
ducements to fund that can influence the capitalist. 1. A rate
of interest much higher than the existing rate. 2. The payment
of interest semi-annually, secured by a lien on some branch of
the public revenue. Two objections may be thought to lie
against this plan: 1. It will be said to be of limited duration,
extending only to the end of the fiscal year, 30th of June, 1863.
2. It contains no provision for the liquidation of any portion of
a loan that may be contracted. We will reply to these object¬
ions in their order. As we have said, at the close of the present
fiscal year, a change of circumstances may induce other finan¬
cial arrangements by which the principles of taxation and fund¬
ing may be differently combined than they can be in a period of
war and obstruction to commercial intercourse. Situated as
the Confederacy now is, our case presents, as we have said, only
a choice of evils.
As to the limited duration, nine months, of the plan we have
offered, the first remark we have to make is, that the wants of
the Treasury for any period during 1864, and subsequently, are
not to be measured, if the* plan we have suggested be adopted,
after a course of reduction of outstanding Treasury Notes has
commenced, by any previous year since the war.
IB
Increase or Decline of Prices forms a Certain Belative but
Higher Proportion than the Increase or Diminution of the
Currency.
The increase or decline of prices always bears a certain rela¬
tive but higher proportion than the increase or diminution in
the volume of the currency. We have seen this exemplified in
a remarkable degree since the war, and is, indeed, patent to or¬
dinary observation. If we suppose 50 millions to be the sum
that is sufficient to answer the conditions of a sound paper cur¬
rency for the Confederacy, we have now tenfold that amount,
but as the prices of commodities have risen, on an average,
twenty fold, these ratios of increase, of course, vary materially.
The best illustration, perhaps, of the difference is, by arith¬
metical and geometrical progression, or the increase by addition,
and that by multiplication. If currency augments in the pro¬
portion of 1, 2, 3, 4^ 5, prices will advance in the ratio of 2, 4,
8, 16, 32. In the descending scale the same principle will ap¬
ply. Prices will decline with the contraction of the currency,
in the same or higher progression than thej had advanced, after
' it had begun to be reduced. If the volume of currency has
augmented in the third year of the war, tenfold, and the prices
of commodities twenty fold ; in the fourth year of the war,
the currency is probable to reach fifteen fold, and prices
forty or fifty fold. In the descent, applying the same rule, in
the present fiscal year of the war, if the reduction of the cur¬
rency is one-fifth, prices would recede one-third and probably
one-lialf.
It will be borne in mind that we do not offer these ratios as
mathematically exact, in their application to currency and prices
or as regularly progressive from year to year, in the manner we
have indicated, but as illustrative. The explanation, perhaps, is
to be found in the circumstance that prices being first enhanced
by additional demand, in consequence of redundant currency,
there is further enhancement of prices by limitation of the sup¬
ply, the effect of producers and dealers withholding articles
from market—in other words, from monopoly and undue specu¬
lation. As the enhancement of prices, from the undue increase
of paper money, is in the compound ratio of increased demand
and lessened supply, so its reduction is likewise in the compound
ratio of lessened demand and increased supply.
This, of course, applies to the state of artificial demand and
artificial scarcity that follows it, the consequence solely of re¬
dundancy of money. There may be an advance of prices on
the other hand, from limited supply, having its source in natural
scarcity. If the wheat or corn harvest is unfavorable, it will
10
tend to advance the prices of these articles, the demand being
unchanged. Should there be an advance in price from artificial
demand and scarcitj^, induced by redundancy, a limitation of the
supply, from the badness of the harvest, would have a co-opera¬
tive effect, and further enhance prices. The reverse effects
would be produced by a too greatly depleted currency and ex¬
cessive supply of commodities.
The practical application of these remarks is obvious,
prices fall in something like a geometrical, while the currency
curtailed in an arithmetical progression—if the outstandin
Treasury notes should be funded during the fiscal year, 1863, to
the amount of one hundred millions of doljars, being in the pro¬
portion of one-fifth of the whole amount, prices, it is reasonable
to conclude, would decline in a higher proportion than the re¬
duction of the currency, and if after ^another reduction of cur¬
rency prices should continue to decline, in the same relative
proportion, this would enable the Government to diminish its
expenses correspondingly. If, while the currency is diminished
one-fifth, prices should decline one-third, and probably in a high¬
er proportion, on the reduction of the currency two-fifths there
is equal probability that prices would lessen one-half, and with
this reduction would be that of the Government expenditure, in
nearly the same ratio. It follows that if during the fiscal year
1864, should alike proportion of Treasury notes as that in 1863 be
withdrawn from circulation, and the fall of prices takes place in
the same ratio as in 1863, it would enable the Treasury to lessen
the public expenditure for that year from six hundred, the pre¬
sent estimate of expenditure, to four hundred millions. But
there is, judging from experience, every reasonable assurance that
prices would decline in a greater proportion than we have indi¬
cated. Their history shows that they lessen much more rapidly
than they advance after the first step is taken in reducing the
quantity of paper money, from the influence of panic in some,
and apprehension of loss by others in retaining commodities.
We have seen that the amount required for public expenditure
on the basis of six hundred millions per annum, for the remain¬
der of the fiscal year 1863, nine months, is. $450,000,000
The produce of the Taxes for the same period of
nine months is computed at. 125,000,000
$325,000,000
To cover this deficit and to fund one-fifth (100,000,000) of the
Treasury Notes would, therefore, require $425,000,000. This
sum it is proposed to be obtained on loan on the most advantage¬
ous terms afforded by the loan market. We would extend to
20
to future years the leading principle of the same plan, i. e., bor¬
rowing, in place of taxation, for any deficiency in the revenue,
after an assessement of 10 per cent, on gross income ; and fund¬
ing the Treasury notes at periods and in proportions that may
be expedient, in the then state of the money market, until the
currency should be reduced to fifty millions ^bf dollars. This
plan is the same in principle, and different only in mode from
that proposed by the Secretary of the Treasury. That officer
suggested the conversion of unfunded into funded debt, by the
withdrawal of the Treasury notes in excess. He proposed a
scheme that was coerceive. We propose one that is voluntary.
He addressed himself to the fears of those who were possessors
of that debt. We prefer to address ourselves to their interest.
Policy of Increasing the Principal of the Funded Debt.
To borrow and augment the principal of an existing debt, to
defray current expenditures, is not defensible under ordinary
circumstances; but the Confederacy is placed in a singular posi¬
tion. By the delay of taxation a large floating debt has been
accumulated. The limits of due taxation have been reached.
Its area has been greatly lessened since the inauguration of the
regular Government; the prices of staple products of daily con¬
sumption and labor have .inordinately increased, and the heaviest
tax of all—that of voluntary contribution in money, provisions
and clothing, for our sick and disabled soldiers and their fami¬
lies—has assumed almost gigantic proportions. In addition to
Confederate there is State and Municipal taxation, greatly ag¬
gravating the burden. Under these circumstances, additional
taxes to what are already imposed by the Confederacy cannot
be collected without impairing the very sources and means of
reproduction.
Now, if one year since the plan now proposed had been pur¬
sued—if, having neglected to raise supplies by taxation—-we nad
placed bonds, carrying 6 per cent, interest, on the market and
had sold them even at so great a discount as fifty cents in the
dollar, our Treasury note debt would have been extinguished,
instead of being five hundred millions, and our funded debt
would not have exceeded, old and new, seven hundred millions,
paying an interest of forty-two millions. Prices would not have
been so elevated as they have become, augmenting the public
burthens, rupturing all pecuniary relations, dislocating values
and demoralizing the community. Would it not have been a
sounder financial policy to have enlarged our funded debt much
beyond its present limits, and paid the charge for increased in¬
terest, than to have added an equal amount to our unfunded
21
debt, even with the advantage of not paying interest on tliat
debt ? And would not such a scheme of fiscal policy have been
consonant with enlarged views of public economy, and of prin¬
ciples of justice towards those who are to succeed to the liberties
and independence the cost of which we of the present generation
are paying in blood and treasure % Should they not have a fair
proportion of that expense ? '
In our next we will continue this branch of our subject, show¬
ing to what extent the probable fall of prices, by reducing the
currency, will operate in diminishing the public expenditure.
number six.
The views we presented in our last article are founded on cal¬
culations that are in a great degree conjectural, although their
basis is indisputable^ It cannot admit of denial, for example,
that prices both rise and fall in a higher relative proportion than
the currency is expanded or contracted. It may be difficult to
adjust these proportions with any exactitude, but that they exist
is practically true, if not explicable on theory. We have, for
simplicity of statement, not considered to what extent the prin¬
ciple. that prices rise and fall in a higher degree than the cur¬
rency is increased or diminished, admits, in its application to the
public expenditure, of being modified, as it is much a subject of
conjecture. The assertion that the expenses of Government
allow of reduction in a certain relative proportion to the fall of
prices, is undeniable; yet it is true only to a certain extent. All
that portion of the public expenditure in which money is applied
to the purchase of military and other supplies is reduced in pre¬
cise proportion to the fall of prices, while all that is employed in
the pay of the civil and military departments is not subject to
this principle, for the amounts are fixed for certain periods, and
do not fluctuate with the changes of the currency. The propor¬
tions of that expenditure devoted to these different branches of
pay and purchase, are susceptible only of approximation. If we
imagine it to be nearly equally divided, we should have some rule
on the subject. Let us then suppose that the currency being re¬
duced one-fifth, and prices having fallen one-third, the public
expenditure would be diminished one sixth. On this supposi¬
tion we will assume some fixed sum for taxation and the expen¬
diture in some year previous to 1864, say 1S63, as the basis of
calculation.
iifistimated Expenditure for i8#4.
Estimated Expenditure for 1864 $600,000,000
] {.eduction of'Expenditure one-sixth 100,000,000
$500,000,000
Produce of Taxation (estimated) 200,000,000
Deficit $300,000,000
If, to obtain this sum, bonds are sold at 25 per cent, discount,
33^ per cent, premium, tlie sum funded would be $400,000,000,
and the annual interest at 6 per cent., $24,000,000. It is evi¬
dent, therefore, that the increase of principal and interest on any
sums funded for the public service will be in proportion, 1st, to
the amount required for that servicee; 2d, to the rate of dis¬
count on a public loan imperatively required for that service.
It is by the due combination of Taxation and Funding that the
wants of the Confederacy are to be supplied in the present finan¬
cial exigency. Supposing the limit of taxation to have been
reached, beyond which there would be too great a strain on
present resources, then th % future must share the burthen. The
policy of a gradual reduction of prices and that of a deferred
debt is dictated by present circumstances. We have suggested
the present funding of $100,000,000 of Treasury notes, and
which would lead to a certain reduction of prices and of govern¬
ment expenditure. Upon the extent of that expenditure will
be the demand for loanable capital, while upon the terms by
which it can be obtained will be the extent of the burden on
the future, by the increase of funded debt, and on the present
generation, by the increase of annual interest. These are the
two extremes to be shunned, i. e., of too little or no diminution
of our floating debt and too rapid augmentation of our funded
obligations. If the first is too rapidly reduced—if we lessen
with too much rapidity the circulating medium, which with us
is in the form of Treasury notes, we extend the funded debt by
requiring larger sums on loan with increased rates of discount,
and consequently augment the burden of annual interest.
Probable Amount of Unfunded Debt if a Proper System of
Funding and Taxation Had been Instituted.
It is highly probable when our unfunded debt had only
reached $300,000,000, that a loan could have been obtained on
the terms indicated,^', e., 25 per cent, discount, if it had been
accompanied by adequate taxation, at the rate of 10 per cent,
on gross income. This was not done; neither funding nor taxa¬
tion was made effectual. The unfunded debt was suffered to
23
accumulate. It has reached $500,000,000. The inducement to
subscribe to a loan of $500,000,000 at par, or 25 per cent, dis¬
count, no longer exists. It must be made stronger, because the
debt is larger, and discredit has attached, by neglect of proper
measures, to sustain the credit of the Government. It may be
po#sible to obtain a loan that will yield an interest to investers
of 10 to 12 per cent, per annum. But whatever be the gain or
benefit to capitalists, the necessity is such to fund at least a por¬
tion of our Treasury note currency, without loss of time, that
bonds having twenty years to run, and carrying 6 per cent, in¬
terest, should be placed on the market, bringing any price short
of a total sacrifice.
We have suggested that not more than one-fifth of our Trea¬
sury note debt ($500,000,000) should be funded during the fiscal
years 186^ and 1864. But we have no idea that this can be ef¬
fected at a less rate of discount than 50 or 60 cents in the dol¬
lar. Let us suppose that we fund three hundred millions at a
discount of 50 per cent., augmenting the principal of this por¬
tion of the funded debt to $600,000,000, paying an annual in¬
terest of $30,000,000, and yielding 12 per cent, per annum. The
Treasury would be willing to fund the whole amount of our un¬
funded debt, ($500,000,000) at 6 per cent., paying thirty millions
in annual interest. The difference in interest would be six mil¬
lions. But let no provision be made to fund any portion of the
outstanding Treasury notes, and the deficit should- be supplied
by fresh emissions, there being, at the same time, no increase of
taxation, the unfunded debt augmenting in the same ratio, as in
the first two and a half years of the war, prices increasing in a
corresponding ratio, as, in the same time, and while the floating
debt will have augmented during the fiscal year 1864 to between
seven and eight hundred millions, prices will have advanced
from twenty to thirty, and perhaps fifty fold, with the Govern¬
ment expenditure proportionately increased. It follows that,
when funding takes place at the end of the war, the principal
of the entire debt will be as large, if not larger, that if we fund¬
ed now at any price for which money can be obtained, if- it is
virtually equal to 10 to 12 per cent, per annum. It appears,
therefore, that there are but two alternatives presented—the in¬
crease of taxation, or the increase of the principal of the funded
debt. To augment taxation beyond 10 per cent, on gross in¬
come, we have endeavored to show ought not to be attempted.
Confederate, with State and Municipal taxation, and the high
price of provisions, the advance in labor, leaves the only option
we have suggested, shifting a proportionate share ot the burthen
24
6h those who will be better able to bear it, froto resuscitated
capital and reinvigorated energies.
Maximum Rate of Interest.
We have suggested 6 per cent, as the maximum rate of inter¬
est, because it permits the benefit to be derived from a fall in the
loan market, and the consequent reduction in the rate of interest,
not by a coercive policy, but by previous stipulation, at such
periods as will'be in consonance with the public interest. If the
rate is fixed higher than 6 per cent., as the market rate is rarely
under seven, there will be few or no opportunities of effecting a
saving to the public by borrowing on lower terms than the Gov¬
ernment may be paying. Mr. Pitt precluded himself from ob¬
taining money at a cheaper rate than he was borrowing by fund¬
ing in stocks, at no higher rate of interest than 3 per cent. He
was frequently paying off* loans with one hand while he was con¬
tracting debt, at a higher rate, with the other.
The peculiarity of having stocks carrying different rate of in¬
terest, should no longer form a feature of our fiscal system.
Public stocks should bear the same rate of interest. A differ¬
ence, according to dates of issue, with other diversities, opens the
door to speculation and discredit. Mr. Mivnminger, by the va¬
riety of his Treasury note system, has made the stocks he created
present a kind of financial sliding scale. The holders, whose
bonds bear a higher rate than 6 per cent., should be compensated
by an increase of principal, as was done by the British Govern¬
ment when it consolidated its debts, bearing various rates of in¬
terest, into the 3 per cents. It would form but a small addition
to the capital of the Confederate debt, while it would contribute
to general convenience by simplifying the public accounts.
Probable Increase of the Funded Debt.
In assuming our figures for the reduction of the currency, the
diminution of the pifblic expenditure and the probable rate of
discount to supply a deficit in the Treasury, they are designed,
we must repeat, for the purpose of illustration, and not as exact.
They are liable to change from variation in either of these ele¬
ments, to-wit—the greater or less increase in the produce of
taxation, augmenting or diminishing any deficit; the higher or
lower rate of discount on any loan required for the wants Qf the
Government, with the greater or less reduction of the currency.
We have assumed one-third for the reduction of the circulating
medium and one-sixth for that of the annual expenditure. The
latter may be in a higher proportion than we have stated, as¬
signing one-half that expense to the purchase of supplies, trans¬
portation, &c., for the army—it is probably in the proportion of
2o
three-iiftiis, but as it makes only a slight difference in the result,
to avoid complexity of statement we have adopted the propor¬
tion of one-half of the whole expenditure for the purchase of
these supplies, &c., reducing the expenditure from six hundred
to live hundred millions.
It is evident on the least reflection that the amount added to
the principal of any funded debt created by borrowing must
bear a relation to the rate of discount on any loan required for
the public service, as well as to the amount of any deficit. If
the deficit is three hundred millions and the rate of discount on
the bonds or stocks issued by the Government is HO per cent.,
the increase of funded debt will be six hundred millions, and
the interest at 6 per cent, thirty-six millions. If the rate of
discount is higher, the produce of the taxes being the same, the
funded debt and the amount of annual interest must be propor¬
tionally augmented, and if the produce of the taxes is lessened,
if the rate of discount remains the same, so will be the increase
of the funded debt, or in other words, the reduction of the float¬
ing debt. It is not probable, however, that as the currency
becomes diminished that the rate of discount on any loan re¬
quired will be increased. The probability is the other way.
Let us put an extreme case i. e., that the rate of discount is 50
per cent., and the amount required to cover any probable deficit
$500,000,000, the amount being $1,000,000,000
The interest at 6 per cent, would be.. $60,000,000
We must not omit the interest paid
on the existing funded debt about.. 30,000,000
$90,000,000
If it should be concluded to fund $100,000,000 annually of
Treasury notes the unfunded debt will be curtailed in a greater
proportion than there can be any probable increase of interest
on the new funded debt, from a higher rate of discount on the
bonds or stocks issued. This is attributable to two causes: 1.
To the inherent force of the principle that as prices advance in
a higher ratio than the circulating medium increases, so they
fall in a,greater ratio than the currency is curtailed; 2. To the
reduced rate of discount on borrowed capital for public service,
from the diminished scale of Government expenditure, the
smaller sums required and the adoption of an efficient scheme
of taxation.
2d
The Confederate Finances.
NUMBER SEVEN.
Sinking Fund.
We liave reached that branch of our subject which relates to
a provision for the liquidation of the War debt. The usual ex¬
pedient for this purpose is a Sinking Fund. The imposition of
taxes to form a fund which, invested, is expected to accumulate
at compound interest, to extinguish a public debt, is one of those
delusions that has taken firm root in the minds of statesmen and
financiers. It had been in a great measure dispelled. As re¬
gards this method of discharging public debts, the history of such
funds shows that they are appropriated to other uses whenever
the financial exigencies of governments suggested the conveni¬
ence of their diversion to different purposes. Even if they are
faithfully applied to the ends designed, the principle on which
they are founded involves the fallacy, that public debt can be
discharged by any other means than a clear surplus of revenue
over expenditure. If a people will submit to additional taxation
to create such surplus, there can exist not a shadow of doubt that
a public debt can be liquidated as rapidly as it is created, but
the appropriation of a sum to discharge such an obligation in¬
volves the further fallacy, that by placing a sum at interest it
will yield a higher return 011 the investment than if it remained
in the hands of the people to be employed yielding 10 per ct. per
annum. If the city of Atlanta owes a debt of $1,000,000, and is
resolved to create a sinking fund of $100,000, on which, being thus
employed, they derive 7 per cent, net income, the investment of
this amount in securities, drawing the same rate of interest,
there would be loss if there was any expense in the manage¬
ment of the fund; but if in a succession of years the invested
fund yields only 5 or 6 per cerit. there would, of course, be ab¬
solute loss.
This case actually occurred in the city of Charleston, where
an investment had been made by the City Council in bank stock,
which yielded in an average of years only 5 per cent., while the
city was paying on its funded debt 6 per cent.
The only efficient mode of liquidating a public debt, unless
the people choose to be so taxed as to create a surplus of reve¬
nue beyond expenditure, is to discharge the obligation by bor¬
rowing, in favorable periods of the loan market, at lower rates
of interest than they are paying, and thus extinguish a former
debt by a new one. It was in this mode that the British gov-
ernmont paid off the holders of the Navy 5 per cents, by com¬
pelling them to accept an interest of 4 per C3{it., the interest of
27
friohoy having fallen to that rate. On the creation of fresh
public debt the government should reserve the privilege of dis¬
charging the whole or any portion of a loan at stated periods,
say every iifth year. This would be the true Sinking fund.
The Confederacy has no Sinking Fund.
The Secretary of the Treasury has proposed no scheme of a
Sinking fund in any of his Reports. He, in fact, has condemn¬
ed the policy of establishing one, and his views appear to have
received the silent acquiescence of the Finance Committees of
both Houses. The Confederacy has, therefore, no Sinking fund.
It is a part of the financial policy, however, of the State of
Georgia. The idea associated with Sinking funds, that they
enable governments to borrow with more facility than without
such a device, is fallacious. It is not so much the assurance of
re-payment of the principal, as that the interest will be punct¬
ually and regularly paid, that sustains the value of public secu¬
rities, and facilitates their negotiation, with the consciousness of
the final re-payment of the principal. Mr. Memminger, while
withholding his assent from the principle of a Sinking fund,
recommended the payment of instalments at short periods, in
his report of 10th January, 1863, i. e., the payment by in¬
stalments at each period of six months of the entire war debt,
on the plan of the 8 per cent. 100 million loan.
This was as unsound in principle as it would have been incon¬
venient in practice. There are, we must repeat, two extremes
to be avoided in finance, in the circumstances in which we are
placed, 1. The neglect to provide, in due season, the means for
the reduction of a circulating medium, in excess, by combining
taxation with a proper system of funding. 2. Its too rapid re¬
duction after it lias been inordinately extended. Mr. Memmin¬
ger seems conscious in theory of the mischief of a too rapid
reduction of the circulating medium and decline of prices, yet
his recommendations for the rate of reduction of our war debt
violate that principle. Now, should any such plan of relief as
has been suggested in these articles meet acceptance, for we feel
assured that one which will be effective must embrace the prin¬
cipal feature of that plan, i. e., placing bonds on the' market to
be sold at the best price that can be obtained, its execution
would necessarily be entrusted with the chief of the Treasury
Department. Let him avoid any such plan as the too rapid re¬
duction of the war debt.
True Mode of Paying oif a Public Debt.
In the plan of fiscal relief we have proposed we are aware
that we run counter to the established practice of financiers and
28
statesmen, in suggesting the increase of the principal of4 a public
debt, to meet a financial exigency. But, as we have said, the
Confederacy is in a peculiar position. The ordinary principles
of finance are not applicable. War makes its own rules in the
practice of nations. The pecuniary disorders incident to such a
period, if growing out of a depreciated paper currency, are not
to be cured by remedies suited to a healthy condition of the cir¬
culating medium. We have augmented our floating obligations
in the form of a Government paper money so largely that there
is no mode of reducing it (having gone as far as prudence dic¬
tates by the imposition of taxes) except by fnnding on terms
and conditions that render indispensable the conversion of un¬
funded into funded debt for more than its equivalent, largely
increasing the amount of revenue we have to raise for interest,
and throwing on the future an increase of pecuniary burthen.
Our case is similar to that of the embarrassed Merchant, who by
the mischances of trade or his own imprudence, resorts to the
usurer, to prevent the destruction of his credit and bankruptcy,
for temporary relief. In the ordinary course of business, to pay
usurious rates for the use oY money would plainly violate the
maxims of mercantile morality. His justification would hold
good if he vindicated himself on the plea of an exceptional
state of things. On the same ground the Southern Confederacy
would be vindicated if it shifted on the future its distributive
share of the cost of this war.
Probable Expenditure and Fiscal Resources of the
Confederacy during the War,
NUMBER EIGHT.
In the views we have presented of the Finances of the Con¬
federacy, we have urged the policy of combining Taxation and
Funding on such principles as will not impair its productive re¬
sources, while it will be commensurate with the wants of the
government, and adequate to the reduction of the large volume
of the currency. That Internal taxation slitmld not trench on
our productive capacities we have stated that its maximum ought
to be ten per cent, per annum, whether during the war or atter
peace is re-established. The project of raising by taxation from
six hundred to one thousand millions of dollars, in this mode,
whether by impost 01* forged loan, giving Confederate bonds,
payable at long periods, as the equivalent for such loans,, must
be dismissed as involving too great a present sacrifice. The
most moderate of these plans proposes to raise $500,000,000 by
29
taxation, which would amount to 25 per cent, on the gross in¬
come of the South or 4 per cent, on the whole estimated value
of its property, if it assumed the form of a property tax. It is
almost needless to observe that the suggestion which has been
made to raise one thousand millions of dollars, being 50 percent,
on that gross income, or, if, assuming the form of a property tax
eight, per cent, on its estimated value, would too largely lessen the
fund for the maintenance of labor.
Mr. Memminger, in his Report of the 10th of January, esti¬
mated the gross income of the eleven Confederate States, based
on a valuation of its property made under the census of 1860.
That valuation was in round numbers $5,000,000,000. Mr.
Memminger made a deduction of $1,000,000,000 for the waste of
war and the occupation of part of our territory by the enemy,
but omitted to embrace income from the profits of trade, salaries
and professions in his recommendation of an income tax. Let us
add one hundred millions on this account. This would have
made the valuation $5,000,000,000, and the income at 10 per
cent., which he proposed, $500,000,000, before the war, under
the census of 1860. The war having, from the redundancy of
the currency, added, in nominal amount, about four-fold to in¬
come, has augmented it in that proportion, i. e., to $2,000,000,-
000. If the amount of the taxes imposed for the present fiscal
year is $200,000,000 the rate would of course be 10 per cent.
We have assumed on the basis that internal taxation during
the years 1863-'64 will yield annually $200,000,000—that we
may have to submit to a rate of discount of 50 per cent., on such
loans as we may put on the market, and that if the deficit
should be $400,000,000, we shall be compelled to increase our
funded debt, in addition to the present amount of that debt, in
the sum of $800,000,000. But in the event of the deficit being
larger from the falling.off in the estimated produce of internal
taxation or the increase of expenditure, we have supposed the
deficit to reach $500,000,000, and that we may, at the same time,
have to obtain capital at so high a rate of discount as 50 per ct.,
augmenting the funded debt by $1,000,000,000, and paying an
annual interest of $60,000,000 on the debt thus created, in addi¬
tion to the interest we are now paying.
If the war continues two years longer, the reasonable presump¬
tion is, from the mutual exhaustion of the parties, that the military
expenditure of the Confederacy will be largely reduced, and
that, concurrently with the improvement of the currency, the
sum raised by internal taxation, at its present rate, will dis¬
charge thi interest of the funded debt (both old and new) and de¬
fray the current expenses of government. Let us make an
30
approximate estimate. The present annual expenditure of the
Government, is computed to be $600,000,000, which by the
fall, in two years, of 50 per cent, in priees, would reduce the
public expenditure to $300,000,000. If to this source of reduc¬
tion is added a moderate decline, say $100,000,000, annually, in
the expenses of the army, it would bring the interest on the
whole funded debt (old and new), allowing it to be as large as
$100,000,000 annually, within the fiscal resources of the Trea¬
sury, but without any reduction of that expense within the tax¬
able means of the Government, at the present rate of taxation.
"We are of the opinion that the expenses of the Government
from the redundancy of the currency, has increased since the
commencement of the war, four fold if not live fold to what
they would have been but for such redundancy. At the com¬
mencement of the war the expenditure was $100,000,000. In the
second year of the war it had increased to $350,000,000. In the
third year it has augmented to fully $600,000,000. With the
decrease of active hostilities, if there is no peace, this expendi¬
ture will necessarily be reduced from the diminution of our mil¬
itary force, which will, with the improvement of the currency, if
an efficient plan is adopted for the purpose, bring the whole ex¬
penditure within the entire fiscal resources of the Government.
The above results will be varied, of course, on a change of
the figures on which the estimates have been made. If, for ex¬
ample, the produce of the taxes should be less, or the rate of
discount on the sums borrowed for public service be greater
than assumed, the deficit, and, consequently, the funded debt
will be increased, the rate of taxation continuing the same. If
the produce of taxation for the present year does not exceed $100,-
000,000, the rate on the basis we have assumed for the present
nominal valuation and annual income, would be only 5 per cent.
Double the rate would, of course, produce $200,000,000.
Probable Expenditure and Fiscal Resources on the Restora¬
tion of Peace.
Other and quite different financial arrangements will take
on the return of peace. It is vain even to conjecture the char¬
acter and extent of the land and naval forces that may be found
expedient for the maintenance of our independence after it is
acquired. It is impossible, therefore, to compare public income
with expenses in the future. But we may approximately estimate
the probable extent of our fiscal resources, and, deducting the
amount we shall have to pay for interest, ascertain, on probable
data, what will remain for current expenditure. $
If we estimate the average value of our exports for the first
31
two years after the war at $300,000,000, allowing the quantity
of cotton exported to be three million bales, worth $100 per
bale $300,000,000
Other exportable products, usually about one-
third 100,000,000
$400,000,000
Let us suppose an export duty of 5 per cent, on this
value $20,000,00
The imports are always assumed to be equi¬
valent to the exports, which at a duty of
20 per ct. would yield. 80,000,000—$100,000,000
A tonage duty on foreign shipping would yield some addition
to the revenue from commerce, but the data are too uncertain
for an estimate. It would range probably from $5,000,000 to
$10,000,000. The above sum would more than cover the annual
interest on a funded debt of $1,500,000,000, (one thousand mil¬
lions at 6 per cent., and five hundred millions at about, on an
average, 7 per cent.,) making the whole amount of interest
ninety-five millions, and leaving the entire produce of the inter¬
nal taxes to defray the current expenditure. If we suppose that
expenditure to be equal to $50,000,000, which ia a large al¬
lowance, it would not constitute a burden of more than one-
fourth apparently of the estimated present charge on the pub¬
lic from internal taxation, but in reality thp same amount of
charge, constituting an impost of about 10 per cent, on gross
income assuming that income to be $500,000, on a valuation of
all the property in the Confederacy before the war of $4,000,-
000, and the income from profits of trade, professions and sala¬
ries at one-fourth more, or $1,000,000.*
It will thus be seen that our financial resources are ample,
both during the War and, after it, to pay an interest(;of 6 per
cent, on a funded debt of $1,500,000,000, and defray every nec¬
essary expense in maintaining our independence.
*8hould the figures assumed for the amount and value of the exports be deemed
too high, they admit of being- reduced, and our fiscal resources will still be commen¬
surate with the wants of the Government. If the cotton crop, and other exportable
products fall short of our estimate, one hundred millions of dollars, we would have
only slightly to increase the rate of duty on the imports, and impose a moderate duty
on tonnage to effect the result. Should the value of the exports and imports not
exceed three hundred millions of dollars, the exports, at 25 per cent, rate of duty
would produce $75,000,000
An export duty of 5 per cent 15,000,000
Duty on Tonnage 5,000,000
$95,000,000
This, it will be seen, is the sum that will be required to meet the interest on a
funded debt of $1,500,000,000, leaving the current expenses to be provided for by
internal taxation.
32
Summary and Recapitulation*
NUMBER NINE.
Having brought this financial inquiry to a conclusion we pre¬
sent below a summary and recapitulation of the chief points of
the plan and reasoning by which it is sustained :
1. That the Confederate currency being greatly in excess, and
taxation having reached its limit, (looking to the preservation of
the means of reproductive investment,) the only alternative left
is funding this excess on the best possible terms.
2. That the only means of funding that promises success is
in jplacing bonds, carrying 0 per cent, interest, having twenty
years to run, on the loan market, to be sold at the highest price
obtainable, under open competition.
3. That as an additional inducement to moneyed capitalists,
provision should be made far paying the interest semi-annually,
secured by a specific pledge, to be considered a lien, on some
branch of the revenue from internal taxation.
4. That funding $100,000,000 of Treasury notes annually
. (being one-sixth of the entire present amount) prices will be re¬
duced in a higher ratio than the circulating medium, according to
that law or principle by which prices are enhanced or decline in
a greater proportion than currency is increased or diminished.
5. That by the operation of this law or principle, as public
expenditure bears a certain proportion to the purchases of the
Government, we have assumed one-sixth, or $100,000,000 in
$600,000,000, as that proportion.
6. That on every rational calculation we may conclude that
on the currency being reduced one-sixth, public expenditure will
be lessened one-fourth, or from $600,000,000 to $450,000,000.
If prices should decline in a higher ratio, i. e., one-third, the ro-
duction of prices and the expenditure will be correspondingly
increased.
1. That on the supposition of the produce of the taxes being
$200,000,000 for the present fiscal year, and the expenditure
$600,000,000, the deficit being $400,000,000, if 6 per cent, stock
is placed on the loan market it may not sell on better terms for
the Government than 50 per cent, discount—in other words, to
obtain $400,000,000, we shall have to issue bonds or stocks
amounting to $800,000,000, yielding to the invester 12 per cent,
per annum. That at this rate of return foreign capital, it is
confidently asserted, will be attracted to these bonds for invest¬
ment, more especially if the interest is payable semi-annually,
secured by a lien on some branch of the revenue from internal
taxation, and exempt, principal and interest, from impost in any
33
shape. One of the great advantages of the plan, in fact, tte
have offered is its tendency to draw foreign capital to the Qon-
federacy, and, consequently relieving our own capital for more
productive uses. This is especially important since the waste
and destruction of property by the war. This feature is not em¬
braced in any other of the plans submitted to the public.
8. That the interest on the funded debt and the principal
created .br this scheme would be in proportion. 1. To the
deficit in the revenue, and 2. To the rate of discount on the
bonds or stocks placed on the loan market, but that if a com¬
mencement is made by reducing the circulating medium one-
sixth, or $100,000,000, the additional interest on the new funded
debt created (even if the interest is added to that of the exist¬
ing funded debt,) will not exceed the reduction of the unfunded
debt, unless the deficit should exceed $600,000,000, of which
there is no probability.
9. That the rate of interest to be paid by the Government
should not exceed 6 per cent, per annum, as the limitation will
permit a reduction of the principal of the funded debt by stip¬
ulating te pay off the whole or any part of that debt at stated
periods, by entering the loan market and creating a new debt
at a less rate of interest than is being paid on the old or existing
debt.
10. That by the inherent force of the principle that prices
fall in a greater ratio than currency is reduced, there is a cor¬
respondent reduction on that part of the public expenses con¬
sisting of purchases by means of Government paper money.
11. That by the operation of the above principle, prices and
expenditure diminishing more rapidly than the circulating me¬
dium lessens, any deficit in the Treasury will be supplied at a
constantly reduced rate of discount on public loans, from the
diminished wants of the Government, and that if the necessity
should exist on the first year of the commencement of the plan,
to obtain a loan at so high a rate of discount as 50 per cent,
there is every probability that in the second year the rate will
fall to 25 per cent, discount, and that on the third year, if not^
sooner, a loan would Le obtained at par.
12. That founding our estimates on the probable present
yield of internal taxation, the probable rate of discount for such
supplies of money as would be necessary to make up a deficit,
should the war continue two years longer, the reduction of prices
and public expenditure, would render our fiscal resources com¬
mensurate with the wants of the Government during the war, if
even we have to increase the funded debt to the sum of $1,500,-
00®,000, and that on the re-establishment of peace, the income
from duties on exports and imports would discharge the interest
3
o4
oti the funded debt, leaving the curretifc expenses of the GoV-
errftnent to be defrayed by moderate internal taxation.
The Confederate Finances.
NUMBER TEN.
There have been a variety of plans of relief proposed that
have emanated from intelligent sources, on a few of which, that
have attracted most public attention, we are desirous of offering
a few remarks. Most of them are pervaded by this error, that
they offer too feeble inducements to moneyed capitalists. They
seem to conclude that the same motives would govern investers
as would influence them when a high degree of discredit did
not attach to our financial position, and that one hundred mil¬
lions was the amount of floating securities instead of six hundred
millions. Mr. P. Clayton, of this State, has presented a plan.
It proposes a loan of credit on the part of Georgia, without
waiting for the co-operation of the other Confederate States, by
the issue of stock to the amount of fifty millions of dollars, car¬
rying 7 per cent, interest, which being sold, he is of opinion will
bring 70 millions of Confederate money, 40 millions of which
he proposes to loan the Confederacy, without interest, indefinite¬
ly. lie is of opinion that this scheme will retire 100 millions of
Confederate paper money, and lead to substantial relief. It is
our opinion that it would be of limited effect. The sum pro¬
posed is too small, affording no means of preventing re-issue of
notes for unavoidable expenses, and at the end of three months,
unless there is increase of taxation, which is not feasible, the de¬
ficit in the Treasury will be as large as ever.
Gov. Morehead's and Mr. MeParland's Plan.
Ex-Governor Morehead, of North Carolina, and Mr. McFar-
land, a highly intelligent President of a Richmond bank, have
presented plans. They are in their main features substantially
alike. On the plan of the latter, the Committee on Finance in
the Virginia House of Delegates have made a favorable report.
* The' amount that these plans propose to raise, $400,0000,000, is
large enough, but is to be effected by the co-opera:tion of the
States, the people and the corporations. If the appeal to the
people is answered, such a scheme, without the co-operation of
the States, would be effectual, but would consume much time,
and if it fail the loss of time would be irreparable. The assent
of Virginia, who it is proposed should subscribe $75,000,000, is
made dependent on the condition that the other States subscribe
a proportionate amount. The concurrence of a large number of
corporations would be also difficult, and the loss ot time would
be felt here also as a serious objection. In that part of the plan
35
that appeals to interest, the inducement is not sufficiently strong.
Interest at 6 per cent, will not attract investments. Less than
8 or 10 per cent, would be, we think, insufficient. That part
of the scheme proposing the security of the interest by export
duties, promises a guarantee too remote and contingent. The
war may continue many years. The interest on any loan ob¬
tained from the general public, must be secured by a specific
lien on some branch of internal taxation. It must be some¬
thing in the present and not the future that will attract moneyed
capital.
Plan of "M." of the Columbia, S. C., Carolinian.
A plan that has drawn much public attention is one that has
appeared in the Columbia, S. C., Carolinian, signed "M." on
which we have already offered some remarks. The principal
feature of this plan is to offer inducements, the interest being t>
per cent, per annnum, to subscribe to a loan of 1,000,000,000,
that one-half the taxes it proposes to be raised (120,000,000)
should be paid in specie or conpons, the bonds not to be sold
above par.
The objection to this plan is that 6 per cent, per annum docs
not present a sufficient inducement to invest. It provides for
the payment of the interest in coin, and the premium on gold
will constitute an addition to the interest received and in pro¬
portion to the premium, until the currency is restored to its
normal condition. After this is effected the rate of interest
will be only 6 per cent. The plan if it effects the reduction of
the currency in one year, or in a less period, will be too sudden
in its operation, and cause a rapid revulsion of prices. This is a
serious objection. Prices are required to be reduced as rapidly
as is consistent with safety, but a more gradual reduction than
this'plan promises is desirable. It-is evident that as the inter¬
est is to be payable annually, if the loan is taken within one
year, that the currency having been brought back to*the stand¬
ard, the premium on specie will disappear, and, consequently,
that interest at 6 per cent, per annum, will present the sole in¬
ducement to make investments in the loan.
Mr. Gregg's Plan.
Mr. Gregg, at the solicitation of Mr. Memminger, presented a
scheme of relief, the leading idea of which was to raise revenue
by a species of forced loan, in the form of a tax, of 25 per cent,
on all the property in the Confederacy, the tax payers to re¬
ceive bonds carrying 7 per cent, interest, as an equivalent for
the loan and to pay their taxes in a note instead of money. It
was the opinion of the author of this scheme, that on these tax
notes, having for collateral security the bonds, money might be
3(5
raised anywhere. If the fatal objection did not lie against it,
that it would b3 too great a charge on income, (being 50 per
cent, on the present estimated income, or 5 per cent, on capital
assuming its nominal value to be four times greater than before
the war,) the exchange of the bonds of the Government for the
notes of individuals, would be the conversion of one description
of bad paper for another, and would not be worth any more,
while the complicated character of the scheme would render it
impracticable. Seven per cent, is too low a rate of interest, be¬
sides, if there were no other objection.
Forced Loan.
Among the diversity of plans for financial relief that of a
forced loan begins to find favor in certain quarters, in other
words, compelling the citizens to submit to a heavy impost, to be
called a loan, and thus to force them to fund Treasury notes in
Confederate bonds or stocks. The reasoning by which the
scheme is maintained is founded on a false analogy. A compari;
son is instituted between the Conlederate modes of raising men
and money. The voluntary system was tried to raise and re¬
cruit our armies. • The system of compulsory enlistment was
the resort of necessity. Without conscription we would have
been subjugated. The plan of voluntary loans has been tried.
It has failed. A compulsory loan, like compulsory enlistment,
it is alleged, is also a necessity, for without it the government is
threatened .with bankruptcy, and the people of the Confederacy
with universal pecuniary distress. Such is the argument. The
error in reasoning lies here, that to procure men to fill our rank
and file we had only a limited field (the fighting population of
the Confederacy) from which to raise and recruit our armies.
To raise money we may have the loan market of the world, if
we choose to offer sufficient inducement.
But let-us concede for the moment that the parallel is just,
aud pursue this plan of raising money by compulsion to its cer¬
tain results. The idea of taking from the people the whole sum
necessary for the annual expenses of the Confederacy until the
inflated volume of the currency is reduced to healthy limits, in¬
volves an abstraction of capital from productive employment
that no country has experienced without serious injury to its
resources. The present annual expenditure of the government
is §(500,000,000. To extract this sum from the people within
the same period that it is wanted for expenditure would so di¬
minish the fund for the payment of labor as largely to lessen the
productive capacity of the whole country. The computed value
of all the property in the Confederacy at the time Mr. Mem-
minger sent his report to Congress, on the 10th January, 1863,
31
Was $4,000,000,000. If we add $100,000,000 for income from
other sources, it will make the aggregate income $500,000,000.
So that allowing for a four fold increase of income, from the re¬
dundancy of the currency, an impost that would yield $600,-
000,000 would on the present valuation of property and income
constitute a burden at the rate of 30 per cent, on income and 3
per cent., if imposed on capital.
^ But if this objection did not stand in the way, the practical
difficulty, if not impossibility, of putting such a plan into exe¬
cution would present an insuperable objection to it. To provide
the means of meeting the requirements of a forced loan equal
to 3 per cent, on our entire property would throw large masses
of it on the market. Sacrifices would e»sue, capitalists would
obtain possession of real estate as well as personal property to
an unheard of extent, making the rich richer and reducing those
in middling circumstances to poverty.
All such schemes are revolting to our people from their coer¬
cive character. The military resources ot tne Confederacy may
be recruited by forcing the rehictant into the' armies, but there
is a limit to a compulsory fiscal policy, as we find in the in¬
creasing popular opposition to the Impressment law. If there
were no other alternative, in the failure of funding by volunta¬
ry loans, the plea of necessary coercio* might be valid ; but let
us first, before we lessen our productive power, exhaust our
other methods of obtaining money.
It has been urged in favor of a forced loan that taxation it¬
self is not voluntary but compulsory. It might with equal
propriety be urged that law and government are in restraint of
natural inclination as that taxation is coercive. The question
of degree is of importance here. A certain amount of pecunia¬
ry burden may be submitted to from the dictates of necessity or
of patriotism, while one that involves a large sacrifice may be
resisted, and even produce revolt. If this is connected in the
public mind with the conviction that other methods exist by
which loans for the public service may be obtained, and that
they should be first tried before a resort is had to modes of rais¬
ing money for public use that are coercive, it will be difficult if
not impossible to reconcile a people whose habits are those of
freedom to the necessity of forced loans attended by great pecu¬
niary sacrifices. A method is open by which not only a large
portion of the excessive paper currency may be absorbed, but
foreign capital will be attracted to the South by presenting a
sufficient inducement. That inducement will be afforded I>y
placing Confederate bonds on the loan market, and pledging the
public faith to the punctual payment of the interest semi-an¬
nually, leaving principal and interest untaxed.