In December, 1865, Secretary McCulloch, who had been comptroller of the currency under Secretary Chase, pursuing the policy of the author of the bank act, and of all its advocates, advised, as the first step toward a resumption of specie payments, that provision should be made for the redemption of the United States notes by the sale of interest-bearing bonds; in other words, that the notes should be funded. He had already ample authority of law for this purpose, provided by the judicious foresight of Secretary Fessenden ; but, before using this power, he seems to have desired the special sanction of Congress. His advice was re-enforced by the recommendation of President Johnson. "The gradual reduction of the currency," said the President, "is the only measure that can save the business of the country from disastrous calamities; and this can be almost imperceptibly accomplished by gradually funding the national circulation in securities that may be made redeemable at the pleasure of the government." So unanimous was public opinion at this time, that on the 18th of December the House of Representatives adopted, by a vote of 144 to 6, the following resolution, offered by Mr. Alley, of Massachusetts:

Resolved, That this House cordially concurs in the views of the secretary of the treasury in relation to the necessity of a contraction of the currency, with a view to as early a resumption of specie payments as the business interests of the country will permit; and we hereby pledge co-operative action to this end as speedily as practicable.

This pledge was redeemed by an act approved April 12, 1866, permitting the secretary to retire United States notes to the amount of $10,000,000 during the six months ending October 12, 1866, and $4,000,000 a month thereafter. The volume of United States notes on the 30th of June, 1866, stood very nearly at the limit of $400,000,000. Under the authority granted him, Secretary McCulloch called in and cancelled, during the next nineteen months, $44,000,000. On the 4th of February, 1868, the authority to make any further reduction of the currency was suspended, and has never been renewed.

The loan bill of 1866 passed the House of Representatives by a vote of 83 to 53 ; and the Senate, 32 to 7. There was no vote by yeas and nays on the section authorizing a contraction of the currency. The bill revoking that authority in 1868 passed the House, 127 to 32, and the Senate, 33 to 4. This extraordinary change of opinion within two years was due to three concurrent causes.

In the first place, although Secretary McCulloch executed his trust with great discretion, and no serious financial disturbance occurred, the spectacle of a shrinking volume of currency insensibly affected the imagination of the beholders, and caused a curtailment of credit. Mr. McCulloch said in his speech at Woodstock, in 1878, that "no business interest in the United States suffered while this withdrawal was going on; and nobody but the officers of the treasury would have known that it was going on, had it not been for the publication of the monthly treasury report But, through that monthly publication, everybody did know what was going on; and the scarcity of money, which might otherwise have been correctly explained by the high prices absorbing the currency, was almost universally attributed to the operations of the treasury. This impression caused a real contraction of credit, which was undoubtedly hard to bear, but could better have been borne then than when it came after an intervening period of feverish speculation, as the inevitable sequel of the crisis of 1873.

In the second place, it was Secretary Mc-Cnlloch's misfortune to hold a seat in the cabinet of a President at odds with the majority in both houses of Congress, and to find himself, on the precise point of difference, in sympathy with the President and not with Congress. In his report for 1866 he had laid great stress upon the importance to the finances of a rehabilitation of the States then lately in insurrection, and in December, 1867, he recurred to this dangerous topic. As an economist, he was doubtless right; but as a politician, he was wholly wrong. It was folly to expect intelligent attention to a suggestion of this kind from a Congress already clamorous for the impeachment of the President, on the express ground that he had publicly accused the Congress of perpetuating disunion, and preventing the restoration of peace and harmony. The act of February 4, 1868, was intended in part as a rebuke to Secretary McCulloch for meddling with this subject. If a President like Lincoln, and a Secretary like Chase, possessing the full confidence of the dominant party in Congress, had adhered, as President Johnson and Secretary McCulloch unquestionably did, to the financial policy adopted at the beginning of the war and faithfully executed until that time, their recommendations would have been heeded, and the country would have been spared the long misery which has followed the crisis of 1873; for the inflation which prepared the way for that crisis would have been steadily and firmly repressed, and long before that fatal year our currency would have been restored to its normal value.

Finally, it was at this juncture that the mirage appeared which always rises from the shimmering surface of a fluctuating currency-a vision of unsubstantial splendor, wherein the images of real things were seen floating upside down in the heated air. Men began to say, "The cheap dollar is good enough. Business goes on the same as ever. A rising market makes good trade. If the working-men can't live at these prices, raise their wages. Why interrupt this prosperity?" As if a dollar varying in value from day to day would not surely gravitate to zero, unless some pains were taken to bring it back to par! Others, regardless of the advance of prices, began to assert that the paper dollar was stationary; it was gold that varied. And just at this time a man appeared in Congress who was capable of weaving these flimsy notions into a symmetrical theory. General Butler took his seat as a representative from Massachusetts in March, 1867. During his first session he proposed to substitute United States notes for the circulation of the national banks; to raise the whole issue of government paper to $1,000,000,000; to pay off $600,000,000 of the interest - bearing debt; and to fund the $1,500,000,000 remaining in a 5 per cent. taxable bond. Specie payments, he said, were for the time out of the question. In 1869 he developed his whole scheme in a speech,1 which became a textbook for the advocates of a permanently inconvertible currency. He had then reached the conclusion that specie payments were not only temporarily out of the question, but that they ought never to be restored. He proposed to call in the United States notes promising to pay dollars, and to issue, instead, "certificates of value," which should be dollars. These certificates were to be issued to anybody in exchange for 6 per cent. bonds, to the amount of 90 per cent. of the par value of the bonds, and on returning the certificates, with interest at the rate of 3.65 per cent. per annum, the owner should be entitled to receive his bonds again. The bank circulation was to be retired to make room for the certificates of value, which would constitute a currency "uniform, sound, cheap, stable, and elastic."