Interest coupons. 1 One hundred and fifty millions of the

$166,500,000 of two-year notes issued were of this form. 2

They were found in practice to be a most unsatisfactory form

of currency. After Secretary Chase had ruled that the interest

coupons must be detached in the presence of an officer of

the treasury or of a national bank, 3 the notes were usually

paid out with no regard to the interest until the date on

which the next coupon was payable approached, then hoarded

for a time, and as soon as the interest had been collected,

once more thrown into circulation. 4 This tended, of course,

to cause periodical expansions and contractions of the cur-

rency embarrassing alike to the business public and to the

treasury. The circulation was also rendered irregular by

fluctuations in the current rates of interest on short-time

loans in the New York market. When money was at 5 per

cent, or less, men found it advantageous to retain the gov-

ernment notes in their own hands ; but when the rates rose

to 7 or 8, few would choose to keep their funds in a short-

time 5 per cent, security. 5

Appreciating these evils, Mr. Chase and Mr. Fessenden,

who succeeded him as secretary of the treasury on July 5,

1864, determined to withdraw the coupon notes as rapidly

1 Hunt's Merchants 1 Magazine, Vol. L, p. 455.

2 Report of the Treasurer, November, 1864, p. 75.

3 Hunt' s Merchants' Magazine, Vol. L, p. 455.

* Report of the Secretary of the Treasury, 1864, p. 18 ; Hunt's Merchants' Magazine,

Vol. L, pp. 215, 216, and Vol. LI, p. 447.

'> Hunt's Merchants' Magazine, Vol. L, pp. 215 and 455.

176 HISTORY or THE GREENBACKS

as possible. Before December, Secretary Fessenden re-

ported, about $90,000,000 of the $150,000,000 issued had

been retired. 1 Their place was occupied by another form

of interest-bearing, legal-tender treasury notes issued under

the authority of the acts of March 3, 1863, and June 30,

1864. 2 The new notes ran three years and bore interest

at 6 per cent., compounded half-yearly but payable only at

maturity. Some $17,000,000 were issued before the close of

the fiscal year 1864, and $180,000,000 during the next year. 3

These issues were called compound-interest notes. They were

commonly regarded as the least injurious form of treasury

notes devised during the war because of the inducement which

the compound interest gave for keeping them as an invest-

ment. 4 Of course, this inducement became stronger the longer

the note had been issued. Thus a $10 note the smallest de-

nomination was worth $10.60 at the end of the first year,

$11.25 at the end of the second, and $11.94 at the end of

the third. Anyone who paid the note away at the end of

the first year would therefore lose 60 cents, at the end of the

second $1.25, and at the end of the third $1.94.

Nevertheless the compound-interest notes served to in-

crease the currency inflation to an uncertain extent, both

directly and indirectly. The comptroller of the currency

thought that in October, 1865, perhaps $10,000,000 of these

notes were in actual circulation as money, 5 and in December

the secretary of the treasury thought it was "safe to esti-

mate" that $30,000,000 of the one- and two-year notes of

1863 and the compound-interest notes together were so

used. 6 Perhaps the indirect use was really more important.

i Report, p. 18. C/. Chase's letter of April 17, 1865, to Colonel J. D. Van Buren

in SCHCCKEES'S Life, p. 413.

212 Statutes at Large, p. 710, and IS Statutes, p. 218; c/. BAYLET, p. 84.

3 BATLEY, p. 163. The form of these notes is given by KNOX, p. 111.

* Report of the Secretary of the Treasury, 1864, p. 18.

5 H. R. Executive Document No. 4, 39th Cong., 1st. Sess., p. 5. Report, p. 9.

THE CIRCULATING MEDIUM 177

This was found in practice of banks of holding compound-

interest notes as reserves in place of greenbacks that bore no

interest. The comptroller of the currency stated that the

amount held by national banks October 2, 1865, was $74,-

250,000. J Similar use was made of the one- and two-year 5

per cent, notes left outstanding. 2 In so far as interest-

bearing, legal-tender notes were kept in this fashion, they

set free greenbacks for circulation among individuals.

The list of government obligations employed as cur-

rency is not yet complete. Two other forms, although not a

legal tender, were used as a circulating medium. The issue

of certificates of indebtedness, bearing interest at 6 per cent,

and payable in one year, had been authorized without lim-