Between the Revolutionary War and the Great War, only two conflicts have appeared in American history which have placed any real burden upon the people. These were the War of 1812 and the Civil War. The fiscal measures of the Revolution do not represent a predetermined and definite plan, but are examples of a government of little power attempting to secure funds in any possible manner. The issue of paper money was extensively relied upon at the beginning of the struggle, but its rapid depreciation proved the ineffectiveness of this plan. Many attempts were made to requisition both money and materials from the states, while borrowing, both at home and abroad, was pressed to the limit. Attempts to establish a national system of taxation proved unsuccessful, and resort was finally made to the establishment of a bank to extend aid to the government. In the War of 1812 and the Civil War, however, an attempt was made to adhere to a more definite policy.

The War of 1812. - Secretary of the Treasury Gallatin was responsible for the plan used to finance the War of 1812. Congress heartily consented to the plan which he proposed, while only an occasional individual member voiced an objection. Reliance was to be placed entirely upon borrowing to meet the increase of expenditure because of the war, and an earnest attempt was made to adhere to this policy. The Secretary advised that taxes be increased sufficiently to meet the interest upon the loans, but Congress was unwilling to digress from the policy of borrowing even to this extent.

The flotation of the first loan was not accompanied by any marked degree of success. This was attributed to the fact that the provisions of the bonds were not attractive enough. The response to successive issues, however, was even worse, and the depreciation on the market continued to increase, until in 1814 the government had practically reached its limit in the expansion of long-time credit. The failure of the loans to produce the desired amount led to the frequent and extensive use of treasury certificates. The policy clearly demonstrated the fact that borrowing cannot be conducted successfully unless some inclination is shown to provide a means for the redemption of promises. When Mr. Dallas took up the Treasury portfolio in 1814 he condemned in no uncertain language the policy which had been so closely followed. He attributed the breakdown of the credit machinery to the failure to use adequate taxation to form a basis for credit expansion. His foremost proposal, in an effort to retrieve the mistakes of his predecessors, was to put into force an adequate system of taxes.

The Civil War. - The system adopted to finance the Civil War was practically a repetition of that of the War of 1812. The same general plan was followed with the same general results. Almost exclusive reliance was placed upon borrowing, followed by a collapse of the credit system. The real difference was the step in advance of the earlier policy when the treasury notes, or greenbacks, were given legal tender qualities to settle individual debts. No comment is needed, to those who are familiar with our economic history, upon their rapid depreciation and consequent economic effects. Secretary Chase, in his recommendations to Congress, advised taxes of sufficient amount to take care of ordinary expenses of interest on the debt obligations, and of a start toward a sinking fund. Some new taxes were proposed, but these were intended to make up the deficit in the revenue caused by the war. The most important of these was the inauguration of income taxes and internal revenue duties. The war had progressed nearly three years before Congress could be made to realize that the loan policy was proving disastrous. The interest rate had to be increased and the discount at which the bonds sold was becoming more marked. When Congress became convinced, near the end of 1863, that resort must be made to other than borrowing, a vigorous tax plan was pursued, with most gratifying results. Not only was it demonstrated that the citizens seemed willing to meet the tax burden, but that many appeared anxious to do so. Had this vigorous tax policy been pursued earlier in the conflict, the credit of the government, without question, would have remained more firm, the effect of which upon the South and upon foreign countries would have been quite salutary.