The first results of the contest were a serious disturbance
of industry and commerce and a great increase of expendi-
ture. No adequate tax system was in existence, and accord-
ingly the extraordinary expenditure was at first almost en-
tirely met by the use of credit. Treasury notes, culminating
in inconvertible paper issues, and funded debt were both
employed. It was not until 1864 that the tax revenue was
made a really effective contributory to the war expenses,
but from that date its development was rapid 3 . Soon
after the close of the war the debt touched its highest point.
According to Mr. Bolles : ' On the ist September (1865)
the debt recorded on the books of the treasury reached its
maximum, though a large amount of war obligations,
pensions, &c., were not yet paid ' 4 . This maximum was
represented by the sum of $2,846,000,000, of which only

1 Out of $70,000,000 war expenditure, $64,300,000 was met by loans, and
$5, 700,000 out of the tax receipts, or 92/ and 8/ respectively. Adams
Public Debts, 1 24.

2 The smallness of the debt in the period 1836-60 will be best realized from
the fact that its capital amount rarely exceeded, and in several years was much
under, the annual income of the Federal Government.

3 The following table shows the relation of loans to tax revenue in the years
1861-66.

Year. Revenue. Loans. Total. Percentage of

Million Million Million loans to total

dollars. dollars. dollars. receipts.

1861 41-5 23-7 65-2 35

1862 51-9 433-6 485-5 89-5

1863 H2.6 595-6 708-2 85

1864 264-6 696 960-6 72-5

1865 333-7 864-8 1198-5 74

1866 558 92-6 650-6 14

* Bolles, Financial History (1861-1885), 306. According to Prof. Adams,
' the interest-bearing obligations of the United States stood at their maximum
in August, 1865, amounting at that date to $2,381,000,000.' Public Debts,
249.



572 PUBLIC FINANCE. [BOOK V.

$j, 1 1 0,000,000 was funded debt, and about $460,000,000
inconvertible paper, the enormous sum remaining
$1,276,000,000 was in the form of floating debt, most of
it immediately repayable. The cash reserve in the treasury
was, however, only $88,000,000, leaving net liabilities to
the amount of $2,758,000,000.

The great financial problems for the Secretary tP the
Treasury were therefore : (i) to pay off or fund the floating
debt, and (2) to provide a permanent scheme for the future
extinction of the immense liabilities created by the war.
The former required immediate attention and was success-
fully managed. In a little over two years the floating debt
was brought down to $408,000,000, and the inconvertible
issues reduced by over $20,000,000, while new funded debt
to the amount of $686,000,000 in 6 per cent, bonds had
been issued. The temporary obligations were cleared off
in 1868, leaving free scope for the repayment, and when
possible the conversion, of the funded debt.

A sinking-fund law had been enacted in 1862, but as there
was no real surplus till 1 866 it was inoperative, and in fact
the payment of debt has not been carried on in conformity
with that law. It has notwithstanding been on an immense
scale, as the following short table proves.

Year. Capital debt. Interest charge. Rate of interest.

Million dollars. Million dollars.

1865 (Sept.) 2756.4 151 6.34

1868 (Nov.) 2484-9 126-4 5' 8

1884 (Nov.) 1408-5 47.3 3.92

1889 (Dec.) 1056-1 41 3.7

Thus in less than a quarter of a century $1,700,000,000
has been removed from the capital liability, and the annual
payment has been reduced by $110,000,000. This, at first
sight, extraordinary result has been attained in part by the
high credit of the United States Government, which has
enabled the 6 per cent, and 5 per cent, bonds, as they fell due,
to be reduced to 4^ per cent, and even 3^ per cent. A more
potent cause has been the receipt of large annual surpluses



CHAP. IV.] INDEBTEDNESS IN OTHER COUNTRIES. 573

which were the natural consequence of the high duties on
imports. The protective system has been in this way the
cause of the repayment of the war loans. From the
financial point of view it is plain that a like result could
have been reached at much less real cost and sacrifice if
moderate duties had been used ; but then' it is doubtful
whether in that case the policy of repayment would have
been so firmly adhered to.

At all events the position of the Federal debt has ceased
to be a prominent element in financial questions. It is
rather in connexion with the banking system, and the
method of dealing with bonds whose time for redemption
has not yet come, that the debt attracts notice.

One of the methods of issuing loans in the United
States deserves mention here. It is that by which a
minimum and a maximum time of repayment are fixed.
Thus what are known as the 'ten-forty bonds' were
redeemable at ten years from the date of issue, but if not
then paid off", they could not be redeemed for forty years.
This system is at present a serious inconvenience, as the
greater part of the debt is irredeemable, and therefore the
surplus revenue must either accumulate, or a premium
must be paid to the holders to induce them to accept
payment 1 .

6. The debts of other countries need not be considered
at any length. They exhibit the same general features,
though each group of States shows certain peculiarities.
The Russian debt has been all along mixed up with the
use of inconvertible paper, and is affected by the particular
character of the government. The Austro-Hungarian
monarchy has three separate debt accounts, one for the
Empire and one for each of the parts. But one general

1 'With a sinking fund appropriation of $50,000,000 a year, we shall find
ourselves in 1896 again without any debt upon which the appropriation may be
expended. In what manner shall the machinery of debt payment be managed
from 1896 to 1907 ? ' Adams, 279. The Tariff Act of 1890 and the increased
expenditure seem likely to prevent the existence of any large surplus, and this
difficulty will therefore not arise.
fact is discernible, viz. the almost universal tendency to
increase, with, it is to be feared, in some cases a dangerous
pressure on the limits of national solvency. Any attempt
to present the total amount of indebtedness at a given
time soon becomes misleading, owing to the growing
liabilities of the world.