To succeed the funding act of June 9, 1837, which expired January 1, 1840, and in order to relieve the currency of the plethora of treasury notes, the funding act of February 5. 1840, was passed. It provided for an issue of bonds in denominations of $100, $500, and $1,000, to an amount necessary to fund the notes and audited liabilities of the government. The bonds bore 10% interest payable in specie, and were redeemable at the pleasure of the government after June 30, 1845. Treasury notes presented after July 1, 1840, however, were fundable only in bonds bearing 8% interest.3 The differences between these and the bonds authorized by the act of June 7, 1837. were that the latter had a special pledge of revenue for the payment of the interest but no stipulation in regard to the medium in which it should be paid, were receivable for dues owing to the government, were transferable only on the books of the stock commissioners, and were not employed in funding treasury notes; while the former had no special provision for the payment of interest, except that it should be paid in specie, were not receivable in the revenue, were transferable by simple endorsement, and were mainly employed in funding treasury notes.

The act of February 5, 1840, was repealed in 1841, owing no doubt to its failure to raise the value of the treasury notes.4 Its operation was resulting in the substitution of an interest for a non-interest liability, and with no apparent benefit to the credit of the government. Of the bonds bearing 10% interest there were issued $813,800, $1,400 of which were redeemed in land scrip during the period of the republic; of the 8 % bonds there were issued only $27,080.1 The auditorial board confessed to the impossibility of ascertaining with anything approaching exactness the value received by the government from the liabilities funded, and arbitrarily rated the bonds at 30 cents on the dollar.2 The original principal and interest to July 1, 1850, amounted to $1,674,380.42.3 In accordance with the acts of Congress of September 9, 1850, and February 28, 1855, and the assenting act of Texas of February 1, 1856, payment was made on the basis of 76 9-10 cents on the dollar. Scaled at this rate the amount became $1,287,788.54.

1 Report of the Comptroller, 1855.

2 Act of February 2, 1856; Laws of 1856, Reg. Sess., p. 64.

3 Gammel, op. cit., vol. 2, p. 453.

4 Act of February 4, 1841; ibid., p. 639.