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.
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