The Currency at the Outbreak of the War.

No year in American history has been more prosperous than was the year 1860. The cotton crop of that year was unprecedented, reaching 4,600,000 bales. The grain crops, although not so extraordinary, were very good. After the election in November the attitude of the Southern States created great anxiety in commercial circles. Business was contracted, imports declined, and finances were arranged in anticipation of a coming storm. Foreign exchanges fell, and gold began to be imported, prices being low and imports suspended.

During the winter, the Southern members of Congress took their departure, and, after the inauguration of President Lincoln, increased revenues being required, the tariff was revised. The opposition to protection being withdrawn, this tariff revision, undertaken for revenue, was carried out in the interest of protection, and in a manner hostile to revenue, thus weakening the country at the very moment when it needed its utmost strength. This result being at once experienced, an effort was made at the extra session of Congress to secure a modification of the protective features, but without success. The country was once more embarked on the protective policy, which received an extension in the following years unexampled save by the most unenlightened nations on earth.

The opinion being circulated that the war was to be short, and that the people would not submit to taxation, the financial measures of the session were confined to the provision for 50,000,ooo of demand notes, 250,000,000 of 7 3/10 Treasury notes to run three years, and a six per cent. loan of 250,000,000 to fund the Treasury notes. A property tax was apportioned amongst the States, but part of it was repealed as impracticable, part was paid by charges for sums expended in fitting out troops, and it produced no active revenue to the general government. Its nett result was to establish the machinery which was afterwards used in collecting internal revenue.

The people were in the meantime contracting their expenses, closing up their engagements, practising economy, and in general adjusting their affairs to war circumstances in the manner which common-sense dictated. The banks were in a conservative position, and the weak ones were strengthening themselves to the utmost of their ability. The imports were small and the exports large, for, although cotton was no longer an available export, the grain crop was large and sold at good prices. The exports of merchandise exceeded the imports by 67,000,000, and the imports of specie exceeded the exports by 16,000,ooo. This movement began in November, 1860, and lasted until December, 1861. Evidently the natural laws which bring to every financial situation its own cure were here in full operation. In the fall of 1861 the government borrowed IOC,000,000 in gold of the banks, in two instalments, and 50,000,000 more in its own paper.

Such was the situation when Congress met in December, 1861. Never did any man have such an opportunity to win immortality as a financier as was now offered to Mr. Chase. The situation had at this moment few difficulties. The people were less sanguine that the war would be short than they had been in the previous summer. They had contracted their expenses to the lowest point, and production was reduced to the necessary supply for consumption. They held their disengaged capital ready to the demand of the government, if it should act with promptness and decision, and support its own credit. Nor was it the capital of the country alone which was available. War taxes must and always do trench upon income. It was the active productive power of the nation, which might be turned to war making, which was the great resource. The nation was not only willing to be taxed, but itself understood generally that only when it was being taxed could it give full credit to its own paper promises. The Congress, moreover, was ready to give to the Secretary all he asked. If he had been the minister of the Czar he could not have disposed more absolutely of the national resources. All that was needed was a firm, clear, bold policy, showing that he understood himself and the situation.

The Treasury report presented no such policy. It did not take the lead at all. It discussed government paper disparagingly, suggested a national banking system tentatively. It only showed that the nation was drifting into financial embarrassments for want of a policy. The real financial question of the day was: whether we should carry on the war on specie currency, low prices, and small imports, or on paper issues, high prices, and heavy imports. The alternative was not understood because no one distinctly comtemplated the latter course, but it was sure to be the result of drifting under no policy.

The complications with England about the Trent case came upon the reaction of disappointment at the message and report, and in December gold began to be exported. On the 17th of that month the New York banks stoutly resolved that suspension was unnecessary, but the drain upon their gold went on as follows:

From this time it began to increase again, and was 30,000,000 on March 8.