General Burnside assumed the command with diffidence. After a consultation with General Halleck he moved down the Rappahannock opposite Fredericksburg where he confronted General Lee's army on the 13th of December, and made an attack upon it under great disadvantages and with the legitimate result of a great defeat. The total loss of killed and wounded of the Union army exceeded ten thousand men. The public mind was deeply affected throughout the North by this untoward event. All the prestige which Lee had lost at Antietam had been regained, all the advantage we had secured on that field was sacrificed by the disaster on the still bloodier field of Fredericksburg. It added immeasurably to the gloom of a gloomy winter, and in the rank and file of the army it caused a dissatisfaction somewhat akin to mutiny. So pronounced did this feeling become and so plainly was it manifested that the subject attracted the attention of Congress and led to some results which, despite the seriousness of the situation, were irresistibly amusing.

On the 23d of January Mr. Wilson of Massachusetts offered a somewhat extraordinary resolution,—instructing the Committee on the Conduct of the War to "inquire whether Major-General Burnside has since the battle of Fredericksburg formed any plans for the movement of the Army of the Potomac or any portion of the same, and if so whether any subordinate generals of said army have written to or visited Washington, to oppose or interfere with the execution of such movements, and whether such proposed movements have been arrested or interfered with, and if so by what authority." The consideration of the resolution was postponed under the rule, and three days later it was called up by Mr. Anthony of Rhode Island and its adoption urged "with the view of finding out whether officers were coming up here from the Army of the Potomac to interfere with the plans of General Burnside." There was indeed no doubt that some of the general officers connected with the army had been in Washington, and confidentially informed the President of the dispirited and depressed condition of the whole force.

GENERAL BURNSIDE AND GENERAL HOOKER.

General Burnside's character was one of great frankness, truth, and fidelity. He was full of courage and of manliness, and he conceived from circumstances within his knowledge, that certain officers in his command were gradually undermining and destroying him in the confidence of the army and of the public. He had not desired the position to which the President called him as the successor of General McClellan. He did not feel himself indeed quite competent to the task of commanding an army of one hundred thousand men. But there as in every other position in life he would try to do his best. He failed and failed decisively. It would probably have been wise for him to resign his command immediately after the defeat at Fredericksburg. On January 23, the Friday before the Senate resolution was adopted, General Burnside, highly incensed by the injury which he thought had been done him, wrote an order peremptorily "dismissing, subject to the approval of the President, Major-General Joseph E. Hooker from the Army of the United States, for having been guilty of unjust and unnecessary criticism of his superior officers, and for having by the general tone of his conversation endeavored to create distrust in the minds of officers who have associated with him, and for having habitually spoken in disparaging terms of other officers." The order declared that General Hooker was dismissed "as a man unfit to hold an important commission during a crisis like the present when so much patience, charity, confidence, consideration, and patriotism is due from every person in the field." The same order dismissed Brigadier-General John Newton and Brigadier-General John Cochrane for going to the President with criticisms on the plans of the commanding officer, and relieved Major-General William B. Franklin, Major-General W. F. Smith, Brigadier-General Sturgis and several others from further service in the Army of the Potomac.

The outcome of this extraordinary proceeding was very singular. General Burnside took the order, before its publication, to the President who instead of approving it, very good-naturedly found a command for the General in the West, and on the very day that the Senate passed the resolution of inquiry, two orders were read at the headquarters of the Army of the Potomac,—one from General Burnside announcing that Major-General Joseph E. Hooker was assigned to the command of the Army of the Potomac and asking the army to "give to the brave and skillful General, who is now to command you, your full and cordial support and co-operation;" the other from General Hooker assuming command of the Army of the Potomac by direction of the President and conveying to the late commander, General Burnside, "the most cordial good wishes of the whole army."

In the South-West where General Grant, General Sherman, and General Rosecrans were stubbornly contesting the ground, no decisive results were attained. The army went into winter quarters, with a general feeling of discouragement pervading the country. A substantial advantage was gained by General Buell's army in driving Bragg out of Kentucky, and a very signal and helpful encouragement came to the Government from the fact that the public manifestations in Kentucky were decisively adverse to the Confederates, and that Lee's army in Maryland met no welcome from any portion of the population. General McClellan's army was cheered everywhere in Maryland as it marched to the field of Antietam; and as Bragg retreated through the mountain sections of Kentucky his stragglers were fired upon by the people, and the women along the route upbraided the officers with bitter maledictions. Perhaps the feature of the two invasions most discouraging to the Confederates was the condition of the popular mind which they found in the Border States. They had expected to arouse fresh revolt, but they met a people tired of conflict and longing for repose under the flag of the Nation.

Congress felt that the situation was one of uncertainty if not of positive adversity. They did not however abate one jot or tittle of earnest effort in providing for a renewal of the contest in the ensuing spring. They appropriated some seven hundred and forty millions of dollars for the army and some seventy-five millions for the navy, and they took the very decisive step of authorizing "the President to enroll, arm, equip, and receive into the land and naval service of the United States such number of volunteers of African descent as he may deem useful to suppress the present Rebellion for such term of service as he may prescribe, not exceeding five years." The enactment of this bill was angrily resisted by the Democratic party and by the Union men of the Border States. But the Republicans were able to consolidate their ranks in support of it. In the popular opinion it was a radical measure, and therein lay its chief merit. Aside from the substantial strength which the accession of these colored men to the ranks would give to the Union army, was the moral effect which would be produced on the minds of Southern men by the open demonstration that the President did not regard the Proclamation of Emancipation as brutum fulmen, but intended to enforce it by turning the strong arm of the slave against the person of the master. It was a policy that required great moral courage, and it was abundantly rewarded by successful results. It signalized to the whole world the depth of the earnestness with which the Administration was defending the Union, and the desperate extent to which the contest would be carried before American nationality should be surrendered. The measure had long been demanded by the aggressive sentiment of the North, and its enactment was hailed by the mass of people in the Loyal States as a great step forward.

SUSPENSION OF HABEAS CORPUS.

A subject of striking interest at this session of Congress was the passage of the "Act relating to habeas corpus, and regulating judicial proceedings in certain cases." The President had ordered for the public safety, and as an act necessary to the successful prosecution of the war, the arrest and confinement of certain persons charged with disloyal practices. No punishment was attempted or designed except that of confinement in a military fortress of the United States. It became a matter of argument not only in Congress but throughout the country, whether the President was authorized by the Constitution to suspend the writ of habeas corpus. In order to set the question at rest it was now proposed to pass an Act of indemnity for past acts to all officers engaged in making arrests, and also to confirm to the President by law the right which he had of his own power been exercising. The bill declared that "during the present Rebellion the President of the United States, whenever in his judgment the public safety may require it, is authorized to suspend the privilege of the writ of habeas corpus in any case throughout the United States or any part thereof; and wherever the said writ shall be suspended no military or other officer shall be compelled, in answer to any writ of habeas corpus, to return the body of any person or persons detained by him by authority of the President."

The bill was stubbornly resisted by the Democratic party, and after its passage by the House thirty-six Democratic representatives asked leave to enter upon the Journal a solemn protest against its enactment. They recited at length their grounds of objection, the principal of which was "the giving to the President the right to suspend the writ of habeas corpus throughout the limits of the United States, whereas by the Constitution the power to suspend the privilege of that writ is confided to the discretion of Congress alone and is limited to the place threatened by the dangers of invasion or insurrection," and also because "the bill purports to confirm and make valid by act of Congress arrests and imprisonments which were not only not warranted by the Constitution of the United States but were in palpable violation of its express prohibitions." Mr. Thaddeus Stevens peremptorily moved to lay the request on the table, and on a call of the ayes and noes the motion prevailed by a vote of 75 to 41. The division in the House by this time amounted to a strict line, on one side of which was the war party and on the other side the anti-war party.

The crowning achievement of the session in aid of the Union was the passage of an "Act for enrolling and calling out the National forces and for other purposes." By its terms all able-bodied citizens of the United States between the ages of twenty and forty- five years, with a few exemptions which were explicitly stated, were declared to "constitute the National forces and shall be employed to perform military duty in the service of the United States when called on by the President for that purpose." Volunteering was not to be relied upon as the sole means of recruiting the army, but the entire population within the arms-bearing age was now to be devoted to the contest. Taken in connection with other legislation already adverted to—the enormous appropriations for the forthcoming campaign, the organization of African regiments, the suspension of the writ of habeas corpus at the President's discretion—this last measure was the conclusive proof of the serious determination with which Congress and the people would continue the contest. The spirit with which the President and Congress proceeded in that depressing and depressed period proved invaluable to the country. The situation had so many elements of a discouraging character that the slightest hesitation or faltering among those controlling the administration of the Government would have been followed by distrust and dismay among the people.

CHAPTER XXI.

The President's Border-State Policy.—Loyal Government erected in Virginia.—Recognized by Congress and Senators admitted.—Desire for a New State.—The Long Dissatisfaction of the People of Western Virginia.—The Character of the People and of their Section.—Their Opportunity had come.—Organization of the Pierpont Government.— State Convention and Constitution.—Application to Congress for Admission.—Anti-slavery Amendment.—Senate Debate: Sumner, Wade, Powell, Willey, and Others.—House Debate: Stevens, Conway, Bingham, Segar.—Passage of Bill in Both Branches.—Heavy Blow to the Old State.—Her Claims deserve Consideration.—Should be treated as generously at least as Mexico.

The great importance attached by Mr. Lincoln to the preservation of Loyalty in the line of slave States which bordered upon the free States was everywhere recognized. As Delaware, Maryland, Kentucky, and Missouri had been promptly placed under the control of governments friendly to the Union, there remained of the States in rebellion only Virginia with territory adjacent to the Loyal States. Virginia bordered on the Ohio River for two hundred and fifty miles; she was adjacent to Pennsylvania for a distance of one hundred and twenty miles, half on the southern, half on the western line of that State. Her extreme point stretched to the northward of Pittsburg, and was within twenty-five miles of the parallel of latitude that marks the southern boundary of New England. The continued exercise of even a nominal jurisdiction so far North, by the State which contained the capital of the Rebel Confederacy, would be a serious impeachment of the power of the National Government, and would detract from its respect at home and its prestige abroad. But the National Government was of itself capable only of enforcing military occupation and proclaiming the jurisdiction of the sword. What the President desired was the establishment of civil government by a loyal people, with the reign of law and order everywhere recognized. Happily the disposition of the inhabitants was in harmony with the wishes of the Administration and the necessities of the Union.

After the adoption of the Secession Ordinance by the Virginia Convention on the 17th of April, the loyal people of the Western section of the State were prompt to act. As early as the 13th of May—a fortnight before the day appointed for the popular vote on the Secession Ordinance in Virginia—five hundred staunch Union men came together in a Convention at Wheeling, denounced the Ordinance of Secession and pledged their loyalty to the National Government and their obedience to its laws. If the Ordinance should be approved by the popular vote of Virginia, this preliminary conference requested the people in all the counties represented, to appoint delegates on the fourth day of June to a General Convention to assemble in Wheeling on the 11th of the same month. These Union- loving men were energetic and zealous. They realized that with the secession of Virginia, completed and proclaimed, they must do one of two things—either proceed at once to organize a State government which would be faithful to the National Constitution, or drift helplessly into anarchy and thus contribute to the success of the rebellion. Their prompt and intelligent action is a remarkable illustration of the trained and disciplined ability of Americans for the duties of self-government.

The members of the Convention which was organized on the 11th of June were even more determined than those who had assembled the preceding month. Without delay they declared the State offices of Virginia vacant because of the treason and disloyalty of those who had been elected to hold them, and they proceeded to fill them and form a regular State organization of which Francis H. Pierpont was appointed the executive head. They did not assume to represent a mere section of the State, but in the belief that the loyal people were entitled to speak for the whole State they declared that their government was the Government of Virginia. This Western movement was subsequently strengthened by the accession of delegates from Alexandria and Fairfax Counties in Middle Virginia and from Accomac and Northampton Counties on the Eastern Shore. Thus organized, the Government of the State was acknowledged by Congress as the Government of Virginia and her senators and representatives were admitted to seats.

Notwithstanding the compliance with all the outward forms and requirements, notwithstanding the recognition by Congress of the new government, it was seen to be essentially and really the Government of West Virginia. It was only nominally and by construction the Government of the State of Virginia. It did not represent the political power or the majority of the people of the entire State. That power was wielded in aid of the rebellion. The senators and representatives of Virginia were in the Confederate Congress. The strength of her people was in the Confederate Army, of which a distinguished Virginian was the commander. The situation was anomalous, though the friends of the Union justified the irregularity of recognizing the framework of government in the hands of loyal men as the actual civil administration of the State of Virginia.

CHARACTER OF WEST VIRGINIA.

The people of the Western section of Virginia realized that the position was unnatural,—one which they could not sustain by popular power within the limits of the State they assumed to govern, except for the protection afforded by the military power of the National Government. Between the two sections of the State there had long been serious antagonisms. Indeed from the very origin of the settlement of West Virginia, which had made but little progress when the Federal Constitution was adopted, its citizens were in large degree alienated from the Eastern and older section of the State. The men of the West were hardy frontiersmen, a majority of them soldiers of the Revolution and their immediate descendants, without estates, with little but the honorable record of patriotic service and their own strong arms, for their fortunes. They had few slaves. They had their land patents, which were certificates of patriotic service in the Revolutionary war, and they depended upon their own labor for a new home in the wilderness. A population thus originating, a community thus founded, were naturally uncongenial to the aristocratic element of the Old Dominion. They had no trade relations, no social intercourse, with the tide-water section of the State. Formidable mountain ranges separated the two sections, and the inhabitants saw little of each other. The business interests of the Western region led the people to the Valley of the Ohio and not to the shores of the Chesapeake. The waters of the Monongahela connected them with Pennsylvania and carried them to Pittsburg. All the rivers of the western slope flowed into the Ohio and gave to the people the markets of Cincinnati and Louisville. Their commercial intercourse depended on the navigation of Western waters, and a far larger number had visited St. Louis and New Orleans than had ever seen Richmond or Norfolk. The West-Virginians were aware of the splendid resources of their section and were constantly irritated by the neglect of the parent State to aid in their development. They enjoyed a climate as genial as that of the Italians who dwell on the slopes of the Apennines; they had forests more valuable than those that skirt the upper Rhine; they had mineral wealth as great as that which has given England her precedence in the manufacturing progress of the world. They were anxious for self-government. Their trustworthy senator, Waitman T. Willey, declared that the people west of the Alleghany range had for sixty years "desired separation." The two sections, he said, had been time and again on the eve of an outbreak and the Western people could with difficulty be held back from insurrection. Criminations and recriminations had been exchanged at every session of the Legislature for forty years and threats of violence had been hurled by one section at the other.

The opportunity for a new State had now come. Its organization and admission to the Union would complete the chain of loyal Commonwealths on the south side of Mason and Dixon's line, and would drive back the jurisdiction of rebellious Virginia beyond the chain of mountains and interpose that barrier to the progress of the insurrectionary forces Westward and Northward. The provision in the Federal Constitution that no new State shall be formed within the jurisdiction of any other State without the consent of the Legislature of the State as well as of Congress, had always been the stumbling-block in the way of West Virginia's independence. Despite the hostilities and antagonisms of the two populations, Virginia would insist on retaining this valuable section of country within her own jurisdiction. But now, by the chances of war, the same men who desired to create the new State were wielding the entire political power of Virginia, and they would naturally grant permission to themselves to erect a State that would be entirely free from the objectionable jurisdiction which for the time they represented. They were not slow to avail themselves of their opportunity.

ADMISSION OF WEST VIRGINIA TO THE UNION.

The Pierpont Government, as it was now popularly termed, adopted an Ordinance on the 20th of August, 1861, providing "for the formation of a new State out of a portion of the territory of this State." The Ordinance was approved by a vote of the people on the fourth Thursday of October, and on the 26th of November the Convention assembled in Wheeling to frame a constitution for the new government. The work was satisfactorily performed, and on the first Thursday of April, 1862, the people approved the constitution by a vote fo 18,862 in favor of it with only 514 against it. The work of the representatives of the projected new State being thus ratified, the Governor called the Legislature of Virginia together on the sixth day of May, and on the 13th of the same moth that body gave its consent, with due regularity, to "the formation of a new State within the jurisdiction of the said State of Virginia." A fortnight later, on the 28th of May, Senator Willey introduced the subject in Congress by presenting a memorial from the Legislature of Virginia together with a certified copy of the proceedings of the Constitutional Convention and the vote of the people.

The constitution was referred to the Committee on Territories and a bill favorable to admission was promptly reported by Senator Wade of Ohio. The measure was discussed at different periods, largely with reference to the effect it would have upon the institution of slavery, and Congress insisted upon inserting a provision that "the children of slaves, born in the State after the fourth day of July, 1863, shall be free; all slaves within the said State who shall at that time be under the age of ten years shall be free when they arrive at the age of twenty-one years; all slaves over ten and under twenty-one shall be free at the age of twenty-five years; and no slave shall be permitted to come into the State for permanent residence therein." This condition was to be ratified by the Convention which framed the constitution, and by the people at an election held for the purpose, and, upon due certification of the approval of the condition to the President of the United States, he was authorized to issue his proclamation declaring West Virginia to be a State of the Union.

Mr. Sumner was not satisfied with a condition which left West Virginia with any form of slavery whatever. He said there were "twelve thousand human beings now held in bondage in that State, and all who are over a certain age are to be kept so for their natural lives." He desired to strike out the provision which permitted this and to insert on in lieu thereof, declaring that "within the limits of the said State there shall be neither slavery nor involuntary servitude otherwise than in the punishment of crime whereof the party shall have been duly convicted." Mr. Sumner's amendment was opposed by some of the most radical anti-slavery men in the Senate, notably by Collamer and Foot of Vermont, by Wade of Ohio, and by Howe of Wisconsin. They believed that the convictions of the people of West Virginia had developed to the point embodied in the bill, and that to attempt the immediate extirpation of slavery might lead to re-action and possibly to the rejection of the constitution. Mr. Sumner's amendment was therefore defeated by 24 votes against 11. Of the 24 votes 17 were given by Republican senators.

Mr. Powell of Kentucky vigorously opposed the bill in all its parts. He contended that "if the cities of New York and Brooklyn, with the counties in which they are located, were to get up a little bogus Legislature and say they were the State of New York, and ask to be admitted and cut off from the rest of the State, I would just as soon vote for their admission as to vote for the pending bill." No senator, he said, could pretend to claim that "even a third part of the people of Virginia have ever had any thing to do with rendering their assent to the making of this new State within the territorial limits of that ancient Commonwealth." He declared this to be "a dangerous precedent which overthrows the Constitution and may be fraught with direful consequences." "Out of the one hundred and sixty counties that compose the State of Virginia," he continued, "less than one-fourth have assumed to act for the entire State; and even within the boundaries of the new State more than half the voters have declined to take part in the elections."

Mr. Willey argued that the Legislature represented the almost unanimous will of all the loyal people of West Virginia. He said that "besides the 19,000 votes cast, there were 10,100 men absent in the Union army, and that, the conclusion being foregone, the people had not been careful to come out to vote, knowing that the constitution would be overwhelmingly adopted." On the 14th of July, three days before Congress adjourned, the bill passed the Senate by a vote of 23 to 17. Mr. Rice of Minnesota was the only Democrat who favored the admission of the new State. The other Democratic senators voted against it. Mr. Chandler and Mr. Howard of Michigan voted in the negative because the State had voluntarily done nothing towards providing for the emancipation of slaves; Mr. Sumner and Mr. Wilson, because the State had rejected the anti- slavery amendment; Mr. Trumbull and Mr. Cowan, because of the irregularity of the whole proceeding.

ADMISSION OF WEST VIRGINIA TO THE UNION.

The bill was not considered in the House until the next session. It was taken up on the 9th of December and was vigorously attacked by Mr. Conway of Kansas. He questioned the validity of the Pierpont Government and asked whether the law which gave him his warrant of authority had come from "a mob or from a mass-meeting." He said he had "serious reason to believe that it is the intention of the President to encourage the formation of State organizations in all the seceded States, and that a few individuals are to assume State powers wherever a military encampment can be effected in any of the rebellious districts." Mr. Conway denounced this scheme as "utterly and flagrantly unconstitutional, as radically revolutionary in character and deserving the reprobation of every loyal citizen." It aimed, he said, at "an utter subversion of our constitutional system and will consolidate all power in the hands of the Executive." He was answered with spirit by Mr. Colfax of Indiana, who reviewed the successive steps by which the legality of the Virginia government had been recognized by the President and by all the departments of the executive government. He argued that West Virginia had taken every step regularly and complied with every requirement of the Constitution.

Mr. Crittenden of Kentucky said the Wheeling government could be regarded as the government of the whole State of Virginia "only by a mere fiction. We know the fact to be otherwise." He said it was the party applying for admission that consented to the admission, and that was the whole of it. When the war should cease and the National authority should be re-established he wanted the Union as it was. This would be "a new-made Union—the old majestic body cut and slashed by passion, by war, coming to form another government, another Union. The Constitution gives us no power to do what we are asked to do." Mr. Maynard said there were "two governors and two Legislatures assuming authority over Virginia simultaneously. The question here is which shall the Government of the United States recognize as the true and lawful Legislature of Virginia?" He contended that it had already been settled, by the admission of members of both branches of Congress under the Pierpont Government. Mr. Dawes affirmed that "nobody has given his consent to the division of the State of Virginia and the erection of a new State who does not reside within the new State itself." He contended therefore that "this bill does not comply with the spirit of the Constitution. If the remaining portions of Virginia are under duress while this consent is given, it is a mere mockery of the Constitution." Mr. Brown of Virginia, from that part which was to be included in the new State, corrected Mr. Dawes, but the latter maintained that while a member of the Legislature "was picked up in Fairfax and two or three gentlemen in other parts of the State, they protested themselves that they did not pretend to represent the counties from which they hailed."

Mr. Thaddeus Stevens said he did not desire to be understood as "sharing the delusion that we are admitting West Virginia in pursuance of any provision of the Constitution." He could "find no provision justifying it, and the argument in favor of it originates with those who either honestly entertain an erroneous opinion, or who desire to justify by a forced construction an act which they have predetermined to do." He maintained that it was "but mockery to say that the Legislature of Virginia has ever consented to the division. Only two hundred thousand out of a million and a quarter of people have participated in the proceedings." He contended that "the State of Virginia has a regular organization, and by a large majority of the people it has changed its relations to the Federal Government." He knew that this was treason in the individuals who participated in it; but so far as the State was concerned, it was a valid act. Our government, he argued, "does not act upon a State. The State, as a separate distinct body, is the State of a majority of the people of Virginia, whether rebel or loyal, whether convict or free men. The majority of the people of Virginia is the State of Virginia, although individuals have committed treason." "Governor Pierpont," continued Mr. Stevens, "is an excellent man, and I wish he were the Governor elected by the people of Virginia. But according to my principles operating at the present time I can vote for the admission of West Virginia without any compunctions of conscience—only with some doubt about the policy of it. None of the States now in rebellion are entitled to the protection of the Constitution. These proceedings are in virtue of the laws of war. We may admit West Virginia as a new State, not by virtue of any provision of the Constitution but under our absolute power which the laws of war give us in the circumstances in which we are placed. I shall vote for this bill upon that theory, and upon that alone. I will not stultify myself by supposing that we have any warrant in the Constitution for this proceeding."

ADMISSION OF WEST VIRGINIA TO THE UNION.

Mr. Bingham of Ohio made an able argument principally devoted to rebutting the somewhat mischievous ground assumed by Mr. Stevens. He affirmed that "the minority of the people of the State cannot be deprived of their rights because the majority have committed treason." He argued that, the majority of the people of Virginia having become rebels, the State was in the hands of the loyal minority, who in that event had a right to administer the laws, maintain the authority of the State government, and elect a State Legislature and a Governor, through whom they might call upon the Federal Government for protection against domestic violence, according to the express guaranty of the Constitution. "To deny this proposition," continued Mr. Bingham, "is to say that when the majority in any State revolt against the laws, the State government can never be re-organized nor the rights of the minority protected so long as the majority are in revolt." He contended that the doctrine he advocated was not a new one, that it was as old as the Constitution, and he called attention to the remarkable letter of "The Federalist," addressed by Mr. Madison to the American people in which "he who is called the author of the Constitution" asked: "Why may not illicit combinations for purposes of violence be formed as well by a majority of a State as by a majority of a county or district of the same State? And if the authority of the State ought in the latter case to protect the local magistrate, ought not the Federal authority in the former case to support the State authority?"

Mr. Segar, who represented the district including Fortress Monroe, pleaded very earnestly against the dismemberment of his State and he argued, as Mr. Powell had argued in the Senate, that there was no evidence that a majority of the people within the counties which were to compose the new State had ever given their assent to its formation. The ordinary vote of those counties he said was 48,000 while on the new State question the entire vote cast was only 19,000. He named ten counties included in the new State organization in which not a single vote had been cast on either side of the question at the special election. Though loyal to the Union and grieving over the rebellious course of Virginia he begged that this humiliation might be spared her. "Let there not be two Virginias; let us remain one and united. Do not break up the rich cluster of glorious memories and associations which gather over the name and the history of this ancient and once glorious Commonwealth."

On the passage of the bill the ayes were 96 and the noes were 55. The ayes were wholly from the Republican party, though several prominent Republicans opposed the measure. Almost the entire Massachusetts delegation voted in the negative, as did also Mr. Roscoe Conkling, Mr. Conway of Kansas and Mr. Francis Thomas of Maryland. The wide difference of opinion concerning this act was not unnatural. But the cause of the Union was aided by the addition of another loyal commonwealth, and substantial justice was done to the brave people of the new State who by their loyalty had earned the right to be freed from the domination which had fretted them and from the association which was uncongenial to them.

To the old State of Virginia the blow was a heavy one. In the years following the war it added seriously to her financial embarrassment, and it has in many ways obstructed her prosperity. As a punitive measure, for the chastening of Virginia, it cannot be defended. Assuredly there was no ground for distressing Virginia by penal enactments that did not apply equally to every other State of the Confederacy. Common justice revolts at the selection of one man for punishment from eleven who have all been guilty of the same offense. If punishment had been designed there was equal reason for stripping Texas of her vast domain and for withdrawing the numerous land grants which had been generously made by the National Government to many of the States in rebellion. But Texas was allowed to emerge from the contest without the forfeiture of an acre, and Congress, so far from withdrawing the land grants by which other Southern States were to be enriched, took pains to renew them in the years succeeding the war. The autonomy of Virginia alone was disturbed. Upon Virginia alone fell the penalty, which if due to any was due to all.

THE PUBLIC DEBT OF VIRGINIA.

Another consideration is of great weight. An innocent third party was involved. Virginia owed a large debt, held in great part by loyal citizens of the North and by subjects of foreign countries. The burden was already as heavy as she could bear in her entirety, and dismemberment so crippled her that she could not meet her obligations. The United States might well have relieved Virginia and have done justice to her creditors by making some allowance for the division of her territory. Regarding her only as entitled to the rights of a public enemy so long as she warred upon the Union, we may confidently maintain that she is entitled at least to as just and magnanimous treatment as the National Government extends to a foreign foe. In our war with Mexico it became our interest to acquire a large part of the territory owned by that republic. We had conquered her armies and were in possession of her capital. She was helpless in our hands. But the high sense of justice which has always distinguished the United States in her public policies would not permit the despoilment of Mexico. We negotiated therefore for the territory needed, and paid for it a larger price than would have been given by any other nation in the world. The American Government went still farther. Many of our citizens held large claims against Mexico, and the failure to pay them had been one of the causes that precipitated hostilities. Our government in addition to the money consideration of fifteen millions of dollars which we paid for territory, agreed to exonerate Mexico from all demands of our citizens, and to pay them from our own Treasury. This supplementary agreement cost the National Treasury nearly four million dollars.

If the United State were willing to place Virginia on the basis on which they magnanimously placed Mexico after the conquest of that Republic, a sufficient allowance would be made to her to compensate at least for that part of her public debt which might presumptively be represented by the territory taken from her. If it be said in answer to such a suggestion that it would be fairer for West Virginia to assume the proportional obligation thus indicated, the prompt rejoinder is that in equity her people are not held to such obligation. The public improvements for which the debt was in large part incurred had not been so far completed as to benefit West Virginia when the civil war began,—their advantages being mainly confined to the Tide-water and Piedmont sections of the State. There is indeed neither moral nor legal responsibility resting upon West Virginia for any part of the debt of the old State.

In determining the relative obligations of the National Government and of the government of West Virginia, concerning the debt, it is of the first importance to remember that the new State was not primarily organized and admitted to the Union for the benefit of her own people, but in far larger degree for the benefit of the people of the whole Union. The organic law would not have been strained, legal fictions would not have been invented, contradictory theories would not have been indulged, if a great national interest had not demanded the creation of West Virginia. If it had not been apparent that the organization of West Virginia was an advantage to the loyal cause; if the border-State policy of Mr. Lincoln, so rigidly adhered to throughout the contest, had not required this link for the completion of its chain,—the wishes of the people most directly involved would never have had the slightest attention from the Congress of the United States. Strong and equitable as was the case of West Virginia, irritating and undesirable as her relations to the older State might be, advantageous to the people as the new government might prove, these considerations would not of themselves have offered sufficient inducement to engage the attention of Congress for an hour at that critical period. They would have been brushed aside and disregarded with that cool indifference by which all great legislative bodies prove how easy it is to endure the misery of other people. West Virginia indeed got only what was equitably due, and what she was entitled to claim by the natural right of self-government. The war brought good fortune to her as conspicuously as it brought ill fortune to the older State from which she was wrenched. West Virginia is to be congratulated, and her creditable career and untiring enterprise since she assumed the responsibilities of self-government show how well she deserved the boon. But the wounds inflicted on the mother State by her separation will never be healed until Virginia is relieved from the odium of having been specially selected from the eleven seceding States for the punishment that struck at once against her prosperity and against her pride of empire.

Nor should it be forgotten that the State of Virginia before the war might well be regarded as the creditor and not the debtor of the National Government. One of her earliest acts of patriotism as an independent State was the cession to the General Government of her superb domain on the north side of the Ohio River, from the sale of which more than one hundred millions of dollars have been paid into the National Treasury. A suggestive contrast is presented to-day between the condition of Virginia and the condition of Texas and Florida. It was the aggressive disunionism of the two latter States which aided powerfully in dragging Virginia into rebellion. But for the urgency of the seven original Confederate States, in which Texas and Florida were numbered, Virginia Loyalists would have been able to hold their State firm in her National allegiance. Since the war Texas has traveled the highway to wealth and power, founded on the ownership of her public lands, of which the National Government could have deprived her with as little difficulty as was found in dividing Virginia. Florida has likewise enjoyed general prosperity, and secured rapid development from the resources of land which the National Government had generously given her before the war and of which she was not deprived for her acts of rebellion. True-hearted Americans rejoice in the prosperity of these States which adorn the southern border of the Republic; but they cannot help seeing, and seeing with regret, how differently the ancient Commonwealth of Virginia has fared at the hands of the National Government.

EQUITABLE CONSIDERATIONS INVOLVED.

If the hurt to Virginia were of a general character, which could not be specified or defined, her case might be passed over with the plea of damnum absque injurid. But, unfortunately,—or it may be fortunately,—the detriment to her public credit can be stated with substantial precision, and can be traced directly to her despoilment. That took from her the power to pay her debt. If the harm resulting therefrom were confined to the State and to the holders of her securities, the National Government might the more easily disregard the equities of the case. But Virginia's embarrassment is of wide-spread concern, and injuriously affects the public credit of other States. Nor can it be said that the precedent of aiding Virginia could be quoted for aid to every State that might get into financial trouble. It could be quoted only for the case—which will perhaps never again occur—where the National Government shall strip the State of a large and valuable part of her territory, and thus take from her the ability to meet her obligations. The precedent might then be quoted, and should be unhesitatingly followed.

In the formal and necessarily austere administration of public affairs there is little room for the interposition of sentiment. Yet sentiment has its place. We stimulate the ardor of patriotism by the mere display of a flag which has no material force, but which is emblematic of all material force, and typifies the glory of the Nation. We stir the ambition of the living by rearing costly monuments to the heroic dead. It may surely be pardoned if Americans shall feel a deep personal interest in the good name and good fortune of a State so closely identified with the early renown of the Republic,—a State with whose soil is mingled the dust of those to whom all States and all generations are debtors,—the Father of his Country, the author of the Declaration of Independence, the chief projector of the National Constitution.

CHAPTER XXII.

National Currency and State Bank Currency.—In Competition.—Legal- tender Bill tended to expand State Bank Circulation.—Secretary Chase's Recommendation.—Favorably received.—State Bank Circulation, $150,000,000.—Preliminary Bill to establish National Banks.— Fessenden.—Sherman.—Hooper.—National Bank System in 1862.— Discussed among the People.—Recommended by the President.—Mr. Chase urges it.—Bill introduced and discussed in Senate.—Discussion in the House.—Bill passed.—Hugh McCulloch of Indiana appointed Comptroller of the Currency.—Amended Bank Act.—To remedy Defects, Circulation limited to $500,000,000.—National Power.—State Rights. —Taxation.—Renewed Debate in Senate and House.—Bill passed.— Merits of the System.—Former Systems.—First Bank of the United States.—Charters of United-States banks, 1791-1816.—National Banks compared with United-States Banks.—One Defective Element.— Founded on National Debt.

The Secretary of the Treasury had not failed to see that a constant conflict and damaging competition must ensue between the currency of the Nation and the currency of the State banks. It was the course of the banks more than any other agency that had discredited the "demand notes" and demonstrated to the Treasury Department and to Congress the absolute necessity of imparting the legal-tender quality to the paper issued by the government. As this paper took the place of gold and silver in the payment of every obligation, both corporate and individual,—except duties on imports and interest on the National debt,—it was made easy for the State banks to extend their circulation. It was quite practicable for them to keep a sufficient amount of legal-tender paper in their vaults to meet all the probable requirements of redemption, and they were thus tempted to expand their loans and issue their own bills to a dangerous extent. It was indeed hardly necessary to provide legal- tender notes to redeem their own bills. One kind of paper money, to a large proportion of the public, was practically as good as another. Coin redemption being abandoned, the banks in a certain sense lost all moral and legal restraint. The enactment of the Legal-tender Bill had not therefore given the control of the currency to the government. It had only increased the dangers of inflation by the stimulus it imparted and the protection it afforded to the circulation of State bank notes.

SECRETARY CHASE'S RECOMMENDATION.

Secretary Chase had grasped the situation earlier than the experienced financiers who assumed to be his special advisers, and while he was, in the opinion of unjust critics, completely in the hands of the State banks, he surprised the country by recommending in his report of December, 1861, the establishment of a National system that should give the General Government complete control of the currency. The State bank circulation in the loyal States he estimated at $150,000,000. "The whole of it," he regarded as "a loan without interest from the people to the banks." The secretary thought "it deserves consideration whether sound policy does not require that the advantages of this loan be transferred from the banks, representing the interest of stockholders, to the government representing the aggregate interest of the whole people." Attention was called to the fact that "the existing circulation depends on the laws of thirty-four States and the character of some sixteen hundred private corporations." It was somewhat startling to learn that "the circulation is usually furnished in greatest proportion by institutions of least actual capital and is commonly in the inverse ratio of solvency."

The bold and comprehensive recommendation of Mr. Chase was favorably received by many of the leading men in Congress and by many of the ablest financiers of the country. The committees of both Senate and House were well disposed, but preferred time for consultation and deliberation. The Secretary of the Treasury, with the aid of Mr. E. G. Spaulding, Mr. Sherman, and Mr. Samuel Hooper, engaged in the preparation of a bank bill which in due time was submitted to the Committee of Ways and Means. The committee was at that moment engaged on the Internal-revenue Bill, the important character of which absorbed the attention of Congress. The adjustment of the tariff duties to the excise taxes was also a serious labor which left no adequate time to mature a bank bill in season for its consideration at that session. Indeed the committee was not able to report the bill to the House until the 12th of July, 1862, when five thousand extra copies were printed for distribution among the financial institutions of the country. It was deemed wise to give the people time to consider so important a measure, and with that end in view all further action was postponed to the next session.

Meanwhile the bill was published in the leading papers of the loyal States and elicited the most diverse opinion. It was however received with favor by the public. Those interested in the State banks were at first exceedingly hostile to it. The proposition to tax their circulation two per cent. in addition to the three per cent. imposed upon incomes by the new law was considered harsh and unjust. The object was to compel the retirement of the State bank circulation. In no other way could a national system be at once generally instituted. The courts had repeatedly held the authority of the States to charter banks with power to issue and circulate notes as money, to be constitutional. Congress could not abridge this right in any way by direct legislation. Its power to tax was however undoubted. The friends of the State bank system claimed that the indirect method of destroying the institution by taxing its notes out of existence was an arbitrary exercise of questionable power.

The advocates of a uniform and stable system of banking to cure the manifold evils then prevailing, admitted that the prerogative of the States could not be questioned, but urged that the exercise of it had invariably increased and often produced the financial troubles which had afflicted the country in the past. If the States would not surrender their prerogative, the National Government would be compelled to exercise its larger prerogative embodied in the power to tax. The right of the nation to do this had been asserted by the head of the Treasury under a Democratic administration some years before. Recognizing as he did the necessity of a reform in the system of banking, Secretary Guthrie in his report to Congress in 1855 declared that "if the States shall continue the charter and multiplication of banks with authority to issue and circulate notes as money, and fail to apply any adequate remedy to the increasing evil, and also fail to invest Congress with the necessary power to prohibit the same, Congress may be justified in the exercise of the power to levy an excise upon them, and thus render the authority to issue and circulate them valueless."

THE SYSTEM OF NATIONAL BANKS.

During the autumn of 1862 the bank question was subjected to a thorough discussion among the people. The legal-tender notes had already become popular, and were evidently preferred by the public to the notes of local banks. The depression naturally incident to continued reverses in the field led to the defeat of the Administration in many of the State elections, but despite the operation of all adverse causes the general trade of the country was good. The crops had been abundant and prices were remunerative. All that had been claimed for the legal-tender bill by its most sanguine advocates had been realized in the business of the country. The one disappointment was their failure to keep at par with gold; but even this, in the general prosperity among the people, did not create discouragement. The Internal-revenue system had but just gone into operation, and the only feature embarrassing to the people was the requirement that the taxes should be paid in the legal- tender paper of the government. No provision of law could have operated so powerfully for a system of National banks. The people were subjected to annoyance and often to expense in exchanging the notes of their local banks for the government medium. The internal fiscal machinery of the government evidently required places of deposit. The tax-collectors could not intrust the funds in their hands to State banks except at their own risk. The money of the government was thus liable to loss from the absence of responsible agencies under the control of National power. The fact that the bills of State banks were not receivable for taxes tended constantly to bring them into disrepute. The refusal of the government to trust its funds in the keeping of the State banks was nothing less than the requirement of the Sub-treasury Act, but to the popular apprehension it was a manifestation of distrust which did the banks great harm. The total revenue of the National Government had before the war been collected at a few custom-houses on the coast, and the public had not been generally familiar with the mode of its safe-keeping. The system of internal taxes now reached the interior, and the people were made daily witnesses of the fact that the government would not trust a dollar of its money in the vaults of a State bank.

Under the influences thus at work, the friends of the State banks plainly saw that the National system was growing in favor, and they began to admit that its creation might facilitate the financial operations of the country. Many of them were willing to give it a fair trial. The advocates of the National system constantly pressed their cause among the people. The five-twenty six per cent. bonds, into which the legal tenders were convertible, offered, as they explained, an excellent basis for banking. Their absorption for that purpose would create not only a market for that class of securities but inevitably cause them to appreciate in value. The government would thus be largely benefitted, and its cause would be strengthened by the silent influence of self-interest which would certainly be developed by the general distribution of its bonds as the basis of a national currency. It was also urged that the existing banks could with great facility and without sacrifice re-organize under the proposed national law.

The popular mind having been thus favorably turned towards the system of national banks, the President specifically approved it in his message to Congress in December, 1862. Expressing his doubts "whether a circulation of United-States notes, payable in coin, and sufficiently large for the wants of the people, can be permanently, usefully, and safely maintained," Mr. Lincoln asked if there was "any other mode by which necessary provision for the public wants can be made, and the great advantage of a safe and uniform currency secured?" He declared that he knew of none "which promises so certain results, and is at the same time so unobjectionable, as the organization of banking associations under a general law of Congress well guarded in its provisions." Mr. Chase elaborated his recommendation of the preceding year to the same effect. He asked that "a tax might be imposed on the notes of existing banks such as would practically exclude them from circulation." In their stead the legal-tender notes would be used, but he preferred "a circulation furnished by the government but issued by banking associations organized under a general Act of Congress."

Mr. Chase said "the central idea of the proposed measure is the establishment of one uniform circulation, of equal value throughout the country, upon the foundation of national credit combined with private capital." He suggested that "these associations be entirely voluntary. Any persons desirous of employing real capital in sufficient amounts, can, if the plan be adopted, unite together under proper articles, and having contributed the requisite capital can invest such part of it, not less than a fixed minimum, in United- States bonds, and having deposited these bonds with the proper officer of the United States can receive United-States notes in such denominations as may be desired, and employ them as money in discounts and exchanges." As a further inducement, the secretary said "the stockholders of any existing banks can in like manner organize under the Act, and transfer, by such degrees as may be found convenient, the capital of the old to the use of the new associations. The notes thus put into circulation will be payable until resumption in United-States notes, and after resumption in specie, by the association which issues them, on demand, and if not so paid will be redeemable at the Treasury of the United States from the proceeds of the bonds pledged in security." The secretary thought it would be "difficult to conceive of a note circulation which will combine higher local and general credit than this. After a few years no other circulation would be used, nor could the issues of the national circulation be easily increased beyond the legitimate demands of business. Every dollar of circulation would represent real capital actually invested in national stocks, and the total amount issued could at all times be easily and quickly ascertained from the books of the Treasury."

SENATE DISCUSSES THE BANKING SYSTEM.

The bill to carry out these suggestions was introduced in the Senate on the 26th of January, 1863, by Mr. Sherman, and was reported from the Finance Committee on the 2d of February. On the 9th the Senate took it up for consideration. Mr. Sherman advocated the proposed system in an elaborate argument on several distinct grounds: "The banks would furnish a market for United-States bonds; they would absorb the circulation of the State banks gradually and without harsh measures; they would create a community of interest between the stockholders of the banks, the people, and the government, where now there existed a great contrariety of opinion and a great diversity of interests; adequate safeguards would be established against counterfeiting; the currency proposed would be uniform and would take the place of the notes of sixteen hundred banks, differing in style, and so easily imitated and altered that while notes of one-sixth of the existing banks had been counterfeited, 1,861 kinds of imitations were afloat, and 3,039 alterations, in addition to 1,685 spurious notes, in which hardly any care had been taken to show any resemblance to the genuine." The national banks would be depositories of public moneys and their notes would be receivable for taxes. He concluded by declaring that "we cannot maintain our nationality unless we establish a sound and stable financial system, and as the basis of it we must have a uniform national currency." Accordingly he deemed the passage of the pending bill "more important than any other measure now pending either in Senate or House."

—Mr. Henderson of Missouri sought to limit the system to banks with a capital not less then $300,000, and thought "it would be infinitely better that all the banks should be established in New York, Philadelphia, Boston, Cincinnati, St. Louis, and such cities as those." He said "they had had some experience in the West with banking laws which permitted the organization of banks in out-of- the-way places, obscure villages, and unknown cross-roads."

—Mr. Powell of Kentucky, who was most persistent in his advocacy of a currency based on gold and silver coin, moved to "strike from the bill the words which prevented the acceptance of the National bank notes for duties on imports." These duties were payable in coin in order to secure gold with which to pay the interest on the public debt. In supporting his amendment, Senator Powell said that if the bill became a law the fact that they could not be received for customs would tend to depreciate the notes, and he wanted the credit of the paper money kept up if the country was to have no other. His motion was defeated.

—Mr. Ira Harris of New York secured the adoption of three sections, to be added at the end of the bill, which would enable State banks to accept its provisions and become National institutions more readily and more easily. He said that he was not opposed to a fair trial of the new system, but he doubted very much whether the banks of New York could be induced to abandon their State charters. "The banking system of New York was the best in the world. The banks enjoyed privileges which they could not be induced to surrender and the people would be reluctant to trust any others."

—Mr. John Carlile of West Virginia voted against all amendment because he wanted the bill to kill itself, which would happen if it were not improved. He voted against Senator Henderson's amendment to limit charters to banks with $300,000 capital. If the bill passed as it came from the Finance Committee there "will be banks established at every cross-road in the country. The State banks will be destroyed, and widows and orphans whose all is invested in the stock of these institutions will be impoverished."

—Mr. Clark of New Hampshire thought the proposed system might be improved by providing "that there shall be a visitation on the part of the States." He thought it would give confidence to the banks if the States "had the right to know how they stood."

—Mr. Pomeroy of Kansas thought the right to organize with a capital as low as $50,000 was a good provision and would "tend to popularize and extend the National banks throughout the country."

SENATE DISCUSSES THE BANKING SYSTEM.

—Mr. Howard of Michigan opposed the bill because he thought its effect would be to "wage a very unnecessary and dangerous war upon the State institutions," and also because he deplored "the contest which will probably arise out of it in our local politics."

—Mr. Garrett Davis, avowing himself an advocate of the old United- States Bank which President Jackson destroyed, was opposed to the pending bill because "it does not provide for the convertibility of its paper into coin." The "system is based on government bonds, and they sold in New York yesterday at a discount of fifty-three percent."

—Mr. Chandler of Michigan corrected Mr. Davis. "Gold sold at fifty-three per cent. premium, but that did not mean a discount of fifty-three per cent. on the bonds."

—Mr. Wilson of Massachusetts pertinently asked Mr. Davis "if the credit of the government is not good enough, where is there left in the country any thing good enough to bank on? If the government goes down, there is not a considerable bank in America that does not go down with it."

—Mr. Doolittle of Wisconsin regarded it as "a necessity that the government should take control of the paper currency of the country. In some way we must restrain the issues of State banks. If we permit these banks to flood the channels of circulation, we destroy ourselves."

—Mr. Collamer of Vermont denied the right to tax the State banks out of existence, and to establish corporations in the State and Territories. Independently of the power of visitation by those States and Territories, he objected to making the government responsible for the ultimate redemption of the bills by the securities deposited. He inquired in what respect the promises of the National banks would be better than the notes of the government, and why should they be substituted for them?

—Mr. Chandler of Michigan claimed that when the whole system was in operation the government would borrow $300,000,000 at four per cent. per annum, because, while the bonds deposited with the banks would draw six per cent., the tax would bring back two per cent. He did not know how far the bill would go, but "all that is in it is good."

The bill came to a vote in the Senate on the 12th of February, and narrowly escaped defeat. The yeas were twenty-three, the nays twenty-one. The senators from Oregon, Nesmith and Harding, were the only Democrats who voted in the affirmative. Nine Republican senators voted against it.

The House of Representatives received the bill on the 19th. Mr. Spaulding of New York advocated it very earnestly. He stated that its principle was based on the free banking law of New York, which had been in successful operation since 1838. He dwelt upon the national character of the proposed notes, on their use in payment of taxes, and on the advantage to accrue from the exemption of the banking associations from State and United-States taxation.

—Mr. Fenton of New York expressed the belief that the measure would aid in extricating the government from the financial difficulties in which it was involved, and pronounced it "one of the most potent means by which the representatives could strengthen the government and the people in the struggle to put down the enemies of the country, and give hope and courage to the hearts of those brave men who have gone forth to battle." Considerable opposition was offered, chiefly on details and by amendments. But the House sustained the measure as it came from the Senate, and passed it on the 20th of February, by the close vote of 78 to 64, on the call of the ayes and noes. It was approved by the President on the 25th.

The Currency Bureau of the Treasury Department provided for in the National Banking Act was organized by the appointment of Hugh McCulloch, who was then at the head of one of the largest State banking institutions in Indiana. He was recognized as possessing executive capacity and large experience in financial affairs. He had originally been opposed, as were many others interested in State banks, to the National Banking Act, but, as he says, the more he examined "the system" the more it "grew into favor with him day by day." This appears to have been the result with all who gave the question a fair and candid consideration, even when biased by personal interests or political prejudice. The law was defective in many particulars and some of its provisions made it difficult for existing State banks to accept charters under it. The first annual report of the comptroller of the currency shows that by Nov. 28, 1863, 134 banks had been organized under the Act. Fourteen of these were in the New-England States, sixteen in New York, twenty in Pennsylvania, twenty in Indiana, thirty-eight in Ohio; New Jersey, the District of Columbia, and Kentucky each had one; Illinois seven, Iowa six, Michigan and Wisconsin four each, and Missouri two. Their total capital was $7,184,715. The bonds deposited with the Treasurer of the United States were $3,925,275, their deposits $7,467,059, and their loans and discounts $5,413,963.

THE AMENDED BANK BILL OF 1864.

In his report Mr. McCulloch pointed out defects of the law which had become apparent by the test of experience, and made many suggestions for its improvement. The whole subject was taken into consideration by the Ways and Means Committee of the House at the first session of the Thirty-eighth Congress. An amended bill, which repealed the Act of February 25, 1863, and supplied its place, was reported from the committee March 14, 1864. It was carefully considered in the committee of the whole, section by section, and against the protest of its advocates an amendment was ingrafted upon it giving to the States the right to impose taxes on the bank shares for State and municipal purposes to the same degree that taxes were imposed upon the property of other moneyed corporations. This bill was reported to the House from the committee of the whole on the 16th of April, when Mr. Stevens moved a substitute in which the tax amendment was left out. The substitute was defeated, and thereupon the immediate friends of the bill united with the opposition and laid the whole subject on the table. Mr. Stevens was totally opposed to the exercise of any power whatever by the States over banks established by National authority.

In the height of the war excitement, when men's minds were inflamed by a just resentment toward the Southern theory of States' rights, there was a tendency to go to extremes in the other direction. Some of the Republican leaders, notably Mr. Stevens, were very radical in their views in this respect, and would scarcely have hesitated at the abolition of all the checks upon Federal power which the Constitution wisely gives to the States. But apart from considerations of this character it was believed by many of the friends of the national banking system that the imposition of State taxes, in addition to those to be imposed by the General Government, would defeat the object of the bill. Others in their anxiety to strengthen the National Government were anxious to reserve to it exclusively the largest possible scope of taxation. It soon became apparent however that some concession must be made to those of both political parties who believed that the States could not constitutionally be deprived of the right to levy uniform taxes on property within their jurisdiction. To meet the views of these gentlemen the Ways and Means Committee reported a bill with a provision intended to reconcile all differences of opinion. This gave to the State the power to tax the capital stock, circulation, dividends, or business of national banks at no higher rate than was imposed upon the same amount of moneyed capital in the hands of individual citizens of the State, provided no tax was imposed upon that part of the capital invested in United-States bonds. This was adopted by a vote of 70 to 60 on the 18th of April, 1864.

The opposition to the bill in all other respects save this question of taxation was confined mainly to the Democratic members of the House. The measure was by this time regarded favorably by all Republicans. It was considered to be a part of the Administration policy, and one that would contribute largely to strengthen the government in its struggle. Its success thus far had demonstrated that under a perfected law it would soon become the general and popular banking system of the country. It was daily growing in favor with business men, and there was no longer doubt that a large proportion of the surplus capital of the nation would be invested in United-States bonds and in the stock of National banks. In the debate in the House which was prolonged, two speeches of particular interest were elicited. Mr. James Brooks of New York, as the leader of the Democratic minority on the question, ably summarized the objections of his party. He was a man of education and great intelligence. He had traveled extensively and was a close observer. He had been a writer for the metropolitan press for many years, and was familiar with the political and financial history of the country from an early period. He was an effective speaker. On the occasion he was in large part supplied with facts by Mr. James Gallatin, who as president of one of the principal banks of New- York City had unsuccessfully attempted to dictate the financial policy of the government in 1861. Mr. Gallatin had conceived an intense hostility to Mr. Chase, and inspired Mr. Brooks to make in the course of the debate on the bank bill some unfounded charges against the Secretary. The speech of Mr. Brooks was a general attack upon the financial policy of the administration directed principally against the Legal-tender Act, and at the same time a qualified defense of the State bank system. He asserted that the government could have successfully carried on the war upon a specie basis, but his authority for this claim was Mr. Gallatin. Mr. Samuel Hooper at the close of the debate defended the financial policy of the Administration and disposed of the argument of Mr. Brooks. He asserted that Mr. Gallatin had induced the banks of New-York City on December 30, 1861, to suspend specie payments, and briefly related his presumptuous attempt to dictate to the Secretary of the Treasury the financial policy of the Nation. He declared that the issue of legal-tender notes was the only resource left to the government, and "was wise as well as necessary." In his review of the financial history of the country he dealt unsparingly with the old State-bank system, and exposed in a masterly manner its inherent defects even in those States where the greatest care had been exercised by the Legislative power to hedge it about with limitations.

THE AMENDED BANK BILL OF 1864.

In the Senate the debate on the House bill was chiefly confined to amendments proposed by the Finance Committee. The provision incorporated by the House in regard to taxation was amplified so as to make it more specific and definite. Considerable opposition was shown to this action, but Mr. Fessenden, chairman of Finance, defended the recommendation of his committee and successfully replied to the arguments against it. An efforts was made by Senators Doolittle, Henderson, and Trumbull on the Republican side to prevent the establishment of any more banks under this law than were in existence in May, 1864, unless they redeemed their notes in coin. The banks then organized, possessed an aggregate capital of about $36,000,000, with bonds deposited to secure circulation to the extent of a little more than $33,000,000. The argument was that this addition to the legal-tender notes already in circulation supplied an ample currency for the business of the country. The issue of the whole $300,000,000 of National bank notes authorized by the bill, these senators claimed, would be such an expansion of the currency as would sink its value to almost nothing. They proposed also to compel the State banks to retire their circulation, but permitted them to organize on the specie basis as National banks. Mr. John P. Hale of New Hampshire thought that "it would be much simpler to incorporate in the bill a provision abolishing all such instruments as had previously been known as State constitutions." Senator Collamer proposed to require the banks to retain in their vaults one-fourth of all the gold they received as interest on their bonds deposited to secure circulation until the resumption of specie payments.

These amendments were voted down, and the bill finally passed the Senate on the 10th of May by a vote of 30 to 9, ten senators being absent or not voting. A conference committee of the two Houses agreed upon the points of difference. The report was adopted and the bill was approved by the President on the 3d of June, 1864. By the end of November 584 National banks had been organized, with an aggregate capital of $108,964,597.28, holding $81,961,450 of the bonds of the United States to secure a circulation of $65,864,650. These banks at once became agencies for the sale of the government's securities, and their officers being usually the men of most experience in financial affairs in their respective communities, gave encouragement and confidence to their neighbors who had money to invest. The sale of government bonds was in this way largely increased. The National banks thus became at once an effective aid to the government. By the close of the fiscal year 1864 $367,602,529 of bonds were disposed of by the banks. During the fiscal year 1865 bonds to the amount of $335,266,617 were sold over their counters. On the 1st of October, 1865, there were in existence 1,513 National banks, with an aggregate capital of $395,729,597.83, with $276,219,950 of bonds deposited with the Treasurer of the United States to secure circulation.

Experience has justified the authors and promoters of the national banking system. Originally the circulation was limited to a total volume of $300,000,000, apportioned, one-half according to representative population, and the remainder by the Secretary of the Treasury among associations with "due regard to the existing banking capital, resources, and business of the respective States, Districts, and Territories." Complaint arose that by such limitation and apportionment injustice was done and monopolies created. After the war this restriction was removed and banking under the national system became entirely free. The advantages of uniform circulation on a basis of undoubted strength and availability have won almost universal favor among business men and prudent thinkers. The restoration of the multiform State system, with notes of varying value and banks of doubtful solvency, would receive no support among the people.

The National bank system with all its merits has not escaped serious opposition. The Bank of the United States, as twice established, incurred the hostility of the Democratic party,—their two greatest leaders, Jefferson and Jackson, regarding the creation of such an institution as not warranted by the Constitution. A persistent attempt has been made by certain partisans to persuade the people that the national banks of to-day are as objectionable as those which encountered serious hostility at earlier periods in our history. An examination into the constitution of the banks formerly organized by direct authority of the General Government will show how wide is the difference between them and the present system of national banks. It will show that the feature of the earlier banks which evoked such serious opposition and ultimately destroyed them is not to be found in the present system and could not be incorporated in it. It was from the first inapplicable and practically impossible.

THE BANK OF NORTH AMERICA.

The most important financial institution established in the United States before the adoption of the Constitution was the Bank of North America, still doing business in Philadelphia, with unbroken career through all the mutations of the eventful century which has passed since it was called into existence. It had its origin in 1780, when certain patriotic citizens of Philadelphia resolved to "open a security subscription of three hundred thousand pounds in real money," the object being to procure supplies for the army, "then on the point of mutiny for lack of the common necessaries of life." The enterprising men who had the matter in hand addressed themselves to the task of providing three million rations and three hundred hogsheads of rum for the famished troops. The Continental Congress recognized their patriotic conduct and pledged "the faith of the government for the effectual reimbursement of the amount advanced." It fell to Robert Morris, Superintendent of Finance for the government, to organize the bank which owed its origin to these circumstances. While engaged in this arduous task he received two letters of advice from an anonymous source, ably written, and displaying considerable knowledge of the science of banking, then almost unknown in America. Indeed the methods of banking—it might be proper to say its secrets—were jealously guarded by the capitalists who monopolized it in the financial centres of Europe. Mr. Morris was struck by the ability and originality of his unknown correspondent, and was amazed to find that Alexander Hamilton, then but twenty-three years of age, was the author of the letters. It was the first exhibition of that mastery of finance which gave Mr. Hamilton his enduring fame.

When Mr. Hamilton assumed control of the Treasury Department under the Presidency of Washington he found that the Bank of North America had accepted a State charter from Pennsylvania and was not therefore in a position to fulfil the functions of a National bank which he desired to establish as an aid to the financial operations of the government. After his funding of the Revolutionary debt he applied to Congress for the charter of a National bank, with a capital of $10,000,000, twenty-five per cent. of which must be paid in coin and the remainder in the bonds of the United States. The government was to own $2,000,000 of the stock of the bank and was obviously to become its largest borrower. The measure encountered the determined opposition of the Secretary of State, Jefferson, and the Attorney-General, Edmund Randolph, and it finally became an almost distinctly sectional issue—the Northern members of Congress with few exceptions sustaining it; the Southern members under the lead of Mr. Madison almost wholly opposing it. It became a law on the 25th of February, 1791.

When the charter of the bank—which was granted for twenty years— expired in 1811 the administration of Mr. Madison favored its renewal. The eminent financier, Albert Gallatin, then Secretary of the Treasury, informed Congress that the bank had been "wisely and skillfully managed." The hostility to it originated in political considerations. It was regarded as an aristocratic institution, was violently opposed by the State banks which by this time had become numerous, and notwithstanding the change of Mr. Madison in its favor, the bill to re-charter was defeated. The contest however was severe. In the House the opponents of the bill had but one majority, and there being a tie in the Senate the re-charter was defeated by the casting vote of George Clinton the Vice-President. By this course Congress gave to the State banks a monopoly of the circulating medium. The war of 1812 followed, and in the sweep of its disastrous influence a large majority of these banks were destroyed, their notes never redeemed, and great distress consequently inflicted upon the people.

It was this result which disposed Congress, as soon as the war was over, to establish for the second time a Bank of the United States. The charter was drawn by Alexander J. Dallas who had succeeded Mr. Gallatin at the Treasury. In the main it followed the provisions of the first bank, but owing to the growth of the country the capital stock was enlarged to twenty-five millions, of which the government subscribed for one-fifth, payable wholly in its own bonds. Individual subscribers were required to pay one-fourth in coin and three-fourths in government bonds. The charter was again limited to twenty years. It was this bank which encountered the bitter opposition of President Jackson, and which was seriously injured by his order to the Secretary of the Treasury, Roger B. Taney, in 1834, to withhold the deposit of government funds from its vaults. The act of President Jackson is usually referred to as "a removal of the deposits." This is incorrect. The government deposits were not removed from the United-States Bank, except in the ordinary course of business for the needs of the Treasury. But the order of the President prevented further deposits of government money being made, and thus destroyed one of the principal resources upon which the bank had been organized. A short time before the charter of the United-States Bank expired, a State charter was obtained from the Legislature of Pennsylvania, under which the bank continued business until 1841, when its affairs were wound up with heavy loss to the stockholders.

THE UNITED-STATES BANKS,—1791-1816.

These brief outlines of the charters of the United-States banks of 1791 and 1816 show how entirely dissimilar they were in many essentials from the system of national banks established under the Acts of 1863 and 1864. In the first the government was a large stockholder and the officers of the Treasury practically directed all the operations and all the details of the bank. In the system now prevailing the government cannot be a stockholder, and takes no part in the management of banks except to see that the laws are complied with and that the safeguards for the public are rigidly maintained. An especially odious feature in the United-States Bank was the favoritism shown in its loans, by which it constantly tended to debauch the public service. Political friends of the institution were too often accommodated on easy terms, and legitimate banking was thus rendered impossible. No such abuse is practicable under the present system. Indeed there is such an entire absence of it that the opponents of the National banks have not even brought the accusation.

There was special care taken to place the Currency Bureau entirely beyond partisan influence. The misfortunes which had come upon the United-States Bank from its connection with party interests were fully appreciated by the wise legislators who drafted the National Bank Act. They determined to guard against the recurrence of the calamities which destroyed the former system. The original Act of 1863, organizing the National system, provided that the Comptroller of the Currency should be appointed by the President upon the nomination of the Secretary of the Treasury, and, unlike any other Federal officer at that time, his term was fixed at five years. This period of service was established in order that it should not come to an end with the Presidential term. It was also specifically provided, long in advance of the tenure-of-office Act, that the President could not remove the Comptroller unless with the advice and consent of the Senate. The Comptroller was thus excepted by statute from that long list of officers who were for many years subjected to change upon the incoming of each Administration. From the organization of the National Banking system to this time (1884) there have been four Comptrollers,—three of whom voluntarily resigned. The present incumbent of the office, Mr. John Jay Knox, has discharged his important duties with great satisfaction for twelve years, and with his predecessors has conclusively established in practice the non-partisan character which is indispensable to the successful administration of the Bureau.

The division and distribution of bank capital under the National system do not merely carry its advantages to every community, but they afford the most complete guaranty against every abuse which may spring from a large aggregation of capital. The Bank of the United States in 1816 had a capital of thirty-five millions of dollars. If a similar institution were established to-day, bearing a like proportion to the wealth of the country, it would require a capital of at least six hundred millions of dollars—many fold larger than the combined wealth of the Bank of England and the Bank of France. It is hardly conceivable that such a power as this could ever be intrusted to the management of a Secretary of the Treasury or to a single board of directors, with the temptations which would beset them. It is the contemplation of such an enormous power placed in the hands of any body of men that gives a more correct appreciation of the conduct and motives of General Jackson in his determined contest with the United-States Bank. His instincts were correct. He saw that such an institution increasing with the growth of the country would surely lead to corruption, and by its unlimited power would interfere with the independence of Congress and with the just liberty of the people.

MERITS OF NATIONAL BANK SYSTEM.

The single feature of resemblance between the Bank of the United States and the system of National banks is found in the fact that Government bonds constitute the foundation of each. But the use to which the bonds are devoted in the new system in entirely different from that of the old. The United-States Bank retained its bonds in its own vaults, liable to all the defalcation and mismanagement which might affect the other assets. In the present system the National Bank deposits its bonds with the Treasury Department, where they are held as special security for the redemption of the bills which the bank puts in circulation. The United-States Bank circulated its bills according to its own discretion, and there was no assurance to the holder against an over-issue and no certainty of ultimate redemption. The National Bank can issue no bills except those furnished by the Treasury Department in exchange for the bonds deposited to secure prompt redemption. In the former case there was no protection to the people who trusted the bank by taking its bills. In the case of the National Bank, the government holds the security in its own hands and protects the public from the possibility of loss.

The one defective element in the National bank system is that it requires the permanence of National debt as the basis of its existence. In a Republican government the people naturally oppose a perpetual debt, and could with difficulty be persuaded to consent to it for any incidental purpose however desirable. But so long as a National debt exists no use has been found for it more conducive to the general prosperity than making it the basis of a banking system in which flexibility and safety are combined to a degree never before enjoyed in this country and never excelled in any other. In no other system of banking have the bills had such wide circulation and such absolute credit. They are not limited to the United States. They are current in almost every part of the American continent, and are readily exchangeable for coin in all the marts of Europe.

CHAPTER XXIII.

Depression among the People in 1863.—Military Situation.—Hostility to the Administration.—Determination to break it down.—Vallandigham's Disloyal Speech.—Two Rebellions threatened.—General Burnside takes Command of the Department of the Ohio.—Arrests Vallandigham. —Tries him by Military Commission.—His Sentence commuted by Mr. Lincoln.—Habeas Corpus refused.—Democratic Party protests.— Meeting in Albany.—Letter of Governor Seymour.—Ohio Democrats send a Committee to Washington.—Mr. Lincoln's Replies to Albany Meeting and to the Ohio Committee.—Effect of his Words upon the Country.—Army of the Potomac.—General Hooker's Defeat at Chancellorsville.—Gloom in the Country.—The President's Letters to General Hooker.—General Meade succeeds Hooker in Command of the Army.—Battle of Gettysburg.—Important Victory for the Union. —Relief to the Country.—General Grant's Victory at Vicksburg.— Fourth of July.—Notable Coincidence.—State Elections favorable to the Administration.—Meeting of Thirty-eighth Congress.—Schuyler Colfax elected Speaker.—Prominent New Members in Each Branch.—E. D. Morgan, Alexander Ramsey, John Conness, Reverdy Johnson, Thomas A. Hendricks, Henry Winter Davis, Robert C. Schenck, James A. Garfield, William B. Allison.—President's Message.—Thirteenth Amendment to the Constitution.—First proposed by James M. Ashley. —John B. Henderson proposes Amendment which passes the Senate.— Debate in Both Branches.—Aid to the Pacific Railroads.—Lieutenant- General Grant.

At no time during the war was the depression among the people of the North so great as in the spring of 1863. When the Thirty- seventh Congress came to its close on the 3d of March, partisan feeling was so bitter that a contest of most dangerous character was foreshadowed in the Loyal States. The anti-slavery policy of the President was to be attacked as tending to a fatal division among the people; the conduct of the war was to be arraigned as impotent, and leading only to disaster. Circumstances favored an assault upon the Administration. The project of freeing the slaves had encountered many bitter prejudices among the masses in the Loyal States, and reverses in the field had created a dread of impending conscriptions which would send additional thousands to be wasted in fruitless assaults upon impregnable fortifications. General Hooker had succeeded to the command of the Army of the Potomac, still sore under the cruel sacrifice of its brave men in the previous December. General Grant was besieging Vicksburg, which had been fortified with all the strength that military science could impart, and was defended by a very strong force under the command of J. C. Pemberton, a graduate of West Point, and a lieutenant- general in the Confederate army.

CRUSADE AGAINST THE PRESIDENT.

The opponents of the Administration intended to press the attack, to destroy the prestige of Mr. Lincoln, to bring hostilities in the field to an end, to force a compromise which should give humiliating guaranties for the protection of Slavery, to bring the South back in triumph, and to re-instate the Democratic party in the Presidential election of the ensuing year for a long and peaceful rule over a Union in which radicalism had been stamped out and Abolitionists placed under the ban. Such was the flattering prospect which opened to the view of the party that had so determinedly resisted and so completely defeated the Administration in the great States of the Union the preceding year. The new crusade against the President was begun by Mr. Vallandigham, who if not the ablest was the frankest and boldest member of his party. He took the stump soon after the adjournment of the Thirty-seventh Congress. It was an unusual time of the year to begin a political contest; but the ends sought were extraordinary, and the means adopted might well be of the same character. On the first day of May Mr. Vallandigham made a peculiarly offensive, mischievous, disloyal speech at Mount Vernon, Ohio, which was published throughout the State and widely copied elsewhere. It was perfectly apparent that the bold agitator was to have many followers and imitators, and that in the rapidly developing sentiment which he represented, the Administration would have as bitter an enemy in the rear as it was encountering at the front. The case was therefore critical. Mr. Lincoln saw plainly that the Administration was not equal to the task of subduing two rebellions. While confronting the power of a solid South he must continue to wield the power of a solid North.

After General Burnside had been relieved from the command of the Army of the Potomac he was sent to command the Department of Ohio. He established his headquarters at Cincinnati in April (1863). He undoubtedly had confidential instructions in regard to the mode of dealing with the rising tide of disloyalty which, beginning in Ohio, was sweeping over the West. The Mount-Vernon speech of Mr. Vallandigham would inevitably lead to similar demonstrations elsewhere, and General Burnside determined to deal with its author. On Monday evening the 4th of May he sent a detachment of soldiers to Mr. Vallandigham's residence in Dayton, arrested him, carried him to Cincinnati, and tried him by a military commission of which a distinguished officer, General Robert B. Potter, was president. Mr. Vallandigham resisted the whole proceeding as a violation of his rights as a citizen of the United States, and entered a protest declaring that he was arrested without due process of law and without warrant from any judicial officer, that he was not in either the land or naval forces of the United States nor in the militia in actual service, and therefore was not triable by a court-martial or military commission, but was subject only, by the express terms of the Constitution, to be tried on an indictment or presentment of a grand jury. Of the offense charged against him there was no doubt, and scarcely a denial; and the commission, brushing aside his pleas, convicted him, and sentenced him to be placed in close confinement, during the continuance of the war, in some fortress of the United States—the fortress to be designated by the commanding officer of the department. General Burnside approved the proceeding, and designated Fort Warren in the harbor of Boston as the place of Mr. Vallandigham's detention.