1.  By selling bonds.

2.  By issuing “United States notes.”

%468.  The Bonded and Interest-paying Debt.%—­The bonds were obligations by which the government bound itself to pay the holder the sum of money specified in the bond at the end of a certain period of years, as twenty or thirty or forty.  Meantime the holder was to be paid interest at the rate of five, six, or seven per cent a year.  Between July 1, 1861, and August 31, 1865, when our national debt was greatest, $1,109,000,000 worth of bonds had been sold to the people and the money used for war purposes.

%469.  United States Notes.%—­The United States notes were of two kinds:  those which bore interest, and those which did not.  Those bearing interest passed under various names, and by 1866 amounted to $577,000,000.

United States notes bearing no interest were the “old demand notes,” the “greenbacks,” the “fractional currency,” and the “national bank notes.”

The greenbacks (a name given them from the green color of their backs) were authorized early in 1862, were in denominations from $1 up, bore no interest, were legal tender in payment of all debts, public and private, except duties on imports and interest on the public debt.  In time $450,000,000 were authorized to be issued, and in 1864, $449,000,000 were in circulation.

%470.  Fractional Currency.%—­The issue of the demand notes in 1861, and the fact, apparent to every one, that Congress must keep on issuing paper money, led the state banks to suspend specie payment in December, 1861.  As a consequence, the 3, 5, 10, 25, and 50 cent silver pieces (and of course all the gold) disappeared from circulation.  This left the people without small change, and for a time they were forced to pay their car fare and buy their newspapers and make change with postage stamps and “token” pieces of brass and copper, which passed from hand to hand as cents.  Indeed, one act of Congress, in July, 1862, made it lawful to receive postage stamps (in sums under $5) in payment of government dues.  But in March, 1863, another step was taken, and an issue of $50,000,000 in paper fractional currency was authorized.

%471.  The National Banking System.%—­Yet another financial measure to aid the government was the creation of national banks.  In 1863 Congress established the office of “Comptroller of the Currency,” and authorized him to permit the establishment of banking associations.  Each must consist of not less than five persons, must have a certain capital, and must deposit with the Treasury Department at Washington government bonds equal to at least one third of its capital.  The Comptroller was then to issue to each association bank notes not exceeding in value ninety per cent of the face value of the bonds.  It was supposed that the state banks, which then issued $150,000,000 in 7000 kinds of bank notes, would take advantage of the law, become national banks, and use this national money, which would pass all over the country.  This would enable the government to sell the banks $150,000,000 and more of bonds.  But the state banks did not do so till 1865, when a tax of ten per cent was laid on the amount of paper money each state bank issued.  Then, to get rid of the tax, hundreds of them bought bonds and became national banks.