In July 1862 a more vigorous policy of taxation was adopted; internal revenue taxes were imposed upon fermented liquors and to bacco; upon occupations, auction sales, car riages, yachts, billiard tables and plate; upon slaughtered cattle, transportation agencies, bank ing and insurance companies, advertising, in comes, and legacies. At the same time tariff duties were increased to compensate domestic industry for the internal revenue duties. In ternal revenue receipts did not meet expecta tions and in 1864 a second expansion of the revenue policy was made. The internal revenue system was well-nigh universal in its application. ((Nothing was omitted from the raw product to the finished commodity; often an article re ceived a half dozen additions ere it reached the consumer. And not only were all the con stituent elements which entered into an article taxed, as the bolts, rivets, castings, trimmings and the like of an engine, but the engine when completed was subjected to an additional ad valorem" duty upon its value?) Customs duties were again advanced because of the increased duties upon manufactures. The Act of 1864, however, went further in the direction of pro tection and brought rates up to a level which established a new standard of protectionism. The average rate on dutiable articles was in creased to 47 per cent. The income tax of the war period was highly productive; at its maxi mum, incomes between $600 and $5,000 were taxed .5 per cent; and incomes above $5,000, 10 per cent. The total receipts from this source, 1863-73, amounted to $347,000,000.
When the legal tender notes were first issued they were convertible into securities which had a definite gold value, as interest was payable in gold. The quality of convertibility was taken away by the Act of 3 March 1863 and this, together with the increased issues and the waning hope that the government would be able within any short period of time to settle its obligations on a gold basis, led to a marked depreciation in the value of greenbacks. In July and August 1864, the average value of the gold dollar in currency was but 39 cents. As gold was daily needed by importers to pay customs duties and to settle balances abroad, a brisk and often speculative market in bullion resulted. Moreover, the repeated fluctuations in the value of gold measured in currency, oc casioned by alternating hopes and fears as to the outcome of the war, affected all business. Prices were abnormally high and it was esti mated that the cost of the war to the treasury alone was increased by the inflated issues about $600,000,000.
, When peace was restored in 1865, there were three enormous tasks before the government: funding the debt into more convenient form, revision of the tariff system and the restora tion of a standard of value by the resumption of specie payment. On 1 Sept. 1865, the public debt was $2,846,000,000; less than one-half of this was funded; loans bore interest at five different rates; they matured at 19 different periods, and some were convertible or redeem able at the option of the government. At first
there was apparently general agreement that the volume of legal tender *notes should be reduced, for on 18 Dec. 1865 the House of Representa tives passed a resolution in favor of a contrac tion of the currency with a view to as early a resumption of specie payments as the various interests of the country would permit. The Funding Act of 12 April 1866 authorized the conversion of temporary short-time interest bearing securities into long-term bonds, but pro vided only a slight contraction of legal-tender notes. It gave authority to retire $10,000,000 within six months and not more than $4,000,000 in any one month thereafter. Even this re duction was not long continued. It was not easy for the country to readjust itself to peace conditions. Discontent was especially strong in agricultural sections where indebtedness had been incurred by farmers on long-term credits. The 'return of hundreds of thousands of soldiErs to industry led to many ill-advised ventures and failures. Prices naturally fell with the with drawal of the excessive demands made by war, and for this fall producers were disposed to place the blame upon the contraction in cur rency. On 4 Feb. 1868, after $44,000,000 in greenbacks had been retired, further contrac tion was suspended. In 1869 the Supreme Court in the case of Hepburn v. Griswold decided, four to three, that the legal tender notes were • unconstitutional. In 1871 the decision was re versed on the ground that the government had the right to employ freely every means, not pro hibited, which was necessary for its promotion. In 1884 the court decided in favor of the con stitutionality of issues in times of peace.
National credit was also assailed by the proposition that Federal securities should be subject to local taxation and by the demand that bonds should be redeemed in currency in stead of in coin. In some sections bitter at tacks were made upon the rich, who were repre sented as owners idle wealth which they had gained through the possession of government securities at the expense not only of the laborer who had toiled under low wages and high prices, but also of the soldier who had taken his life in his hands and had received his pay in green ' backs. In 1870 a Refunding Act was passed au thorizing the issue of $500,000,000 bonds at 5 per cent, redeemable after 10 years; $300,000, 000 at per cent, redeemable after 15 years and $100,000,000 at 4 per cent, redeemable after 30 years, all to be paid in coin and exempt from national, as well as local, taxation. This act with supplementary legislation fixed the char acter of the debt for the next 25 years.