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The 19th Century

As the Capitol Building was completed, the new century began for the United States- one that would see both profound hardship and triumph for the nation. For the first decade of the 1800's, the federal government was able to reduce the public debt outstanding from $83 million in 1800 to $53 million by 1810. Jefferson was a strong believer in reducing the nation's debt.  But an opportunity arose to greatly expand the territory of the United States, as Napoleon needed money for his European campaigns.  So in 1803, America purchased 828,000 square miles of territory from France for a price of $15 million.   The United States would finance some $11.25 million in a 6% stock (read: bond) offering to pay for the newly acquired land. 

Within a decade however, America would find herself involved in the Napoleonic Wars. England had imposed trade restrictions and practiced routine impressment of American sailors. The United States responded by declaring war on Great Britain in the summer of 1812.  By this time however, the United States was without a national bank, as the first Bank of the United States charter had expired a year earlier. Political unpopularity coupled with a preference for state banks had doomed the national bank. The government's coffers were insufficient to sustain a conflict, so Treasury Secretary Albert Gallatin proposed a series of interest and non-interest bearing notes to raise needed revenue. Issued from 1812-1815, these notes would be redeemable as payment for government duties and taxes. 

1815 Five Dollar Note, War of 1812 Issue

The Joe I. Herbstman Memorial Collection

While they were not technically legal tender, they served a de facto role as America's first circulating currency, as merchants and individuals used these notes in that capacity. Some $37 million in notes would be issued to help finance the war with England. By February 1815, the United States and Great Britain had made peace.  Federal debt had more than doubled during the two and a half years of war, and stood at $100 million.  The Treasury had begun the practice of accepting state bank notes as payments, which lead to several million dollars in lost revenue as many state banks simply went bust.  Proponents of a national bank again voiced support for a new charter, and in 1817 the second Bank of the United States opened its doors.  However, political division and bank mismanagement would doom the bank.  Andrew Jackson, a fierce opponent of the institution, made no secret of his feelings, although the decision would be left up to Congress.  Expiring in 1836, the national charter was not renewed, although the bank did continue to operate within Pennsylvania.  During this period, Jackson did something no other President before or since has ever achieved: he paid off the entire national debt. During his 1835 State of the Union Address, he announced that for the first time in its history, the United States was debt-free and, in fact, had a small surplus of $440,000.  This was to be short-lived however, as the federal balance sheet was back in the red the following year.

1842 $100 6% Registered Loan, Proof Example

Image courtesy of Heritage Auctions

Tensions continued to mount between the slave-owning southern states and the north. The Panic of 1857 did not help matters, as international demand for American goods declined. Western territory land prices began to fall at this time, and several railroad companies were forced to declare bankruptcy.  The Kansas Nebraska Act of 1854 was also another source of hostility between the North and the South, as the legislation allowed for popular sovereignty to determine whether or not territories would permit slavery.  Many southerners felt there was no hope for remaining within the Union, and on December 20, 1860, South Carolina became the first of eleven states to formally succeed. On April 12, 1861, Fort Sumter was captured by the Confederate Army- beginning the American Civil War.  President Abraham Lincoln would have the difficult task of leading the North to a military victory, one that would cost the United States over $2.5 billion dollars, and claim the lives of some 620,000 individuals.  Although a political rival, Lincoln appointed as his Treasury Secretary Salmon Chase, a former Governor of Ohio who had no prior banking experience.  Chase had won election to Congress as a Senator, but resigned to serve in Lincoln's cabinet.

these notes would help finance Civil War. They would continue to be issued until 1971. Bond issuance was vital to generate revenue for the Union, and in 1862 the government sold some $500 million in war bonds. The following year, Chase successfully lobbied for the National Banking Act of 1863, which was followed by another Banking Act the following year. This legislation permanently established a system of nationally chartered banks, which would circulate National Bank Notes secured by U.S. Government bonds. This system once and for all established a uniform, stable currency, and expanded the market for government debt. By 1865, there were around 1,500 National Banks throughout the United States. Bond issuance went up dramatically during the Civil War, and by 1866, the federal debt stood at $2.68 billion, up from $64 million some six years earlier.

Treasury Secretary Chase believed that a national banking system would better suit the nation's financial needs.  Beginning in 1861, federal demand notes, also known as "greenbacks," were issued to help finance the war.  Congress authorized $50 million of issuance.  Problem arose those, as the Treasury was unable to redeem the notes for specie on demand.  Chase responded by making the non interest-bearing notes as good as interest-bearing ones.  At the time, the greenbacks were not legal tender, a problem Congress felt it had to address. By 1862, Congress had authorized an additional $10 million in demand notes.  1862 also marked the introduction of a new type of federal currency: United States Notes. The Treasury Department issued them as  legal  tender, and


1862 $1 Legal Tender "Greenback" Note

Image courtesy of Heritage Auctions

One area of economic growth vital to expansion of the United States was the railroads.  The government had looked into a transcontinental line before the Civil War began.  By 1862, The Pacific Railroad Act gave the Union Pacific and the Central Pacific Railroads the federal assistance required to begin construction.  This included not only the necessary land grants and right-of-ways, but loans based on track mileage completed. A second act was passed in 1863 to establish the specific gauge of the track. By 1869, the first transcontinental railroad was completed.  Congress would authorize a total of four transcontinental railroads in the 1800's. Thirty-year government bonds would be essential to the construction of the railroads, although the debt issued by the United States was subordinate (by statute) to the First Mortgage Bonds of the Union Pacific and Central Pacific Railroads. 

1879 $10 4% Refunding Certificate

Image courtesy of Heritage Auctions

The 19th Century saw the issuance of interest bearing treasury notes. The War of 1812 had several issues bearing interest, as did the Compound Interest Treasury Notes of 1863 and 1864.  The former were not legal tender, while the latter were.  The notes had hybrid characteristics of both paper money and interest-bearing debt.  And there were certain bookkeeping advantages in their use; mainly the government did not have to process the coupons that are used in the interest payments of bearer bonds.  In 1879, the Treasury issued a $10 4% Refunding Certificate, payable in perpetuity, and convertible into 4% Treasury Bonds.  The perpetuity clause would eventually end, when in 1907 Congress authorized the redemption of the notes, giving them a final value of just over $21.


The Spanish-American War is most often remembered for Teddy Roosevelt and the beginnings of the modern American army. Signed into law by President William McKinley, the War Revenue Act of 1898 provided for the taxation of liquor, tea, tobacco, among other goods and services, and introduced the first estate tax. The act also authorized the Treasury Department to sell some $200 million in three percent bonds, creating a surplus in revenue for the nation's treasury. The decades following the American Civil War saw the federal balance sheet stabilize. From a high watermark of $2.77 billion in July of 1866, government debt steadily dropped to below $2 billion by 1882, and would remain at that level for the rest of the century.  

1898 $20 3% Spanish-American War Bond

The Joe I. Herbstman Memorial Collection

Copyright The Joe I. Herbstman Memorial Collection of American Finance ™   All rights reserved.

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