There was before the war little powder or ammunition of any kind stored in the Southern States, and this was a relic of the war with Mexico. It is doubtful if there were a million of rounds of small-arms cartridges. The chief store of powder was that captured at Norfolk; there was, besides, a small quantity at each of the Southern arsenals, in all sixty thousand pounds, chiefly old cannon-powder. The percussion-caps did not exceed one quarter of a million, and there was no lead on hand. There were no batteries of serviceable field-artillery at the arsenals, but a few old iron guns mounted on Gribeauval carriages fabricated about 1812. The States and the volunteer companies did, however, possess some serviceable batteries. But there were neither harness, saddles, bridles, blankets, nor other artillery or cavalry equipments.

To furnish one hundred and fifty thousand men, on both sides of the Mississippi, in May, 1861, there were no infantry accoutrements, no cavalry arms or equipments, no artillery and, above all, no ammunition; nothing save arms, and these almost wholly the old pattern smooth-bore muskets, altered to percussion from flint locks.

Within the limits of the Confederate States the arsenals had been used only as depots, and no one of them, except that at Fayetteville, North Carolina, had a single machine above the grade of a foot-lathe. Except at Harper's Ferry Armory, all the work of preparation of material had been carried on at the North; not an arm, not a gun, not a gun-carriage, and, except during the Mexican War, scarcely a round of ammunition, had for fifty years been prepared in the Confederate States. There were consequently no workmen, or very few, skilled in these arts. Powder, save perhaps for blasting, had not been made at the South. No saltpeter was in store at any Southern point; it was stored wholly at the North. There were no worked mines of lead except in Virginia, and the situation of those made them a precarious dependence. The only cannon-foundry existing was at Richmond. Copper, so necessary for field-artillery and for percussion-caps, was just being obtained in East Tennessee. There was no rolling-mill for bar-iron south of Richmond, and but few blast-furnaces and these, with trifling exceptions, were in the border States of Virginia and Tennessee.

The first efforts made to obtain powder were by orders sent to the North, which had been early done both by the Confederate Government and by some of the States. These were being rapidly filled when the attack was made on Fort Sumter. The shipments then ceased. Niter was contemporaneously sought for in north Alabama and Tennessee. Between four and five hundred tons of sulphur were obtained in New Orleans, at which place it had been imported for use in the manufacture of sugar. Preparations for the construction of a large powder-mill were promptly commenced by the Government, and two small, private mills in East Tennessee were supervised and improved. On June 1, 1861, there was probably two hundred and fifty thousand pounds only, chiefly of cannon-powder, and about as much niter, which had been imported by Georgia. There were the two powder-mills above mentioned, but we had no experience in making powder, or in extracting niter from natural deposits, or in obtaining it by artificial beds.

For the supply of arms an agent was sent to Europe, who made contracts to the extent of nearly half a million dollars. Some small-arms had been obtained from the North, and also important machinery. The machinery at Harper's Ferry Armory had been saved from the flames by the heroic conduct of the operatives, headed by Mr. Armistead M. Ball, the master armorer. Of the machinery so saved, that for making rifle-muskets was transported to Richmond, and that for rifles with sword-bayonets to Fayetteville, North Carolina. In addition to the injuries suffered by the machinery, the lack of skilled workmen caused much embarrassment. In the mean time the manufacture of small-arms was undertaken at New Orleans and prosecuted with energy, though with limited success.

In field-artillery the manufacture was confined almost entirely to the Tredegar Works in Richmond. Some castings were made in New Orleans, and attention was turned to the manufacture of field and siege artillery at Nashville. A small foundry at Rome, Georgia, was induced to undertake the casting of the three-inch iron rifle, but the progress was very slow. The State of Virginia possessed a number of old four-pounder iron guns which were reamed out to get a good bore, and rifled with three grooves, after the manner of Parrott. The army at Harper's Ferry and that at Manassas were supplied with old batteries of six-pounder guns and twelve-pounder howitzers. A few Parrott guns, purchased by the State of Virginia, were with General Magruder at Big Bethel.

For the ammunition and equipment required for the infantry and artillery, a good laboratory and workshop had been established at Richmond. The arsenals were making preparations for furnishing ammunition and knapsacks; but generally, what little was done in this regard was for local purposes. Such was the general condition of ordnance and ordnance stores in May, 1861.

The progress of development, however, was steady. A refinery of saltpeter was established near Nashville during the summer, which received the niter from its vicinity, and from the caves in East and Middle Tennessee. Some inferior powder was made at two small mills in South Carolina. North Carolina established a mill near Raleigh; and a stamping-mill was put up near New Orleans, and powder made there before the fall of the city. Small quantities were also received through the blockade. It was estimated that on January 1, 1862, there were fifteen hundred seacoast-guns of various caliber in position from Evansport, on the Potomac, to Fort Brown, on the Rio Grande. If their caliber was averaged at thirty-two pounder, and the charge at five pounds, it would, at forty rounds per gun, require six hundred thousand pounds of powder for them. The field-artillery—say three hundred guns, with two hundred rounds to the piece—would require one hundred and twenty-five thousand pounds; and the small-arm cartridges—say ten million—would consume one hundred and twenty-five thousand pounds more, making in all eight hundred and fifty thousand pounds. Deducting two hundred and fifty thousand pounds, supposed to be on hand in various shapes, and the increment is six hundred thousand pounds for the year 1861. Of this, perhaps two hundred thousand pounds had been made at the Tennessee and other mills, leaving four hundred thousand pounds to be supplied through the blockade, or before the beginning of hostilities.

The liability of powder to deteriorate in damp atmospheres results from the impurity of the niter used in its manufacture, and this it is not possible to detect by any of the usual tests. Security, therefore, in the purchase, depends on the reliability of the maker. To us, who had to rely on foreign products and the open market, this was equivalent to no security at all. It was, therefore, as well for this reason as because of the precariousness of thus obtaining the requisite supply, necessary that we should establish a Government powder-mill. It was our good fortune to have a valuable man whose military education and scientific knowledge had been supplemented by practical experience in a large manufactory of machinery. He, General G. W. Rains, was at the time resident in the State of New York; but, when his native State, North Carolina, seceded from the Union and joined the Confederacy, true to the highest instincts of patriotism, he returned to the land of his birth, and only asked where he could be most useful. The expectations which his reputation justified, caused him to be assigned to the task of making a great powder-mill, which should alike furnish an adequate supply, and give assurance of its possessing all the requisite qualities. This problem, which, under the existing circumstances, seemed barely possible, was fully solved. Not only was powder made of every variety of grain and exact uniformity in each, but the niter was so absolutely purified that there was no danger of its deterioration in service. Had Admiral Semmes been supplied with such powder, it is demonstrated, by the facts which have since been established, that the engagement between the Alabama and the Kearsarge would have resulted in a victory for the former.

These Government powder-mills were located at Augusta, Georgia, and satisfactory progress was made in the construction during the year. All the machinery, including the very heavy rollers, was made in the Confederate States. Contracts were made abroad for the delivery of niter through the blockade; and, for obtaining it immediately, we resorted to caves, tobacco-houses, cellars, etc. The amount delivered from Tennessee was the largest item in the year's supply, but the whole was quite inadequate to existing and prospective needs.

The consumption of lead was mainly met by the Virginia lead-mines at Wytheville, the yield from which was from sixty to eighty thousand pounds per month. Lead was also collected by agents in considerable quantities throughout the country, and the battle-field of Manassas was closely gleaned, from which much lead was collected. A laboratory for the smelting of other ores was constructed at Petersburg, Virginia, and was in operation before midsummer of 1862.

By the close of 1861, eight arsenals and four depots had been supplied with materials and machinery, so as to be efficient in producing the various munitions and equipments, the want of which had caused early embarrassment. Thus a good deal had been done to produce the needed material of war, and to refute the croakers who found in our poverty application for the maxim, "Ex nihilo nihil fit."

The troops were, however, still very poorly armed and equipped. The old smooth-bore musket was the principal weapon of the infantry; the artillery had mostly the six-pounder gun and the twelve-pounder howitzer; and the cavalry were armed with such various weapons as they could get—sabers, horse-pistols, revolvers, Sharp's carbines, musketoons, short Enfield rifles, Holt's carbines, muskets cut off, etc. Equipments were in many cases made of stout cotton domestic, stitched in triple folds and covered with paint or rubber varnish. But, poor as were the arms, enough of them, such as they were, could not be obtained to arm the troops pressing forward to defend their homes and their political rights.

In December, 1861, arms purchased abroad began to come in, and a good many Enfield rifles were in the hands of the troops at the battle of Shiloh. The winter of 1862 was the period when our ordnance deficiencies were most keenly felt. Powder was called for on every hand; and the equipments most needed were those we were least able to supply. The abandonment of the line of the Potomac and the upper Mississippi from Columbus to Memphis did somewhat, however, the pressure for heavy artillery; and, after the fall of 1862, when the powder-mills at Augusta had got into full operation, there was no further inability to meet all requisitions for ammunition. To provide the iron needed for cannon and projectiles, it had been necessary to stimulate by contracts the mining and smelting of its ores.

But it was obviously beyond the power of even the great administrative capacity of the chief of ordnance, General J. Gorgas, to whose monograph I am indebted for these details, to add, to his already burdensome labors, the numerous and increasing cares of obtaining the material from which ammunition, arms, and equipments were to be manufactured. On his recommendation a niter and mining bureau was organized, and Colonel St. John, who had been hitherto assigned to duty in connection with procuring supplies of niter and iron, was appointed to be chief of this bureau. A large, difficult, and most important field of operations was thus assigned to him, and well did he fulfill its requirements. To his recent experience was added scientific knowledge, and to both, untiring, systematic industry, and his heart's thorough devotion to the cause he served. The tree is known by its fruit, and he may confidently point to results as the evidence on which he is willing to stand for judgment. Briefly, they will be noticed.

Niter was to be obtained from caves and other like sources, and by the formation of niter-beds, some of which had previously been begun at Richmond. These beds were located at Columbia, South Carolina, Charleston, Savannah, Augusta, Mobile, Selma, and various other points. At the close of 1864 there were two million eight hundred thousand feet of earth collected, and in various stages of nitrification, of which a large proportion was presumed to yield one and a half pound of niter per foot of earth. The whole country was laid off into districts, each of which was under the charge of an officer, who obtained details of workmen from the army, and made his monthly reports. Thus the niter production, in the course of a year, was brought up to something like half of the total consumption. The district from which the most constant yield could be relied on had its chief office at Greensboro, North Carolina, a region which had no niter-caves in it. The niter was obtained from lixiviation of nitrous earth found under old houses, barns, etc. The supervision of the production of iron, lead, copper, and all the minerals which needed development, as well as the manufacture of sulphuric and nitric acids (the latter required for the supply of the fulminate of mercury for percussion-caps), without which the firearms of our day would have been useless, was added to the niter bureau. Such was the progress that, in a short time, the bureau was aiding or managing some twenty to thirty furnaces with an annual yield of fifty thousand tons or more of pig-iron. The lead- and copper-smelting works erected were sufficient for all wants, and the smelting of zinc of good quality had been achieved. The chemical works were placed at Charlotte, North Carolina, to serve as a reserve when the supply from abroad might be cut off.

In equipping the armies first sent into the field, the supply of accessories was embarrassingly scant. There were arms, such as they were, for over one hundred thousand men, but no accoutrements nor equipments, and a meager supply of ammunition. In time the knapsacks were supplanted by haversacks, which the women could make. But soldiers' shoes and cartridge-boxes must be had; leather was also needed for artillery-harness and for cavalry-saddles; and, as the amount of leather which the country could furnish was quite insufficient for all these purposes, it was perforce apportioned among them. Soldiers' shoes were the prime necessity. Therefore, a scale was established, by which first shoes and then cartridge-boxes had the preference; after these, artillery-harness, and then saddles and bridles. To economize leather, the waist and cartridge-box belts were made of prepared cotton cloth stitched in stitched in three or four thicknesses. Bridle-reins were likewise so made, and then cartridge-boxes were thus covered, except the flap. Saddle-skirts, too, were made of heavy cotton cloth strongly stitched. To get leather, each department procured its quota of hides, made contracts with the tanners, obtained hands for them by exemptions from the army, got transportation over the railroads for the hides and for supplies. To the varied functions of this bureau was finally added that of assisting the tanners to procure the necessary supplies for the tanneries. A fishery, even, was established on Cape Fear River to get oil for mechanical purposes, and at the same time food for the workmen. In cavalry equipments the main thing was to get a good saddle which would not hurt the back of the horse. For this purpose various patterns were tried, and reasonable success was obtained. One of the most difficult wants to supply in this branch of the service was the horseshoe for cavalry and artillery. The want of iron and of skilled labor was strongly felt. Every wayside blacksmith-shop accessible, especially those in and near the theatre of operations, was employed. These, again, had to be supplied with material, and the employees exempted from service.

It early became manifest that great reliance must be placed on the introduction of articles of prime necessity through the blockaded ports. A vessel, capable of stowing six hundred and fifty bales of cotton, was purchased by the agent in England, and kept running between Bermuda and Wilmington. Some fifteen to eighteen successive trips were made before she was captured. Another was added, which was equally successful. These vessels were long, low, rather narrow, and built for speed. They were mostly of pale sky-color, and, with their lights out and with fuel that made little smoke, they ran to and from Wilmington with considerable regularity. Several others were added, and devoted to bringing in ordnance, and finally general supplies. Depots of stores were likewise made at Nassau and Havana. Another organization was also necessary, that the vessels coming in through the blockade might have their return cargoes promptly on their arrival These resources were also supplemented by contracts for supplies brought through Texas from Mexico.

The arsenal in Richmond soon grew into very large dimensions, and produced all the ordnance stores that the army required, except cannon and small-arms, in quantities sufficient to supply the forces in the field. The arsenal at Augusta was very serviceable to the armies serving in the south and west, and turned out a good deal of field-artillery complete. The Government powder-mills were entirely successful. The arsenal and workshops at Charleston were enlarged, steam introduced, and good work done in various departments. The arsenal at Mount Vernon, Alabama, was moved to Selma, in that State, where it grew into a large and well-ordered establishment of the first class. Mount Vernon Arsenal was dismantled, and served to furnish lumber and timber for use elsewhere. At Montgomery, shops were kept up for the repair of small-arms and the manufacture of articles of leather. There were many other small establishments and depots.

The chief armories were at Richmond and Fayetteville, North Carolina. The former turned out about fifteen hundred stands per month, and the latter only four hundred per month, for want of operatives. To meet the want of cavalry arms, a contract was made for the construction in Richmond of a factory for Sharp's carbines; this being built, it was then converted into a manufactory of rifle-carbines, caliber .58. Smaller establishments grew up at Asheville, North Carolina, and at Tallahassee, Alabama. A great part of the work of the armories consisted in the repair of arms. In this manner the gleanings of the battle-fields were utilized. Nearly ten thousand stands were saved from the field of Manassas, and from those about Richmond in 1862 about twenty-five thousand excellent arms. All the stock of inferior arms disappeared from the armories during the first two years of the war, and were replaced by a better class of arms, rifled and percussioned. Placing the good arms lost previous to July, 1863, at one hundred thousand, there must have been received from various sources four hundred thousand stands of infantry arms in the first two years of the war.

Among the obvious requirements of a well-regulated service was one central laboratory of sufficient capacity to prepare all ammunition, and thus to secure the vital advantage of absolute uniformity. Authority was therefore granted to concentrate this species of work at Macon, Georgia. Plans of the buildings and of the machinery required were submitted and approved, and the work was begun with energy. The pile of buildings had a façade of six hundred feet, was designed with taste, and comprehended every possible appliance for good and well-organized work. The buildings were nearly ready for occupation at the close of the war, and some of the machinery had arrived at Bermuda. This project preceded that of a general armory for the Confederacy, and was much nearer completion. These, with the admirable powder-mills at Augusta, would have been completed, and with them the Government would have been in a condition to supply arms and ammunition to three hundred thousand men. To these would have been added a foundry for heavy guns at Selma or Brierfield, Alabama, where the strongest cast iron in the country had been made.

Thus has been briefly sketched the development of the resources from which our large armies were supplied with arms and ammunition, while our country was invaded on land and water by armies much larger than our own. It will be seen under what disadvantages our people successfully prosecuted the (to them) new pursuits of mining and manufacturing. The chief of ordnance was General J. Gorgas, a man remarkable for his scientific attainment, for the highest administrative capacity and moral purity, all crowned by zeal and fidelity to his trust, in which he achieved results greatly disproportioned to the means at his command. He closes his excellent monograph in the following words:

"We began in April, 1861, without an arsenal, laboratory, or powder-mill of any capacity, and with no foundry or rolling-mill, except in Richmond, and, before the close of 1863, or within a little over two years, we supplied them. During the harassments of war, while holding our own in the field defiantly and successfully against a powerful enemy; crippled by a depreciated currency; throttled with a blockade that deprived us of nearly all the means of getting material or workmen; obliged to send almost every able-bodied man to the field; unable to use the slave-labor, with which we were abundantly supplied, except in the most unskilled departments of production; hampered by want of transportation even of the commonest supplies of food; with no stock on hand even of articles such as steel, copper, leather, iron, which we must have to build up our establishments—against all these obstacles, in spite of all these deficiencies, we persevered at home, as determinedly as did our troops in the field, against a more tangible opposition; and in that short period created, almost literally out of the ground, foundries and rolling-mills at Selma, Richmond, Atlanta, and Macon; smelting-works at Petersburg, chemical works at Charlotte, North Carolina; a powder-mill far superior to any in the United States and unsurpassed by any across the ocean; and a chain of arsenals, armories, and laboratories equal in their capacity and their improved appointments to the best of those in the United States, stretching link by link from Virginia to Alabama."

The same officer writes:

"It was a charge often repeated at the North against General Floyd, that, as Secretary of War, he had with traitorous intent abused his office by sending arms to the South just before the secession of the States. The transactions which gave rise to this accusation were in the ordinary course of an economical administration of the War Department. After it had been determined to change the old flint-lock muskets which the United States possessed to percussion, it was deemed cheaper to bring all the flint-lock arms in store at Southern arsenals to the Northern arsenals and armories for alteration, rather than to send the necessary machinery and workmen to the South. Consequently, the Southern arsenals were stripped of their deposits, which were sent to Springfield, Watervliet, Pittsburg, St. Louis, and other points. After the conversion had been effected, the denuded Southern arsenals were again supplied with about the same number, perhaps slightly augmented, that had formerly been stored there. The quota deposited at the Charleston Arsenal, where I was stationed in 1860, arrived there full a year before the opening of the war."

The charge was made early in the war that I was slow in procuring arms and munitions of war from Europe. We were not only in advance of the Government of the United States in the markets of Europe, but the facts presented in the following extracts from a letter of our agent, Caleb Huse, dated December 30, 1861, and addressed to Major C. C. Anderson, will serve to place the matter in its proper light:

"London, December 30, 1861.

"Dear Major: We are all waiting with almost breathless anxiety for the arrival of the answer from the United States to the unqualified demand of England for the captured commissioners. Will Mr. Lincoln disregard the international writ of habeas corpus served by Great Britain? We shall soon know. If the prisoners are given up, the affair will result in great inconvenience to us in the way of shipping goods.

"I have now more than enough to load three 'Bermudas,' and can not ship a package, though I have a steamer off the wharf, all ready to receive her cargo. We are literally fighting two governments here. Government watchmen guard the wharf where our goods are stowed and others in the neighborhood, night and day—and the wharfinger has orders not to ship or deliver, by land or water, any goods marked W. D., without first acquainting the honorable Board of Customs. I have applied myself to ship to Bermuda, offering to give bonds to double the amount of value of the goods, that they should be held in Bermuda, subject to the direction of her Majesty's representative in Bermuda. I ... has applied for permission to ship to Cardenas, agreeing to hold the goods subject to the order of the Spanish authorities—but all without avail, and our army must suffer for the want of blankets, overcoats, shoes, socks, field forges, arms, and ammunition, which have been collected to an amount more than double that I have yet received.

"It is miserable to have to look at the immense pile of packages in the warehouse at St. Andrews Wharf, and not be able to send anything—only read the following: twenty-five thousand rifles; two thousand barrels of powder; five hundred thousand caps; ten thousand friction-tubes; five hundred thousand cartridges; thirteen thousand accoutrements; thirteen thousand knapsacks; thirteen thousand gun-slings; forty-four thousand three hundred and twenty-eight pairs of socks; sixteen thousand four hundred and eighty-four blankets; two hundred and twenty-six saddles; saddlers' tools; artillery-harness; leather, etc. Very truly yours,

"Caleb Huse."

CHAPTER XIII.

"The first year of our history has been the most eventful in the annals of this continent. A new Government has been established, and its machinery put in operation over an area exceeding seven hundred thousand square miles. The great principles upon which we have been willing to hazard everything that is dear to man, have made conquests for us which could never have been achieved by the sword. Our Confederacy has grown from six to thirteen States; and Maryland, already united to us by hallowed memories and material interests, will, I believe, when enabled to speak with unstifled voice, connect her destiny with the South. Our people have rallied with unexampled unanimity to the support of the great principles of constitutional government, with firm resolve to perpetuate by arms the rights which they could not peacefully secure. A million of men, it is estimated, are now standing in hostile array and waging war along a frontier of thousands of miles. Battles have been fought, sieges have been conducted, and, although the contest is not ended, and the tide for the moment is against us, the final result in our favor is not doubtful.... Fellow-citizens, after the struggles of ages had consecrated the right of the Englishman to constitutional representative government, our colonial ancestors were forced to vindicate that birthright by an appeal to arms. Success crowned their efforts, and they provided for their posterity a peaceful remedy against future aggression.

"The tyranny of an unbridled majority, the most odious and the least responsible form of despotism, has denied us both the right and the remedy. Therefore, we are in arms to renew such sacrifices as our forefathers made to the holy cause of constitutional liberty."

The financial system which had been adopted from necessity proved adequate at this early period to supply all the wants of the Government and of the people. An unexpected and very large increase of expenditures had resulted from the great enlargement of the necessary means of defense. Yet the Government entered on its second year without a floating debt and with its credit unimpaired. The total expenditures of the first year, ending February 1, 1862, amounted to one hundred and seventy million dollars. A statement of the Secretary of the Treasury, comprising the period from the organization of the Government to August 1, 1862, presents the following results:

The receipts were derived as follows:

Such was the result presented by the Treasury of a Government that had been in existence only eighteen months. It commenced that existence without a treasury, and, without the sinews and the munitions of war, was in less than two months invaded on every side by an implacable foe. Its ways and means consisted in loans and taxes, and to these it resorted. On February 28th I was authorized by Congress to borrow, at any time within twelve months, fifteen million dollars, or less, as might be needed. It was to be applied to the payment of appropriations for the support of the Government, and for the public defense. Certificates of stock or bonds, payable in ten years at eight per cent. interest, were issued. For the payment of the interest and principal of this loan a tax or duty of one eighth of one per cent. per pound was laid on all cotton exported. On March 9th an issue of one million dollars in Treasury notes of fifty dollars and upward was authorized, payable in one year from date, at 3.65 per cent. interest, and receivable for all public debts except the export duty on cotton. A reissue was authorized for a year. On May 16th a loan of fifty million dollars in bonds, payable after twenty years at eight per cent. interest, was authorized. The bonds were "to be sold for specie, military stores, or for the proceeds of sales of raw produce or manufactured articles, to be paid in the form of specie or with foreign bills of exchange." The bonds could not be issued in fractional parts of a hundred dollars, or be exchanged for Treasury notes or the notes of any bank, corporation, or individual. In lieu of any amount of these bonds, not exceeding twenty million dollars, an equal amount of Treasury notes, without interest, in denominations of five dollars and upward, was authorized to be issued. These notes were payable in two years in specie, and were receivable for all debts or taxes except the export duty on cotton. They were also convertible into bonds payable in ten years at eight per cent. interest. On August 19th another issue of Treasury notes, amounting with those then issued to one hundred million dollars, was authorized. They were of the denominations of five dollars and upward. They were receivable for the war-tax and all other public dues except the export duty on cotton. These notes were convertible into twenty-year bonds, bearing eight per cent. interest, of which the issue was limited to one hundred million dollars. Thirty millions were to be a substitute for the same amount, authorized by the act of May 16, 1861. These bonds could be exchanged for specie, military and naval stores, or for the proceeds of raw produce and manufactured articles. On December 19th ten million dollars in Treasury notes were issued to pay the advance of the banks. On December 24th an additional issue of fifty millions of Treasury notes like those of the act of August 19th was authorized. An additional issue of thirty millions of bonds was also authorized. On April 12, 1862, an issue of Treasury notes, certificates of stock and bonds, as the public necessities might require, to the amount of two hundred and fifteen millions, was authorized. Of these, fifty millions in Treasury notes were issued without reserve, ten millions in Treasury notes retained as a reserve fund to pay any sudden or unexpected call for deposits, and one hundred and sixty-five millions certificates of stock or bonds. Bonds to the amount of fifty million dollars, payable in ten years at six per cent. interest, were authorized and made exchangeable for any of the above Treasury notes. All these notes and bonds were subject to the same conditions as those of the acts of August 19 and December 24, 1861. On April 17th five millions of Treasury notes were authorized to be issued in denominations of one and two dollars, which were receivable for all public dues except the cotton duty. An amount of Treasury notes bearing interest at two cents per day on each hundred dollars, as a substitute for as much of the one hundred and sixty-five millions of bonds authorized, was also authorized to be issued. On September 19, 1862, three million five hundred thousand dollars in bonds was authorized to be issued to meet a contract for six iron-clad vessels of war. On September 23, 1862, the amount of Treasury notes under the denomination of five dollars was increased from five million to ten million dollars, and a further issue of bonds or certificates of stock, to the amount of fifty million dollars, was authorized.

On March 23, 1863, an effort was made to remove from circulation some of the issues of Treasury notes by funding them. For this purpose it was provided that all Treasury notes, not bearing interest, issued prior to December, 1862, should be fundable in eight per cent. bonds or stock during the ensuing thirty days, and during the succeeding three months in seven per cent. bonds or stock, after which they ceased to be fundable. All Treasury notes not bearing interest, and issued after December 1, 1862, until ten days after the passage of the act, were made fundable in seven per cent. bonds or stock during the ensuing four months, and afterward only in four per cent. thirty years bonds. Call certificates were made fundable in thirty years bonds at eight per cent., and all outstanding on the ensuing July 1st were deemed bonds at six per cent., payable in thirty years. A monthly issue of Treasury notes, without interest, to the amount of fifty million dollars, was also authorized. These were made fundable during the first year of their issue in six per cent. thirty years bonds, and after the expiration of the year in four per cent. thirty years bonds. The further issue of call certificates was suspended; but Treasury notes fundable in the six per cent. bonds might be converted, at the pleasure of the holder, into such certificates at five per cent. interest, which were reconvertible into like notes within six months, or afterward exchanged for thirty years six per cent. bonds. Treasury notes fundable in four per cent. bonds were convertible in like manner at four per cent. All disposable means in the Treasury were to be applied to the purchase of Treasury notes, bearing no interest, until the amount in circulation did not exceed one hundred and seventy-five millions. The issue of five million dollars, in notes of two dollars, one dollar, and fifty cents, was also authorized. It was further provided in this act that six per cent. bonds, as above mentioned, might be sold to any of the States for Treasury notes, and, being guaranteed by any of the States, they might be used to purchase Treasury notes. The whole amount of such bonds could not exceed two hundred million dollars. Treasury notes so purchased were not to be reissued. The issue of six per cent. coupon bonds to the amount of one hundred million dollars, which were to be applied only to the absorption of Treasury notes, was also authorized. The coupons were payable either in the currency in which interest on other bonds was paid, or in cotton certificates pledging the Government to pay the same in cotton of New Orleans middling quality, delivered at the rate of eight pence sterling per pound.

An important measure was adopted on February 17, 1864, the object of which was to reduce the currency and to authorize a new issue of notes and bonds. All Treasury notes above the denomination of five dollars, and not bearing interest, were, if offered within a short period, made fundable in registered twenty years bonds at four per cent. At the same time a new issue of Treasury notes was authorized, and made receivable for all public dues, except customs duties, at the rate of two dollars for three of the old. The issue of other Treasury notes, after the 1st of the ensuing April, was prohibited.

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: