sue of demand notes under the act of July 17, 1861, described as
follows:

"And the Secretary of the Treasury may also issue, in exchange for
coin, and as part of the above loan, or may pay for salaries or
other dues from the United States, treasury notes of a less
denomination then fifty dollars, not bearing interest, but payable
on demand by the assistant treasurer of the United States, at
Philadelphia, New York or Boston."

The fatal defect of these notes was the promise to pay on demand.
How could they be paid? In what kind of money? They could not be
paid out of the current revenue, for that was insufficient to meet
current expenses. No reserve was provided for their payment, and,
when paid, there was no authority for their re-issue. All other
forms of securities bore interest, and these notes, not bearing
interest, were convertible into bonds and that was the end of them.
If that was the process why issue them at all? They did not prevent,
but rather expedited, the disappearance of gold. Of American silver
dollars there were none. Even the new fractional silver coins rose
to a premium, and were hoarded or exported. Still, the necessity
existed for some form of paper money that would be available for
circulation. The solution of this problem was properly left to
the next regular session of Congress.

Congress did not act upon the recommendations for internal taxes,
but this subject was also left over until the next session. It
did provide, however, for a large increase of revenue from imports,
mainly upon articles that were then free from taxation and upon
articles regarded as luxuries; also for a direct tax on the states
of $20,000,000, and for a graded tax, from and after the first day
of January, 1862, upon the annual income of every person residing
in the United States, from whatever source the income should be
derived; if such annual income should exceed the sum of $800 a tax
of three per cent. on the excess above that limit. A provision
was made reducing the tax on incomes from treasury notes and other
securities of the United States one-half. The tax on incomes of
citizens of the United States residing abroad was placed at five
per cent., except on that portion derived from interest on treasury
notes and other securities of the United States, which was taxed
one and one-half per cent.

While Congress was engaged in legislative duties in Washington,
the military forces of the Confederate Sta