Although the outstanding circulation at the close of Houston's administration was over $800,000, he had stood for restriction of issue. Under Lamar, however, there was no restriction of amount. From January 1, 1839, there were $1,569,010 of notes issued, and from September, 1839, to September, 1840, $1,983,-790, or a total, not including reissues, of $3,552,800.2 The estimated outstanding circulation was on September 30, 1839, $2,013,762, and on September 30, 1841, $2,920,860.75.3 The occasion of this enormous increase was the reckless policy of expenditures followed by the Third and Fourth congresses.4

The revenues of the government came to be paid entirely in the form of its paper liabilities, and the system of direct taxation broke down when the people had before them the example of the easy way in which the government provided itself with funds. The five million dollar loan was a delusion entertained throughout the years 1839, 1840, and 1841, and the feeling was that its negotiation would be the panacea for all the ills the republic suffered. Lamar, who was familiar with the general history of paper money, said in his message of December 21, 1838, that the first issues of Texas had answered a valuable purpose as a temporary expedient, "but experience admonishes us that to urge it further, or continue . it longer, would be equally injudicious and prejudicial.' He favored, therefore, as' a permanent expedient, a national bank, because it would confer "many eminent and continued blessings," among which was "entire freedom from the odious and too often impertinent surveillance of the tax gatherers" The specie required for the establishment of this bank was to be derived from the expected loan. But the bank scheme was succeeded in Lamar's mind by the expedition to Santa Fe, and it was undertaken, he said, "because if the commerce and natural wealth of that section could be directed to the republic . . . it would do more to revive the drooping finances than any financial theory that might be devised for a quarter of a century to come."1 With such visionary ideas as these engaging the mind of the executive, and with an extravagant congress, there is little wonder that the ship of the Republic of Texas went on the rocks.

1 Ibid., pp. 364, 574.

2 Gouge, op. cit., p. 268.

3 Reports of the secretary of the treasury, 1839 and 1841. According to Gouge the outstanding circulation on September 30, 1840, was $3,287,962.42, but he includes in this amount treasury bonds. The note circulation proper is not ascertainable, unless one deducts the total of treasury bonds issued during 1840 and 1841 from the figure given by Gouge. The amount thus obtained is $2,438,062. Making allowance for bond issues made in 1841, it is safe to infer that the treasury notes outstanding amounted to over $2,500,000.

4 Anson Jones, Republic of Texas, p. 32.

The first issues of the red-backs were valued only at about 37.5 cents on the dollar; in November. 1840, they had fallen to 16.66 cents; and at the close of Lamar's administration in November, 1841, they varied from 12 to 15 cents.2 The New Orleans quotations were for July 7, 1841, 11 to 13 cents; for September 22, 13 to 15 cents; for November 24, 12 to 13 cents; for December 15, 10 to 12 cents; and for January 5, 1842, 8 to 11 cents.3 After 1839 the notes ceased to circulate as a medium of exchange and became merely objects of speculation. The government did not recognize the depreciation until the fall of 1840, when it paid them out at the prevailing rates of discount.1

1 Message of November 3, 1841; Executive Record, No. 39.

2 Report of the Auditor and Comptroller, December 27, 1849", gives the depreciation at the date of issue and for November, 1841. The depreciation in 1840 is given in House Journal, 5th Tex. Cong. First Sess., pp. 43, 127, and in the Telegraph and Texas Register, December 3, 1840. The Register of this issue stated that the continued contradictory-statements about the French loan were believed to keep the notes fluctuating.

3 Reported in Telegraph and Texas Register. The depreciation can not be followed in the prices of commodities in the Houston market, for after 1839 the quotations are specie prices. The market prices in 1839 were paper prices, and if we construct a simple arithmetical index number based on the prices of ten commodities quoted on September 1, 1838, the number for December 25, 1839, is 221, or an increase in prices of nearly two and one-fourth fold. See schedule of prices in Appendix. See also Texas Diplomatic Correspondence, vol. 1, p. 537; vol. 3, p. 1368.

An act of February 5, 1840, provided for the funding of the notes in bonds which bore 10% and 8% interest and which were redeemable after June 30, 1845. Notes presented before July 1, 1840, were fundable in 10%. bonds; after July 1 in 8%.2 This was a short lived measure, however, for it was repealed in 1841.3 It was next provided that the holders of notes or any other liquidated claim against the government might exchange the same for land scrip at the price of $2.00 per acre.4 More stringent measures for sustaining the value of the currency were suggested, but it is to the credit of the Texans that they were not adopted.5 The notes could not be made a legal tender between individuals because of the provision in the constitution which provided that "nothing but gold and silver shall be made a lawful tender."6