﻿IO

WAR BORROWING

power was perhaps the most important factor in
preventing outright prohibition. The final phras-
ing was a compromise acceptable to both elements
— the one believing that resort to such an expedient
was possible if occasion required under the general
borrowing power; the other convinced that the
omission of specific authorization would “ shut and
bar the door against paper money.”

This hostility to paper emissions was fully
shared by Alexander Hamilton. As a policy, he
maintained that “ the wisdom of the Government
will be shown in never trusting itself with the use
of so seducing and dangerous an expedient.” In
practice, he relied on temporary bank loans in an-
ticipation of established revenue to extricate the
new Treasury from its inherited difficulties. The
same deep-rooted association in the public mind of
bills of credit or treasury notes with the excesses
of paper money continued for a generation to dis-
courage the use of negotiable instruments in connec-
tion with temporary borrowing. Not until the
War of 1812 was recourse had to short-term obliga-
tions. A funded loan to cover the war deficit had
met with disappointing public response, and Gallatin
sought authority to issue treasury notes for the un-
subscribed amount. In the congressional debate
which preceded the passage of the act, the plan was
opposed “ as engrafting on our system of finances
a new and untried measure,” and many of the
criticisms which the subsequent use of the device
aroused were anticipated.8 But the situation was
deemed critical and the act was passed and ap-
8 Bayley, pp. 343-5.