IO

WAR  BORROWING

power  was  perhaps  the  most  important  factor  in
preventing  outright  prohibition.  The  final  phrasing ­
  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  anticipation ­
  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  discourage ­
  the  use  of  negotiable  instruments  in  connection ­
  with  temporary  borrowing.  Not  until  the
War  of  1812  was  recourse  had  to  short-term  obligations. ­
  A  funded  loan  to  cover  the  war  deficit  had
met  with  disappointing  public  response,  and  Gallatin
sought  authority  to  issue  treasury  notes  for  the  unsubscribed ­
  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.