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STATEMENT OF THE INDEBTEDNESS OF THE UNITED STATES, JUNE 30, 1866.

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cially when, being so, it is made by the sov
ereign power a legal tender, it becomes prolific
of mischief. Then specie becomes demonetized,
and trade is uncertain in its results, because the
basis is fluctuating; then prices advance as the
volume of currency increases, and require as
they advance further additions to the circulating
medium; then speculation becomes rife, and
'the few are enriched at the expense of the
many;' then industry declines, and extrava-
gance is wanton; then, with a diminution of
products and consequently of exports, there is
an increase of imports, and higher tariffs are
required on account of the general expansion, to
which they in their turn give new stimulus and
supports, while the protection intended to be
given by them to home industry is in a great
measure rendered inoperative by the expansion.
This, notwithstanding our large revenues and
the prosperity of many branches of industry,
is substantially the condition of the United
States."

The paper circulation of the country on
December 1st, consisted of United States notes,
National and State bank-notes and certificates
of the Government divided as follows:
United States notes, legal tender....
Fractional currency..
Circulation issued to National Banks...

State bank-notes....

is almost as light as any paper which can be produced, even by the genius of the hydrostatic power at the Treasury Department, and it once more rises and floats triumphantly over the dirty sea of paper currency in vulgar fractions." The gold certificates of deposit were conveniently and daily used by millions for many purposes, especially to pay for exchange in the liquidation of foreign accounts and among gold operators. Bills of exchange be came a currency, and an enormous amount was afloat. The compound-interest notes were largely used, and almost universally, though without authority, took the place of the United States legal tender notes in the reserve required to be held by the national banks. In some instances the seven-thirties took the place of lawful money, and were given and taken in financial transactions at their current value. To some extent also the coupon bonds of the United States were used as money, and remitted to pay balances due-especially balances of trade due abroad. (See BANKS.)

Such was the state of the public debt and the circulating medium at the close of the year. It remains, therefore, to present the operation of the internal revenue system, of the tariff, $385,441,849 and the commercial condition, to have a com28,620,249 292,671,753 plete view of the problem presented for solu 46,533,060 tion to the Government and the people.

$753,266,911 To this should be added a considerable portion of the following items: Gold certificates of deposit.. Compound-interest notes..

Total.....

It was also estimated that there were amounts
of specie in circulation, as follows:
Specie in actual circulation on the Pa-
cific.

Specie in actual circulation in the Atlan-
tic States..
Copper and nickel..

$25,000,000

15,000,000 3,000,000 $48,000,000

Previous to the year 1861, the United States presented the unusual spectacle of a great nathe measures required for the maintenance of tion with comparatively no debt. Since then the Government have entailed upon the nation $19,638,500 a debt rivalling or exceeding in magnitude the 147,387,140 accumulated debts of any of the old states of $167,025,640 Europe, and rendering necessary the collection $920,292,551 of an annual revenue, which may be safely stated as unequalled by the collections of any other nations excepting Great Britain and France. While the accumulation of this debt was in progress the present system of internal revenue was adopted to aid in obtaining the money necessary for military and naval operations. The pressing nature of the circumstances under which it was framed was such as to afford but little opportunity for any careful and accurate investigation of the sources of revenue, and the most suitable measures of developing them. The old methods of taxation in this country, by assessments on real and personal property or capital, were chiefly allowed to remain undisturbed in the States which had hitherto applied them for their own support, and the plan was adopted to obtain this branch of the national revenue from the fruits of capital, or of capital and industry combined. One of the greatest defects which was immediately felt in the system thus put in operation, was its diffuseness, wherein the exemption of an article from taxation was the exception rather than the rule. A system so diffuse necessarily entailed a duplication of taxes, which in turn led to an undue enhancement of prices; a decrease both of production

If this is added to the paper currency, it makes the whole amount of the circulating medium $963,290,551. West of the Rocky Mountains, on the Pacific slope, gold and silver maintained its ascendency, and very little paper was circulated. Indeed, throughout the whole country, and particularly where merchandise was distributed at wholesale, many articles were bought and sold exclusively for gold-no other prices were quoted for them. Instead of coin, gold bars and bullion were largely used by banks and by importers to pay for foreign merchandise. The copper and nickel coinage has been depreciated, so that a five-cent token contains about one cent of real value, or, in the words of the chairman of Ways and Means in the House of Congress (Mr. Morrill), "until it

and consumption, and consequently of wealth, a restriction of exportations and of foreign commerce, and a large increase in the machinery and expense of collection. The duplication of taxes threatened the very existence, even with the protection of inflated prices and a high tariff, of many branches of industry, and, under a normal condition of the trade and currency of the country, would become extremely disastrous. Its tendency to sustain prices was illustrated very forcibly in the manufacture of umbrellas and parasols. The sticks,, when of wood, were made in Philadelphia, and in some parts of Connecticut; part of native and part of foreign wood, on which last a duty may have been paid. If the supporting rod was of iron or steel it was the product of another establishment. In like manner the handles of carved wood, bone, or ivory; the brass runners, the tips, the elastic band, the rubber of which the band is composed, the silk tassels, the buttons, and the cover of silk, gingham, or alpaca, were all distinct products of manufacture, and each of these constituents, if of domestic production, paid a tax, when sold, of six per cent. ad valorem, or its equivalent. The umbrella manufacturer then aggregated all these constituent parts previously taxed, into a finished product, and then paid six per cent. on the whole. Thus all the parts of the umbrella were taxed at least twice, and in some instances three times-thus adding from twelve to fifteen per cent to the direct cost, while each separate manufacturer doubtless made the payment of the six per sent. tax on his special product an occasion for adding from one to three or more per centum additional to its cost price. Similar illustrations existed in other branches of compound manufactures, showing the sustaining influence on prices, and making the taxes neither definite in amount, equal in application, nor convenient in collection.

Another serious defect of the internal revenue system in its bearing upon the industry of the country was the lack of equalization or adjustment between it and the tariff. Thus the cover of the umbrella or parasol, as a constituent element of construction, represents from one-half to two-thirds of the entire cost of the finished article. The silk, the alpaca, and the Scotch gingham, of which the covers were made, were all imported at a duty of sixty per cent. for the former, and fifty per cent. ad valorem for the two latter. But the manufactured umbrella, covered with the same material, whose constituent parts were not taxed, either on the material used in their fabrication or in the sale, were imported under a duty of thirty-five per cent. ad valorem; or at a discriminating duty against the American, and in favor of the foreign producer of from fifteen to twenty-five per cent. Imported umbrellas were sold in New York and Boston with the original cost. duty, freight, and charges, paid in gold, for a less price than the American article could be manufactured. Other illustrations

of the lack of adjustment between the excise and the tariff existed in other branches of domestic manufactures.

Notwithstanding these and other imperfections in this system so hastily prepared, it very successfully attained the end designed of raising a revenue greater than was necessary for its legitimate expenditures, and, near the close of the war, Congress, on March 3, 1865, took immediate steps for its revision, by authorizing the appointment of a commission to report upon the subject of raising revenue by taxation. In June, Messrs. David A. Wells, Stephen Colwell, and Samuel S. Hayes, were organized as sucl. commission, and their first report was made to Congress in January, 1866. In this report they take the ground that the increase of the country in population and wealth is without a parallel among nations, being from 1840 to 1850 thirty-five per cent. in population, and eighty-nine per cent. in wealth; and from 1850 to 1860 thirty-five and five-tenths per cent. in population, and one hundred and twenty-six per cent. in wealth.

If the development in any approximate degree can be maintained and continued, the extinguishment of the national debt in a comparatively brief period becomes certain. To secure this development, both by removing the shackles from industry, and by facilitating the means of rapid and cheap communication, they regarded as effecting a solution of all the financial difficulties pressing upon the country. The future revenue policy of the country, they therefore recommended to be, the abolition or speedy reduction of all taxes which tend to check development, and the retention of all those which, like the income tax, fall chiefly upon realized wealth. Asserting this principle as a suitable policy for the Government, it became necessary to inquire into the nature and capacity of the sources of revenue available to the Government, in order to determine the manner and extent to which this policy could be carried out, and insure adequate revenue. Briefly stating the extent of revenue derived from duties on foreign imports, the attention of this commission was chiefly devoted to the capacity of the country to bear internal taxation. The facts brought forward in this connection are too important in the history of the country to be passed over.

The aggregate receipts of internal revenue for the fiscal years 1863 (ten months), 1864, 1865, and 1866, were as follows: 1863 (ten months).. 1864.. 1865.

1866.....

$41,003,192 93

116,850,672 44

211,129,529 17

309,226,813 42

The following table shows the amount derived from the principal specific sources of internal revenue in the years 1863, 1864, 1865, and 1866, the aggregate annual amounts, and the percentage ratio of the amount derived from each specific source to the whole for the same periods:

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TABLE SHOWING THE AGGREGATE RECEIPTS OF INTERNAL REVENUE, ETC.

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TABLE SHOWING THE AGGREGATE RECEIPTS OF INTERNAL REVENUE, ETC.-Continued.

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Net amount, after refunding $6,864.

7,017,547 6.00 10,998

193,600 .16 5,894,945 5.04 1,705,125 1.45

+$116,850,672

18,579,594 6.48 29,535 23,929,312 18.70 420,886 .25 11,162,892 5.28 2,826,333 1.34

$211,129,529

Net amount, after refunding $556.

210,234 .07 1,974,108 .63

12,109,420 8.90

81,759 .01

982,619 .80 15,044,878 4.83 8,717,895 1.19

$810,906,984

The Commissioner of Internal Revenue, in a recent report, gives the aggregate receipts for the fiscal year 1964 at $117,145,748.

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