To pay the expenses of the Government an issue of five hundred million dollars in six per cent. bonds was authorized. For the payment of interest the receipts of the export and import duties, payable in specie, were pledged.

A review of this statement of the legislation of Congress will clearly present the financial system of the Government. The first action of the Provisional Congress was confined to the adoption of a tariff law, and an act for a loan of fifteen million dollars, with a pledge of a small export duty on cotton, to provide for the redemption of the debt. At the next session, after the commencement of the war, provision was made for the issue of twenty million dollars in Treasury notes, and for borrowing thirty million dollars in bonds. At the same time the tariff was revised, and preparatory measures taken for the levy of internal taxes. After the purpose of subjugation became manifest by the action of the Congress of the United States, early in July, 1861, and the certainty of a long war was demonstrated, there arose the necessity that a financial system should be devised on a basis sufficiently large for the vast proportions of the approaching contest. The plan then adopted was founded on the theory of issuing Treasury notes, convertible at the pleasure of the holder into eight per cent. bonds, with the interest payable in coin. It was assumed that any tendency to depreciation, which might arise from the over-issue of the currency, would be checked by the constant exercise of the holder's right to fund the notes at a liberal interest, payable in specie. The success of this system depended on the ability of the Government constantly to pay the interest in specie. The measures, therefore, adopted to secure that payment consisted in the levy of an internal tax, termed a war tax, and the appropriation of the revenue from imports.

The first operation of this plan was quite successful. The interest was paid from the reserve of coin existing in the country, and experience sustained the expectations of those who devised the system.

Wheat, in the beginning of the year 1862, was selling at one dollar and thirty cents per bushel, thus but little exceeding its average price in time of peace. The other agricultural products of the country were at similarly moderate rates, thus indicating that there was no excess of circulation. At the same time the premium on coin had reached about twenty per cent. But it had become apparent that the commerce of our country was threatened with permanent suspension by reason of the conduct of neutral nations, who virtually gave aid to the United States Government by sanctioning its declaration of a blockade. These neutral nations treated our invasion by our former limited and special agent as though it were the attempt of a sovereign to suppress a rebellion against lawful authority. This exceptional cause heightened the premium on specie, because it indicated the exhaustion of our reserve, without the possibility of renewing the supply.

At the inauguration of the permanent Government, in February, 1862, a popular aversion to internal taxation had been so strongly manifested as to indicate its partial failure. This will be further explained presently in our statement of the system of taxation.

Under all these circumstances the effort was made to avoid the increase in the volume of notes in circulation, by offering inducements to voluntary funding. The measures adopted for that purpose were but partially successful. Meanwhile the intervening exigencies from the fortunes of war permitted no delay. The issues of Treasury notes were increased until, in December, 1863, the currency in circulation amounted to more than six hundred million dollars, or more than threefold the amount required by the business of the country. The evil effects of this financial condition were but too apparent. In addition to the difficulty presented to the necessary operations of the Government, and the efficient conduct of the war, the most deplorable of all its results was, undoubtedly, its corrupting influence on the morals of the people. The possession of large amounts of Treasury notes led to a desire for investment; and, with a constantly increasing volume of currency, there was an equally constant increase of price in all objects of investment. This effect stimulated purchase by the apparent certainty of profit, and a spirit of speculation was thus fostered, which had so debasing an influence and such ruinous consequences that it became our highest duty to remove the cause by prompt and stringent measures.

I therefore recommended to Congress, in December, 1863, the compulsory reduction of the currency to the amount required by the business of the country, accompanied by a pledge that, under no stress of circumstances, would the amount be increased. I stated that, if the currency was not greatly and promptly reduced, the existing scale of inflated prices would not only continue, but, by the very fact of the large amounts thus made requisite in the conduct of the war, these prices would reach rates still more extravagant, and the whole system would fall under its own weight, rendering the redemption of the debt impossible, and destroying its value in the hands of the holder. If, on the contrary, a funded debt, with interest secured by adequate taxation, could be substituted for the outstanding currency, its entire amount would be made available to the holder, and the Government would be in a condition, beyond the reach of any probable contingency, to prosecute the war to a successful issue.

This recommendation was followed by the passage of the act of February 17, 1864, above mentioned. One of its features is the tax levied on the circulation. Regarding the Government when contracting a debt as the agent of the people, its debt is their debt. As the currency was held exclusively by ourselves, it was obvious that, if each person, held Treasury notes in exact proportion to the valuation of his whole estate, each would in fact owe himself the amount of the notes held by him; and, were it possible to distribute the currency among the people in this exact proportion, a tax levied on the currency alone, to an amount sufficient to reduce it to its proper limits, would afford the best of all remedies. Under such circumstances, the notes remaining in the hands of each holder after the payment of his tax would be worth quite as much as the whole sum previously held, for it would have an equal purchasing capacity.

After this law had been in operation for one year, it was manifest that it had the desired effect of withdrawing from circulation the large excess of Treasury notes which had been issued. On July 1, 1864, the outstanding amount was estimated at two hundred and thirty million dollars. The estimate of the amount funded under this act, about this time, was three hundred million dollars, while new notes were authorized to be issued to the extent of two thirds of the sum received under its provisions. The chief difficulty apprehended in connection with our finances, up to the close of the war, resulted from the depreciation of our Treasury notes, which was to be attributed to the increasing redundancy in amount and the diminishing confidence in their ultimate redemption.

The financial condition of the Government, near its close, is very correctly represented in the report of the Treasury Department. The total receipts of the Treasury for the two quarters ending on September 30, 1864, amounted to $415,191,550, which sum, added to the balance, $308,282,722, that remained in the Treasury on April 1, 1864, formed a total of $723,474,272. Of this total, not far from half, that is to say, $342,560,327, were applied to the extinction of the public debt; while the total expenditures were $272,378,505, leaving a balance in the Treasury on October 1, 1864, of $108,435,440. The sources from which this revenue was derived were as follows:

Four per cent. registered bonds, act of February 17, 1864 $13,363,500 Six per cent. bonds, $500,000,000 loan, act of February 17, 1864 14,481,050 Four per cent. call certificates, act of February 17, 1864 20,978,100 Tax on old issue of certificates redeemed $14,440,566 Repayments by disbursing officers 20,115,830 Treasury notes, act of February 17, 1864 277,576,950 War-tax 42,294,314 Sequestrations 1,338,732 Customs 50,004 Export duty 4,320 Coin seized by the Secretary of War 1,653,200 Premium on loans 4,822,249 Soldiers' tax 908,622

The total amount of the public debt on October 1, 1864, on the books of the Register of the Treasury, was $1,147,970,208, of which $530,340,090 were funded debt, bearing interest, and $283,880,150 were Treasury notes of the new issue, and the remainder consisted of the former issue of Treasury notes which were converted into other forms of debt, and ceased to exist on December 31st. In consequence, however, of the absence of certain returns from distant officers, the true amount of the debt was less by $21,500,000 than appeared on the books of the Register; so that the total public debt, on October 1st, might have been fairly considered to have been $1,126,381,095. Of this amount, $541,340,090 consisted of funded debt, and the balance unfunded debt, or Treasury notes. The foreign debt is omitted in these statements. It amounted to £2,200,000, and was provided for by about two hundred and fifty thousand bales of cotton collected by the Government.

The aggregate appropriations called for by the different departments of the Government for the six months ending on June 30, 1865, amounted to $438,416,504. It was estimated that the remains of former appropriations would, on January 1, 1865, amount to a balance of $467,416,504. No additional appropriations were therefore required for the ensuing six months.

A system of measures by which to obtain a revenue from direct taxes and duties was commenced at the first session of Congress under the provisional Government. The officers who, at the time of the adoption of the provisional Constitution, held any office connected with the collection of the customs, duties, and imposts in the several States of the Confederacy, or as assistant treasurers intrusted with the keeping of moneys arising therefrom, were continued in office with the same powers and subject to the same duties. The tariff laws of the United States were continued in force until they might be altered. The free list was enlarged so as to embrace many articles of necessity; additional ports and places of entry were established; restrictive laws were repealed, and foreign vessels were admitted to the coasting-trade. A lighthouse bureau was organized; a lower rate of duties was imposed on a number of enumerated articles, and an export duty of one eighth of one cent per pound was imposed on all cotton exported in the raw state. At the second session, in May, a complete tariff law was enacted, with a lower scale of duties than had previously existed. On August 19, 1861, a war-tax of fifty cents on each hundred dollars of certain classes of property was levied for the special purpose of paying the principal and interest of the public debt, and of supporting the Government. The different classes of property on which the tax was levied were as follows: real estate of all kinds; slaves; merchandise; bank-stocks; railroad and other corporation stocks; money at interest, or invested by individuals in the purchase of bills, notes, and other securities for money, except the bonds of the Confederate States, and cash on hand, or on deposit; cattle, horses, and mules; gold watches, gold and silver plate, pianos, and pleasure-carriages. There were some exemptions, such as the property of educational, charitable, and religious institutions, and of a head of a family having property worth less than five hundred dollars. An act was passed for the sequestration of the property of alien enemies, as a retaliatory measure, to offset the confiscation act of the United States.

On April 24, 1863, a new act was passed relative to internal or direct taxes. It was designed to reach, as far as practicable, every resource of the country except the capital invested in real estate and slaves, and, by means of an income-tax and a tax in kind on the produce of the soil, as well as by licenses on business occupations and professions, to command resources sufficient for the wants of the country. On February 17, 1864, an amendment to this last-mentioned act was passed. It levied additional taxes on all business of individuals, of copartnerships and corporations, also on trades, sales, liquor-dealers, hotel-keepers, distillers, and a tax in kind on agriculturists. On June 10, 1864, an act was passed which levied a tax equal to one fifth of the amount of the existing tax upon all subjects of taxation for the year.