A Treasury Note is a type of short term debt instrument issued by the United States between 1812 and 1865 which is not to be confused with modern Treasury Notes which have been issued since World War I. The U.S. government used these instruments for funding during periods of short term financial stress such at the War of 1812, the Panic of 1837, and the American Civil War. After the Civil War the improved financial situation of the federal government, the reforms of the banking system brought about by the National Banking Act, and the authorization of United States Notes eventually led to the government no longer needing to rely on this type of financing.

While the Treasury Notes, as issued, were neither legal tender nor representative money, some issues were used as money to a limited extent in the absence of official federal paper money. However the motivation behind their issuance was always funding federal expenditures rather than the provision of a circulating medium.

[edit] Origin

The early finances of the central government of the United States were quite precarious. To help finance the American Revolution the Continental Congress had issued Continental Dollars between 1775 and 1779. The paper Continental Dollars nominally entitled the bearer to an equivalent amount of Spanish Milled Dollars but were never redeemed in silver and lost 99% of their value by 1790 despite the American victory.^[1] During the 1780's the Bank of North America played a meaningful role in helping the Congress of the Confederation to arrange its finances, but it eventually lost its charter. With the fate of the Continentals in mind, the Founding Fathers embedded in the Constitution no provision for a paper currency and they forbid the states to make anything but gold or silver a legal tender. However, the First Bank of the United States was established to facilitate financial operations, but it too lost its charter in 1811.

Thus, when the War of 1812 began the United States had no ready avenue for obtaining short-term financing and the government used its borrowing authority to issue Treasury Notes as a form of debt to supplement its impaired ability to raise money via long term bonds, or "stock". Having thus set the precedent, the Treasury would go on to irregularly issue such notes up through the Civil War. These hand-signed notes typically were of large denomination (at least $50), large size (bigger than private banknotes), bore interest, were payable to the order of the owner (whose name was written on the front of the note), and matured in at most a couple of years. Often they were receivable at face value by the government in payment of taxes and purchases of publicly owned land.^[2] Characteristically the issues were not extensive and the "polite fiction" was always maintained that Treasury Notes did not serve as money when, in fact, to a limited extent they did.^[3] The value of these notes varied, being worth more or less than par as market conditions varied, and they rapidly disappeared from the financial system after the crisis associated with their issuance had ended.

[edit] War of 1812

Several issues of Treasury Notes were made during the War of 1812 from 1812 to 1815. Most of these notes paid 5 2/5% interest, matured in one year, and were receivable in payment for public dues. While $37 million were issued, no more than $17 million were outstanding at any one time.^[4]

[edit] Small Treasury Notes

Among the several issues of Treasury Notes, of special note are the "Small Treasury Notes" of 1815 which were intended to circulate as currency. Late in the War of 1812 congress drafted legislation authorizing these non-interest-bearing Treasury Notes with denominations as low as $3, a size typical of banknotes, and payable to bearer. This particular issue was also supported by the government's promise to receive them at face value for purchases of 7% interest bonds at par. Before the notes could be issued, however, the war had ended - an occasion which led to the 7% bonds being worth more than par, and the Small Treasury Notes, of which $3,392,994 were originally issued, were rapidly exchanged for the bonds.^[5] In witness to the limited circulation achieved by these notes, only two issued uncancelled examples of the Small Treasury Notes are known today.^[6]

[edit] Panic of 1837

Soon after the War of 1812, the Second Bank of the United States was chartered for 20 years, 1816-1836. However, the Jacksonian Democrats strongly opposed the bank and began to dismantle its role in federal policy in the mid-1830's. Thus, when the Panic of 1837 struck the federal government was again without the necessary flexibility for its short term finances and one result was several issues of Treasury Notes when federal revenues declined during the panic.

[edit] Mexican-American War

Treasury Notes were again issued to help finance the Mexican-American War in 1846 and 1847. Including reissues, $33.8 million of one year notes were issued with interest rates varying from 1/10 of 1% to 6%.^[4]

[edit] Notes of the Late Pre-Civil War Era

In 1857 federal revenues suffered from the lowered rates of the Tariff of 1857 and decreased economic activity due to the Panic of 1857. At the same time outlays increased with the expensive Utah War. The government resorted to several issues of Treasury Notes from 1857 to 1860.^[7]

[edit] Early Civil War Notes

The Morrill Tariff Act of March 2, 1861, signed into law by President Buchanan, authorized the Secretary of the Treasury to issue six percent interest Treasury Notes if he was unable to issue previously authorized bonds at par.^[8] Sixty-day and two-year notes were issued, payable to order, receivable in payment of all debts due to the Unitest States, and exchangeable for bonds at par. They were first issued by President Lincoln's administration just after the Battle of Fort Sumter and until the financing authorized by Act of July 17th became available.^[7]

Only one example is known to have survived in issued and uncancelled form.

[edit] Seven-Thirties

Three year Treasury Notes bearing interest at a rate of 7.3% were first authorized by the Act of July 17, 1861 to help finance the Civil War.^[9] These notes are payable to order, but the Treasury would issue them in blank form. Secretary of the Treasury Chase assigned this rate of interest in hopes that the ease of interest calculation (a $50 note would accrue interest at one cent per day) would give the notes an opportunity to circulate as money, but apparently this did not prove to be the case.^[10] Further issues of Seven-Thirties were made in 1864 and 1865. The issue of 1861, which preceded the First Legal Tender Act, paid interest in gold, but the government reserved the right to pay the interest of the 1864 and 1865 issues in either United States Notes or gold.

Today these notes are collected alongside U.S. paper money since the notes are similar in design to the Legal Tender notes of the Civil War era, though no more than two or three dozen examples are known to have survived.^[11]

[edit] Demand Notes of 1861

The Demand Notes were also authorized by the Act of July 17, 1861^[9] and were a transitional issue connecting Treasury Notes to modern paper money. The Demand Notes had been intended to function as money, and were payable to bearer, but were authorized within the legal framework of Treasury Notes since the U.S. was not generally assumed to have the authority to issue banknotes at that time. Eventually the Demand Notes were granted Legal Tender status^[12] and were replaced in function by United States Notes.

[edit] Certificates of Indebtedness (Civil War)

The Act of March 1, 1862 authorized the Secretary of the Treasury to issue to public creditors certificates of denominations not less than $1,000, signed by the Treasurer, bearing interest at a rate of six percent, and payable in one year or earlier at the option of the government.^[13] While these instruments were Treasury Notes in the pre-Civil war usage of the term, they were called Certificates of Indebtedness to distinguish them from Demand Notes, United States Notes and Seven-Thirties.^[14] While these certificates traded below par in the secondary market^[15] they could be used by merchants as collateral for obtaining bank loans.^[7]

[edit] References

v • d • e Obsolete United States currency and coinage Topics United States coinage · United States dollar · History of the United States dollar · Large denominations of currency Coins Fugio Cent · Half cent · Large cent · Two-cent piece · Three-cent piece · Half dime · Twenty-cent piece · Trade Dollar Gold Coins Gold dollar · Quarter Eagle ($2.50) · Three-dollar piece · Stella ($4) · Half Eagle ($5) · Eagle ($10) · Double Eagle ($20) Currency Colonial scrip · Compound Interest Treasury Note · Demand Note · Federal Reserve Bank Note · Fractional Currency  · Gold Certificate · Interest Bearing Note · National Bank Note · National Gold Bank Note · Refunding Certificate · Silver Certificate · Treasury or Coin Note · Treasury Notes (19th Century) · United States Note