Greenback (1860s money)

Last updated
Image of one dollar "Greenback", first issued in 1862 US-$1-LT-1862-Fr-16c.jpg
Image of one dollar "Greenback", first issued in 1862

Greenbacks were emergency paper currency issued by the United States during the American Civil War that were printed in green on the back. They were in two forms: Demand Notes, issued in 1861–1862, and United States Notes, issued in 1862–1865. A form of fiat money, the notes were legal tender for most purposes and carried varying promises of eventual payment in coin, but were not backed by existing gold or silver reserves. [1]

Contents

History

Background

Before the Civil War, the United States used gold and silver coins as its official currency. Paper currency in the form of banknotes was issued by privately-owned banks, the notes being redeemable for specie at the bank's office. Such notes had value only if the bank could be counted on to redeem them; if a bank failed, its notes became worthless. The federal government sometimes issued Treasury Notes to borrow money during periods of economic distress, but proposals for a federal paper currency were politically contentious and recalled the experience of the Continental dollars issued during the American Revolution. These were nominally payable in silver, but rapidly depreciated due to British counterfeiting and the Continental Congress's difficulty in collecting money from the states.

The Buchanan administration had run chronic deficits as the country weathered the Panic of 1857. The southern secession movement worsened the situation, as the government lost substantial tax revenue. [2] It continued to operate during the presidential transition on private bank loans at rates up to 12 percent, with some banks asking as much as 36. [3] Salmon P. Chase, as the Treasury secretary of the incoming Lincoln administration, found the banks more receptive but struggled to keep enough coins in the Treasury to meet expenditures. [4]

Demand Notes

US-$5-DN-1861-Fr.1.jpg
US-$10-DN-1861-Fr.7.jpg
US-$20-DN-1861-Fr.12.jpg
The United States Demand Note was authorized by Congress on 17 July 1861 and issued on 10 August 1861.

The first measure to finance the war occurred in July 1861, when Congress authorized $50,000,000 in Demand Notes. They bore no interest but could be redeemed for specie "on demand." They were not legal tender before March 1862 but, like Treasury Notes, could be used to pay customs duties.[ citation needed ] Unlike state and some private banknotes, Demand Notes were printed on both sides. The reverse side was printed in green ink and so the Demand Notes were dubbed "greenbacks." Initially, they were discounted relative to gold, but being fully redeemable in gold, they were soon at par. In December 1861, the government had to suspend redemption, and the Demand Notes declined. Chase authorized paying interest on Demand Notes, which sustained their value.[ citation needed ]

The later United States Notes could not be used to pay customs duties or interest on the public debt, which could be paid only by gold and Demand Notes. Importers, therefore, continued to use Demand Notes in place of gold. In March 1862, Demand Notes were made legal tender. As Demand Notes were used to pay duties, they were taken out of circulation. By mid-1863, about 95% of them had been gone.[ citation needed ]

United States Notes

The number of Demand Notes issued was far insufficient to meet the war expenses of the government but even so was not supportable.

The solution came from Colonel "Dick" Taylor, an Illinois businessman who was serving as a volunteer officer. Taylor met with Lincoln in January 1862 and suggested issuing unbacked paper money.[ citation needed ] Issuing unbacked paper money was not an idea that Lincoln really liked,[ citation needed ] but there was mounting pressure in Congress to do something. The government could either print its own money or go into deep perpetual debt to foreign creditors. That made President quickly endorse Taylor's proposal.[ citation needed ] On February 25, 1862, Congress passed the first Legal Tender Act, which authorized the issuance of $150 million in United States Notes. [5]

Since the reverse of the notes was printed with green ink, they were called "greenbacks" by the public and considered to be equivalent to the Demand Notes, which were already known as such. The United States Notes were issued by the United States to pay for labor and goods. [6]

Earlier, Secretary Chase had the slogan "In God We Trust" engraved on U.S. coins. During a cabinet meeting, there was some discussion of adding it to the U.S. Notes as well. Lincoln, however, humorously remarked, "If you are going to put a legend on the greenbacks, I would suggest that of Peter and Paul, 'Silver and gold I have none, but such as I have I give to thee.'" [nb 1] [7]

California and Oregon defied the Legal Tender Act. Gold was more available on the West Coast, and merchants in those states did not want to accept U.S. Notes at face value. They blacklisted people who tried to use them at face value. California banks would not accept greenbacks for deposit, and the state would not accept them for payment of taxes. Both states ruled that greenbacks were a violation of their state constitutions. [7]

As the government issued hundreds of millions in greenbacks, their value against gold declined. The decline was substantial, but was nothing like the collapse of the continental dollar.

In 1862, the greenback declined against gold until by December, gold had become at a 29% premium. By spring of 1863, the greenback declined further, to 152 against 100 dollars in gold. However, after the Union victory at Gettysburg, the greenback recovered to 131 dollars to 100 in gold. In 1864, it declined again, as Grant was making little progress against Lee, who held strong in Richmond throughout most of the war. The greenback's low point came in July that year, with 258 greenbacks equal to 100 gold. When the war ended in April 1865 the greenback made another remarkable recovery to 150. [8] The recovery began when Congress limited the total issue of greenback dollars to $450 million. The greenbacks rose in value until December 1878, when they became on par with gold. Greenbacks then became freely convertible into gold.[ citation needed ]

Complete set of 1862–63 greenbacks

Greenback issue (series 1862–63)
IssueDate [9] Denominations
First10 March 1862$5, $10, $20
Second1 August 1862$1 & $2
Third10 March 1863$50 to $1,000
Greenback payment obligation (series 1862–63)
ObligationObligation text [9]
FirstThis note is a legal tender for all debts, public and private, except duties on imports and interest on the public debt, and is exchangeable for the U.S. six percent twenty-year bonds, redeemable at the pleasure of the United States after five years.
SecondThis note is a legal tender for all debts, public and private, except duties on imports and interest on the public debt, and is receivable in payment of all loans made to the United States.
Complete denomination set of Greenbacks (series 1862–63)
ValueYearObligationFr.ImagePortrait [nb 2] Population [nb 3]
$11862Second [nb 4] Fr.16c US-$1-LT-1862-Fr-16c.jpg Salmon P. Chase (Joseph P. Ourdan) [11] 2,607 (194)
$21862SecondFr.41 US-$2-LT-1862-Fr-41.jpg Alexander Hamilton 1,212 (881)
$51862FirstFr.61a US-$5-LT-1862-Fr-61a.jpg Freedom (Owen G. Hanks, eng; Thomas Crawford, art) [12] Alexander Hamilton 1,591 (188)
$101863FirstFr.95b US-$10-LT-1863-Fr-95b.jpg Abraham Lincoln (Frederick Girsch); [13] Eagle; Art375 (161)
$201863FirstFr.126b US-$20-LT-1863-Fr-126b.jpg Liberty375 (161)
$501862ThirdFr.148a US-$50-LT-1862-Fr-148a.jpg Alexander Hamilton (Joseph P. Ourdan) [14] 45 (1)
$1001863ThirdFr.167 US-$100-LT-1863-Fr-167.jpg Vignette spread eagle (Joseph P. Ourdan) [15] 51 (2)
$5001862ThirdFr.183c US-$500-LT-1863-Fr-183c.jpg Albert Gallatin 6 (4)
$1,0001863ThirdFr.186e US-$1000-LT-1863-Fr-186e.jpg Robert Morris (Charles Schlecht)4 (1)

See also

Notes

  1. Acts 3:6
  2. Names in parentheses are either the engravers or artists responsible for the concept and/or initial design.
  3. The first number represents the total population[ clarification needed ] for the design type, the second number (in parentheses) is the total number of notes known for the variety illustrated in the table.
  4. The $1 and $2 denominations were only issued with the Second obligation on the reverse. All other denominations were issued with both payment obligations. [10]

Related Research Articles

The Specie Payment Resumption Act of January 14, 1875 was a law in the United States that restored the nation to the gold standard through the redemption of previously-unbacked United States Notes and reversed inflationary government policies promoted directly after the American Civil War. The decision further contracted the nation's money supply and was seen by critics as an exacerbating factor of the so-called Long Depression, which struck in 1873.

United States Note A type of paper money that was issued from 1862 to 1971 in the United States

A United States Note, also known as a Legal Tender Note, is a type of paper money that was issued from 1862 to 1971 in the U.S. Having been current for 109 years, they were issued for longer than any other form of U.S. paper money. They were known popularly as "greenbacks", a name inherited from the earlier greenbacks, the Demand Notes, that they replaced in 1862. Often termed Legal Tender Notes, they were named United States Notes by the First Legal Tender Act, which authorized them as a form of fiat currency. During the 1860s the so-called second obligation on the reverse of the notes stated:

This Note is a Legal Tender for all debts public and private except Duties on Imports and Interest on the Public Debt; and is receivable in payment of all loans made to the United States.

Legal tender is a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered ("tendered") in payment of a debt extinguishes the debt. There is no obligation on the creditor to accept the tendered payment, but the act of tendering the payment in legal tender discharges the debt.

United States five-dollar bill Current denomination of United States currency

The United States five-dollar bill ($5) is a denomination of United States currency. The current $5 bill features a portrait of Abraham Lincoln, the 16th U.S. president (1861-1865), on the front and the Lincoln Memorial on the back. All $5 bills issued today are Federal Reserve Notes.

United States ten-dollar bill Current denomination of United States currency

The United States ten-dollar bill ($10) is a denomination of U.S. currency. The obverse of the bill features the portrait of Alexander Hamilton, who served as the first U.S. Secretary of the Treasury. The reverse features the U.S. Treasury Building. All $10 bills issued today are Federal Reserve Notes.

Large denominations of United States currency greater than $100 were circulated by the United States Treasury until 1969. Since then, U.S. dollar banknotes have only been issued in seven denominations: $1, $2, $5, $10, $20, $50, and $100.

Silver certificate (United States) Type of United States paper currency used between 1878 and 1964

Silver certificates are a type of representative money issued between 1878 and 1964 in the United States as part of its circulation of paper currency. They were produced in response to silver agitation by citizens who were angered by the Fourth Coinage Act, which had effectively placed the United States on a gold standard. The certificates were initially redeemable for their face value of silver dollar coins and later in raw silver bullion. Since 1968 they have been redeemable only in Federal Reserve Notes and are thus obsolete, but still valid legal tender at their face value and thus are still an accepted form of currency.

Gold certificate

A gold certificate in general is a certificate of ownership that gold owners hold instead of storing the actual gold. It has both a historic meaning as a U.S. paper currency (1863–1933) and a current meaning as a way to invest in gold.

<i>Coins Financial School</i>

Coin's Financial School was an 1894 pamphlet written by lawyer, politician and resort founder William Hope Harvey (1851–1936). It advocated a return to bimetallism, where the value of a monetary unit is defined as a certain amount of two different kinds of metals, often gold and silver. In the book, Harvey charged that the demonetization of silver caused by the Coinage Act of 1873 led to the Panic of 1893 by halving the supply of available redemption money in the economy. This lowered the prices of goods throughout the country and hurt farmers and small business owners, according to Harvey. Harvey argued that by returning silver to the same monetary status as gold, the American economy would benefit from stabilized prices, resulting in higher revenue, and ease of repayment of debts. The pamphlet sold about 1 million copies, which helped popularize the free silver movement with the public. Harvey would go on to aid Democratic candidate William Jennings Bryan’s presidential campaign in 1896, which ran on the platform of free coinage of silver. The issue of bimetallism remained controversial throughout the remainder of the 19th century.

The history of the United States dollar began with moves by the Founding Fathers of the United States of America to establish a national currency based on the Spanish silver dollar, which had been in use in the North American colonies of the United Kingdom for over 100 years prior to the United States Declaration of Independence. The new Congress's Coinage Act of 1792 established the United States dollar as the country's standard unit of money, creating the United States Mint tasked with producing and circulating coinage. Initially defined under a bimetallic standard in terms of a fixed quantity of silver or gold, it formally adopted the gold standard in 1900, and finally eliminated all links to gold in 1971.

Demand Note

A Demand Note is a type of United States paper money that was issued between August 1861 and April 1862 during the American Civil War in denominations of 5, 10, and 20 US$. Demand Notes were the first issue of paper money by the United States that achieved wide circulation and they are still in circulation today, though they are now extremely rare. The U.S. government placed the Demand Notes into circulation by using them to pay expenses incurred during the Civil War including the salaries of its workers and military personnel.

Confederate States dollar

The Confederate States dollar was first issued just before the outbreak of the American Civil War by the newly formed Confederacy. It was not backed by hard assets, but simply by a promise to pay the bearer after the war, on the prospect of Southern victory and independence. As the Civil War progressed and victory for the South seemed less and less likely, its value declined. After the Confederacy's defeat, its money had no value, and both individuals and banks lost large sums.

Fractional currency Series of United States dollar banknotes

Fractional currency, also referred to as shinplasters, was introduced by the United States federal government following the outbreak of the Civil War. These low-denomination banknotes of the United States dollar were in use between 21 August 1862 and 15 February 1876, and issued in denominations of 3, 5, 10, 15, 25, and 50 cents across five issuing periods. The complete type set below is part of the National Numismatic Collection, housed at the National Museum of American History, part of the Smithsonian Institution.

Money Object or record accepted as payment

Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The main functions of money are distinguished as: a medium of exchange, a unit of account, a store of value and sometimes, a standard of deferred payment. Any item or verifiable record that fulfils these functions can be considered as money.

The Legal Tender Cases were two 1871 United States Supreme Court cases that affirmed the constitutionality of paper money. The two cases were Knox v. Lee and Parker v. Davis.

United States dollar Official currency of the United States

The United States dollar is the official currency of the United States and its territories. The Coinage Act of 1792 introduced the U.S. dollar at par with the Spanish silver dollar, divided it into 100 cents, and authorized the minting of coins denominated in dollars and cents. U.S. banknotes are issued in the form of Federal Reserve Notes, popularly called greenbacks due to their historically predominantly green color.

Bills of credit

Bills of credit are documents similar to banknotes issued by a government that represent a government's indebtedness to the holder. They are typically designed to circulate as currency or currency substitutes. Bills of credit are mentioned in Article One, Section 10, Clause One of the United States Constitution, where their issuance by state governments is prohibited.

Interest bearing note Grouping of Civil War era paper money-related emissions of the US Treasury

Interest bearing notes refers to a grouping of Civil War era paper money-related emissions of the US Treasury. The grouping includes the one- and two-year notes authorized by the Act of March 3, 1863, which bore interest at five percent per annum, were a legal tender at face value, and were issued in denominations of $10, $20, $50, $100, $500 and $1000. The grouping also frequently includes the early civil war treasury notes which matured in either sixty days or two years and bore interest at six percent and the seven-thirties which matured in three years and bore interest at 7.3 percent—though both of these latter issues lacked legal tender status. Reference texts used by currency collectors will also sometimes include compound interest treasury notes and Refunding Certificates in this grouping as well.

Treasury Note (19th century)

A Treasury Note is a type of short term debt instrument issued by the United States prior to the creation of the Federal Reserve System in 1913. Without the alternatives offered by a federal paper money or a central bank, the U.S. government relied on these instruments for funding during periods of financial stress such as the War of 1812, the Panic of 1837, and the American Civil War. While the Treasury Notes, as issued, were neither legal tender nor representative money, some issues were used as money in lieu of an official federal paper money. However the motivation behind their issuance was always funding federal expenditures rather than the provision of a circulating medium. These notes typically were hand-signed, of large denomination, of large dimension, bore interest, were payable to the order of the owner, and matured in no more than three years – though some issues lacked one or more of these properties. Often they were receivable at face value by the government in payment of taxes and for purchases of publicly owned land, and thus "might to some extent be regarded as paper money." On many issues the interest rate was chosen to make interest calculations particularly easy, paying either 1, 112, or 2 cents per day on a $100 note.

The Contraction Act of 1866 was an act passed by Congress of the United States on April 12, 1866. It was intended to lower the price level so they could reinstate the gold standard.

References

  1. Brands 2011, p. 1.
  2. Mitchell 1903, p. 5.
  3. Mitchell 1903, p. 7.
  4. Mitchell 1903, p. 23.
  5. Brands 2011, p. 12.
  6. O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action . Needham, MA: Pearson Prentice Hall. p.  552. ISBN   0-13-063085-3.
  7. 1 2 Leigh 2014, p. 50.
  8. Brands 2011, p. 13.
  9. 1 2 Friedberg & Friedberg 2013, p. 37.
  10. Friedberg & Friedberg 2013, pp. 37–56.
  11. Hessler 2004, p. 24.
  12. Hessler 2004, p. 20.
  13. Hessler 2004, p. 22.
  14. Hessler 2004, p. 27.
  15. Hessler 2004, p. 28.

Sources

Further reading