"This mode of making the disbursements for the large war expenses was regarded by me at that early period of the war as of vital consequence to the stability of the finances of both government andpeople; hence the prepa ration and adoption of the sixth section of the Act of 5 Aug. 1861, giving the Secretary of the Treasury discretionary power to suspend the Sub-Treasury Law in respect to these loans.
"After the battle of Bull Run, which oc curred on the twenty-first day of July of that year, the necessities of the government in clothing, arming and feeding troops — in provid ing munitions of war and building a navy— became so urgent that the banks in New York, Boston and Philadelphia most patriotically came forward and made arrangements in several negotiations with Secretary Chase to loan the government $150,000,000 under the provisions of the two loan acts passed at the extra session. Of this sum $105,000,000 was apportioned to the associated banks in the City of New York, pay able by instalments. The banks were then in good condition, transacting their business on a specie basis, and paid coin for all balances at the clearing-house, and redeemed their circu lating notes in coin, and the loan to the gov ernment was made with the expectation that the money would be deposited in the banks, and be checked out under the direction of the Secretary, in pursuance of the sixth section above referred to. The Secretary of the Treasury refused to use the discretionary power conferred upon him by that section, and would not check on the banks for the expenses of the war, so that current bank notes could be paid or balances settled through the clearing-house, but insisted that the banks should pay the money loaned into the Sub-Treasury in gold or gold Treasury notes, and from thence it was distributed for war purposes and scattered in different parts of the country. By far the greater part of this loan was paid in gold coin; taken from the reserves of the banks, commencing on the nineteenth of August 1861. This unnecessary mode of requiring the pay ment of the loans so weakened the banks that it brought on a general suspension of specie payments during the last days of December 1861.• Notwithstanding the banks commenced
making advances to the government about 19 Aug. 1861, yet none of the securities to be issued by the government for the loans was turned over to them until 14 Jan. 1862.
"The banks having been committed to mak ing the loans, and having made partial ad vances on account of the same, were obliged to complete the loan notwithstanding the Sec retary of the Treasury deemed it incompatible with his views of duty, and the traditions of the Sub-Treasury Law, to use such banks as disbursing agents of the government even under the extraordinary exigency under which the loans were made. The call upon the banks for payment into the g-overnment depository of the remaining instalments of the loan, either in coin or gold Treasury notes, was persis tently urged by the Secretary until the final closing of the transaction on the third of February, 1862.
gThis was the first material mistake of the Secretary of the Treasury, and was the first step in the wrong direction, which combined with other important events, led to the necessity of passing the Legal-Tender Act.
*The Secretary, in breaking the banks, at the same time broke the Sub-Treasury, and both were discredited together." Mr. Sherman in his 'Recollections,' p. 269, says: 'The Secretary of the Treasury had ample and complete authority given him by the act of July 1861, to borrow money on the credit of the goverrunent, but he could not deal with the system of State banks then existing in the several States. He was forbidden by the Sub Treasury Act of 1846 to receive notes of State banks, and was required to receive into and pay f rom the Treasury only the coin of the United States; but by the Act of 5 Aug. 1861, he was permitted to deposit to the credit of the Treasurer of the United States, in such solvent specie-paying banks a.s he might select, any of the moneys obtained from loans, the money thus deposited to be withdrawn only for transfer to the regularly authorized deposi tories, or for the payment of public dues, in cluding certain notes payable on demand, as he might deem expedient. He had, however, no authority to receive from individuals or ban1cs any money but coin.