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ne which all sound theorists on finance unite in condemningthe issue of irredeemable paper money。 And what did the Secretary of the Treasury do？ Previously； as Governor of Ohio； he had denounced paper money as； in effect； a fraud upon society。 Long after； when the tide of fortune had landed him in the high place of Supreme Justice； he returned to this view and condemned as unconstitutional the law of 1862 establishing a system of paper money。 But at the time when that law was passed Chase； though he went through the form of protesting； soon acquiesced。 Before long he was asking Congress to allow a further issue of what he had previously called 〃fraudulent〃 money。
The answer to the question whether Chase should have stuck to his principles and resigned rather than acquiesce in the paper money legislation turns on that other questionhow were the politician and the financier related in his make…up？
Before Congress and the Secretary had finished； 450；000；000 were issued。 Prices naturally rose； and there was speculation in gold。 Even before the first issue of paper money； the treasury notes had been slightly below par。 In January； 1863； a hundred dollars in paper would bring； in New York； only 69。00 in gold； a year later； after falling； rising； and falling again； the value was 64。00； in July and August； 1864； it was at its lowest； 39。00； when the war closed； it had risen to 67。00。 There was powerful protest against the legislation responsible for such a condition of affairs。 Justin Morrill； the author of the Morrill tariff； said； 〃I would as soon provide Chinese wooden guns for the army as paper money alone for the army。 It will be a breach of public faith。 It will injure creditors； it will increase prices； it will increase many fold the cost of the war。〃 Recent students agree； in the main； that his prophecies were fulfilled； and a common estimate of the probable increase in the cost of the war through the use of paper money and the consequent inflation of prices is 600；000；000。
There was much more financial legislation in 1862； but Chase continued to stand aside and allow Congress the lead in establishing an excise law； an increase in the income tax； and a higher tariffthe last of which was necessitated by the excise law which has been described as a bill 〃that taxed everything。〃 To enable American manufacturers to bear the excise duties levied upon their business； protection was evoked to secure them the possession of their field by excluding foreign competition。 All these taxes； however； produced but a fraction of the Government's revenue。 Borrowing； the favorite method of the Secretary； was accepted by Congress as the main resource。 It is computed that by means of taxation there was raised in the course of the war 667；163；247。00； while during the same period the Government borrowed 2；621；916；786。00。
Whatever else he may think of Chase； no one denies that in 1862 he had other interests besides finance。 Lincoln's Cabinet in those days was far from an harmonious body。 All through its history there was a Chase faction and a Seward faction。 The former had behind them the Radical Republicans； while the latter relied upon the support of the moderates。 This division in the Republican party runs deep through the politics of the time。 There seems to be good reason to think that Chase was not taken by surprise when his radical allies in Congress； in December； 1862； demanded of Lincoln the removal of Seward。 It will be remembered that the elections of the autumn of 1862 had gone against Lincoln。 At this moment of dismay； the friends of Chase struck their blow。 Seward instantly offered his resignation。 But Lincoln skillfully temporized。 Thereupon； Chase also resigned。 Judging from the scanty evidence we have of his intention； we may conclude that he thought he had Lincoln in a corner and that he expected either to become first minister or the avowed chief of an irresistible opposition。 But he seems to have gone too fast for his followers。 Lincoln had met them； together with his Cabinet； in a conference in December； 1862； and frankly discussed the situation； with the result that some of them wavered。 When Lincoln informed both Seward and Chase that he declined to accept their resignations； both returnedSeward with alacrity； Chase with reluctance。 One of the clues to Lincoln's cabinet policy was his determination to keep both these factions committed to the Government； without allowing himself to be under the thumb of either。
During the six months following the cabinet crisis Chase appears at his best。 A stupendous difficulty lay before him and he attacked it manfully。 The Government's deficit was 276；900；000。 Of the loans authorized in 1862the 〃five…twenties〃 as they were called； bringing six per cent and to run from five to twenty years at the Government's pleasure…the sales had brought in； to December； 1862； only 23；750；000； though five hundred million had been expected。 The banks in declining to handle these bonds laid the blame on the Secretary； who had insisted that all purchasers should take them at par。
It is not feasible； in a work of this character； to enter into the complexities of the financial situation of 1863； or to determine just what influences caused a revolution in the market for government bonds。 But two factors must be mentioned。 Chase was induced to change his attitude and to sell to banks large numbers of bonds at a rate below par； thus enabling the banks to dispose of them at a profit。 He also called to his aid Jay Cooke； an experienced banker； who was allowed a commission of one…half per cent on all bonds sold up to 10；000；000 and three…eighths of one per cent after that。 Cooke organized a countrywide agency system； with twenty…five hundred subagents through whom he offered directly to the people bonds in small denominations。 By all manner of devices； patriotism and the purchase of bonds were made to appear the same thing； and before the end of the year 400；000；000 in five…twenty bonds had been sold。 This campaign to dispose of the five…twenties was the turning…point in war finance； and later borrowings encountered no such difficulties as those of 1862 and 1863。
Better known today than this precarious legislation is the famous Act of 1863； which was amended in the next year and which forms the basis of our present system of national banks。 To Chase himself the credit for this seems to be due。 Even in 1861 he advised Congress to establish a system of national banks； and he repeated the advice before it was finally taken。 The central feature of this system which he advocated is one with which we are still familiar： permission to the banks accepting government supervision to deposit government bonds in the Treasury and to acquire in return the right to issue bank…notes to the amount of ninety per cent of the value of the bonds。
There can be no doubt that Chase himself rated very highly his own services to his country。 Nor is there any doubt that； alone among Lincoln's close associates； he continued until the end to believe himself a better man than the President。 He and his radical following made no change in their attitude to Lincoln； though Chase