quarters backed by bonds from the South and now essentially worthless outside that state.
Because of the change of Administrations, Treasury Secretary John A. Dix resigned and was replaced on March 7 by Salmon P. Chase. The latter had been born in New Hampshire but later became a prominent attorney in Cincinnati, even serving as governor of Ohio from 1855 to 1859. Chase was not well versed in finance and made mistakes that a better-grounded individual would not have made.
The Treasury Department was of course aware of the March 2 law authorizing Treasury notes. That law stated that, if efforts to raise needed funds by loans were not successful, the Treasury Secretary could “issue treasury notes for sums not less than fifty dollars, bearing interest at the rate of six percentum per annum, payable semiannually on the first days of January and July in each year…” and which could be used for the payment of any obligations to the United States government, including customs duties. The holder of a $100 Treasury note, for example, would collect $3 each six months by clipping off one of the attached coupons and presenting it at his local bank.
Over the next few weeks Chase actively promoted the two-year March 2 notes and raised $22.5 million, although it appears that the full sum was not reached until September 1861. In 1876 the total amount of outstanding notes was only $3,100, showing how rare an original March 1861 note would be. It is believed that the $100 and $500 denominations were sold first.
It is one of the ironies of the Civil War and its paper money that the Confederate government, in its first issue of May 1861 from Montgomery, used one of the portraits found on the Federal currency. The $50 two-year United States Treasury Note of March 2 carries the vignette of Andrew Jackson, as does the $1000 Montgomery bill. Both were printed by the National Bank Note Company of New York; the Union authorities were less than pleased when they discovered what had transpired.
Under laws passed in July and August 1861, the Treasury was also authorized – using the March 2 act – to issue 60-day Treasury Notes. This shorter period would have appealed to those not wishing to tie their money up for the full two years. The first 60-day notes went on sale in the late summer of 1861, raising $12.9 million, but according to published reports all were redeemed. It is thought that the denominations of the March 2 60-day issue were the same as those printed for the two-year version: $50, $100, $500, and $1000.
Some 60-day proof impressions are known, which appear to be those authorized under the March 2 act but carry differing designs from the two-year issues. These proofs, however, do not state the March 2 date, as is known for the two-year notes. It is therefore possible that the known essays are not complete and the date of March 2, 1861, was added before the notes were printed for Treasury Department use.
All notes issued under the March 2 act had to be printed and paid out by June 30, 1862, and the government could call in the longer-term notes at any time within a two-year period. The July and August laws were hurriedly written and some of the provisions seem open to differing interpretations, although this may have been deliberate in order to give the Treasury some leeway in issuing 60–day notes.
The underlying reason for the notes being issued was to raise gold for the Treasury although it was clearly understood that such notes would circulate in isolated instances. Each Treasury Note was in reality a certificate stating that a certain sum, say $100, had been loaned to the government. The Treasury preferred that such notes stay out of the marketplace but there was no way to enforce this wish given the financial realities in 1861.
Secretary Chase immediately asked the New York bank note printers (the American Bank Note Company and the National Bank Note Company) to prepare sample notes for his inspection. It was made clear to the printing firms that speed was of the essence and that mostly stock vignettes were to be used rather than to take time to engrave new designs or portraits. None has been seen from the American Bank Note Company but those from the National Bank Note Company were ready for inspection by the Secretary within a relatively short time, perhaps by the middle of April. Two exceptions to the use of older vignettes was the appearance of Secretary Chase’s portrait on the $50 bill and that of General Winfield Scott on the $500.
It seems likely that this decision to put Secretary Chase on the $50 note delayed the printing of this denomination; it was a political move and perhaps thought necessary to show that the Lincoln Administration was closely involved in this paper money, even though dated March 2. The stock vignettes found on the other denominations, except the $500, meant that they could be printed and delivered at a faster pace.
Most of the March 2 two-year notes were sold to banks in New York, Philadelphia, and Boston although wealthy families purchased them as well. The notes were sold at par and were usually paid for in gold, although unredeemed 1857 Treasury Notes could also have been used. Very few of the original March 2 notes were used as circulating currency and most were redeemed by the Treasury at the close of the allotted two-year period.
The only surviving $50 circulating note, so far as known, was sold by Heritage at auction in February 2005 for $368,000. Otherwise, all that has been seen by this writer of the original (two-year) March 2 emissions are uniface proofs. The extraordinary collection of U.S. paper formed by Jim O’Neal, and sold by Heritage in May 2005 at St. Louis, contained the complete four-piece set in proof impressions, all but the $100 with both sides. Unless the same person purchased all of these, it will be a very rare collection that contains all four such notes.
The $22.5 million raised by issuing the original series of March 2 notes barely made a dent in the enormous expenditures facing the government after Fort Sumter. The call for volunteers was met with great enthusiasm in the North, as well as in the South, with most people thinking that the war would be a short one. That view was not universal, however, and calmer heads quietly petitioned Congress for authority to issue additional notes, the law of March 2 having been used to its fullest extent, or nearly so.
By coincidence, just as the Battle of Bull Run (Manassas) was getting underway in Virginia, not all that far from Washington, Congress was finishing its debate on a new bill, which contained the additional authorizations for paper money sought by the Administration. On July 17 the President signed the resulting bill which gave the Treasury several options for its paper money, including the authority to issue 60-day notes under the March 2 law.
The first possibility was similar to that of the March 2 law, except that the interest rate was now 7.3 percent rather than the 6 percent a few months earlier. These bills were to be issued for three years, the interest payable on January 1 and July 1. In the case of a $100 Treasury note issued under this provision, for example, the owner of the note would collect $3.65 each six months; the printed notes had coupons on the right side which were cut off and paid through the owner’s local bank. At the end of the three-year period the note was to be surrendered and the owner paid the face value plus the last interest payment. These could not be used to pay customs duties but could be converted at any time toward buying 20-year 6 percent bonds; for this reason they are often referred to as “7.3 – 20s” in official documents.
The second option was for the Treasury to issue notes of less than $50 in value, which did not bear interest but could possibly be exchanged for gold coin. (The laws of July 17 and Aug. 5, 1861, did not actually state that the notes could be exchanged for gold but Secretary Chase persuaded the banks to pay out specie for the notes.) The “Demand Notes,” as they were called, could be used to pay any government obligation, including the all-important customs duties, which normally had to be paid in gold coin. The amount to be issued under this provision could not exceed $50 million and notes of less than $10 in value could not be printed.
With respect to the Demand Notes, it seems to be a belief among some historians and collectors that when specie payments stopped at the end of 1861 these notes were somehow fiat money, no longer backed by the government. This is not quite true as they were still receivable for customs duties and were so used by importers in lieu of gold coin. Because of this fact, Demand Notes remained essentially at par with gold although fiat money in a technical sense.
The third authorization concerned Treasury notes, again of less than $50 in value (i.e. a $10 or $20 note), to be issued for one year at 3.65 percent interest. In this case the interest would be paid in a lump sum when the note was surrendered. The “3.65” notes were not to be convertible for specie but could be exchanged, under certain conditions, for the “7.3 – 20s” mentioned above or directly for bonds.
The last proviso concerned $10 and $20 notes being issued at 6 percent interest, with a fixed limit of $20 million. These could also be used in payment for any government obligation; they could not, however, be exchanged for specie. This was essentially an update of the March 2 law, but with smaller denominations than $50. (The Treasury did not use this authorization or the preceding one in 1861.)
Just as the ink was drying on the July 17 legislation, the Battle of Bull Run (Manassas) caused a shock wave to reverberate at the Capital; families had driven out by buggy from Washington to watch the Confederates being routed by the superior Union army under General Irwin MacDowell but the opposite proved true and the result was a headlong flight by army and civilians back to safety.
The trauma of Bull Run is well reflected in Congressional debates that occurred in the latter part of July 1861. By now it was clear that even the July 17 law was inadequate to handle the anticipated currency problems and influential Congressmen again met with Treasury Secretary Chase to see what needed to be done.
The result of the new discussions was a law signed by the President on Aug. 5, only 19 days after the preceding legislation. The key provisions of this new act included permission to omit the Treasury seal and that Demand Notes of $5 could now be issued. That a $5 note was authorized meant that the government was clearly intending to put the Demand Notes into normal commercial affairs and not just reserve them for government payments.
The omission of the Treasury Seal was merely a device for saving time. It appears that this special printing step delayed delivery of the bills unduly and therefore had to be omitted.
The $10 Demand Note, as issued, is rather special in some regards, chief of which is the fact the portrait of Lincoln appears on the left side of the bill. This was unprecedented on American currency that a living person would be portrayed on circulating currency but if there were protests over this decision, none seems to have come down to our time. (Secretary Chase had appeared on the $50 note of March 2, both the two-year and 60-day versions, but those bills did not circulate.) That this special portrait appears on the $10 note in August indicates that it had been under consideration well before the Act of July 17 was signed into law.
The Demand Notes, unlike earlier issues, used an “Assistant Treasurer of the United States” as the person responsible for paying off the note rather than merely saying that the Treasury was the issuing authority. The Demand Notes were also keyed to a particular Assistant Treasurer in a given city, perhaps necessary because the massive increase in the number of notes being issued. Cities with such officials included Boston, New York, Philadelphia, St. Louis, and Cincinnati; the last two named cities are rare for the Demand Notes of 1861, however.
The “7.3 – 20” notes, ranging in value in $50 to $5,000, also carried portraits of living people. Secretary Chase appeared on the $1,000 bill while General Winfield Scott was on the $100 denomination. Scott had appeared earlier on the $500 note issued under the March 2 act.
The notes officially dated in August 1861 were all hand-signed and did not have the usual printed signatures found on all later notes. The Treasurer and Register of the Treasury, who were to jointly sign the bills, could not be spared for such an overwhelming task, so men and women were appointed to sign for them; the first notes needed to have the words “for the [Register or Treasurer]” written by hand but it was quickly realized that this was a needless waste of time so the necessary words were added to the printing plates.
It is known that some of the bonds issued under the March 2 law were in fact signed by the responsible official but in general this seems not to have happened in 1861. The only known note from the March 2 issue (two years), however, was signed by Treasurer Francis Spinner (1802–1890) in August 1861. The Register, Lucius Chittenden (1824–1900), did not sign the note in question and it is likely that Spinner actually signed very few of the circulating notes.
Immediately after the July 17 act was signed into law, Secretary Chase made arrangements for the bills to be printed. By now he had decided that the two parts of the July 17 act that would be used in 1861 were Demand Notes and the “7.3 – 20s.” It is not clear if the National Bank Company was involved in the negotiations but in due course the necessary notes were prepared by the American Bank Note Company of New York. It is probable that engravers had been busy since March in anticipation of orders for notes. The quality of the July 17 issue is far superior to that of March 2 and shows that considerable time was spent in preparation.
The subsequent legislation of Aug. 5 permitted a $5 note and this was adopted by Secretary Chase. It may well be, of course, that the Treasury had notified American Bank Note Company of the intended new denomination and the engravers at that firm were working on this denomination before the bill even became law. In all, the firm was now preparing plates for eight denominations under the Acts of July 17 and Aug. 5: $5, $10, $20, $50, $100, $500, $1,000, and $5,000. The last five denominations were the “7.3 – 20s” noted above.
The plates for some of the denominations were ready by early in August, though for which denominations is not quite clear. Because the attitude of the New York bankers was critical when these notes came to be issued, on Aug. 9 Secretary Chase met with several officials from these banks to sound them out on the amounts that could be put into use without upsetting the money markets. The result was a decision to issue $50 million beginning on Aug.15 with the possibility of another $50 million two months later; these sums included both kinds of paper money, the “7.3 – 20s” and the Demand Notes.
The Demand Notes of 1861 issued under the acts of July 17 and Aug. 5 are all dated Aug. 10 while the first “7.3 – 20s” carry an issue date of August 19; there were new plates later prepared for the “7.3 – 20s,” however, dated Oct. 1, 1861. All of these notes also carry the legal date of July 17, 1861, when the President signed the enabling legislation. However, the $5 notes were not authorized until Aug. 5, despite what it says on the face. In a technical sense, the $5 Demand Note might be considered a questionable issue as the authority for it did not exist in the July 17 law.
It is presumed that the first issues of the new paper currency were in fact made in mid August 1861 as per the Treasury agreement with the New York bankers earlier that month. At first shopkeepers and others tended to refuse the Demand Notes and, in some cases, offered to take them only if discounted, which was commonly done for the bills of private banks.
To counter this problem, Secretary Chase and key members of the Treasury Department publicly announced that their salaries would be paid in Demand Notes. It did not entirely solve reluctance by the public to accept the bills, but went a long ways toward doing so.
At first the Treasury was careful not to release too many Demand Notes but this was not the case with the “7.3 – 20s” as they were clearly designed to serve as small denomination bonds, not currency for the general marketplace. In the latter case notes might have been used by individuals to pay major debts but there would also have been calculations as to the exact value of a given bill considering the interest rate in force. It was no doubt the case that the majority of the July 17/Aug. 5 notes were in use by early October.
The seemingly endless series of Union military disasters during 1861 created escalating demands for ready currency, not only to pay the troops, but also those providing military supplies. All of this required increasing amounts of paper currency as much of the available gold was now being sent to buy war materiels in Europe.
In November, Chase was forced to increase the number of Demand Notes being issued though still within the $50 million limit. By mid-December quite a few were in daily use and, coupled with the grim military situation, many citizens began to think that silver and gold were the only safe hedge against a long war and inflation.
During the last week of December there was a sudden run on New York banks, with citizens hoarding as much gold as they could obtain. The problem quickly spread throughout the North and on Saturday, Dec. 28 the New York banks announced that on the following Monday specie payments would be suspended. The Demand Notes could still be used to pay customs duties but no longer exchanged directly for gold. It was an ill omen for the coming year