greenback (1860s money)

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. 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.{{sfn|Mitchell|1903|p=5}} 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.{{sfn|Mitchell|1903|p=7}} 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.{{sfn|Mitchell|1903|p=23}}

{{Main|Demand Note}}

{{multiple image

| footer = The United States Demand Note was authorized by Congress on July 17, 1861, and issued on August 10, 1861.| width = 100

| image1 = US-$5-DN-1861-Fr.1.jpg |alt1=$5 Demand Note| image2 = US-$10-DN-1861-Fr.7.jpg|alt2=$10 Demand Note | image3 = US-$20-DN-1861-Fr.12.jpg|alt3=$20 Demand Note }}

The first measure to finance the war occurred in July 1861, when Congress authorized $50,000,000 (~${{Format price|{{Inflation|index=US-GDP|value=50000000|start_year=1861}}}} in {{Inflation/year|US-GDP}}) in Demand Notes. They bore no interest but could be redeemed for specie "on demand." Unlike state and some private banknotes, Demand Notes were printed on both sides. The reverse side was printed in green ink, so 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.

On 1862-02-25, Congress passed the First Legal Tender Act, turning United States Notes into legal tender, with two exceptions: They could not be used to pay customs duties, or interest on the public debt. These could be paid only with gold and Demand Notes. Importers, therefore, continued to use Demand Notes in place of gold. But public confusion about the legal tender status of United States Notes continued until 1862-03-17, when Congress passed "An Act to authorize the Purchase of Coin, and for other purposes". Section 2 of that act said:

That the Treasury notes heretofore issued under the authority of the acts of July seventeen and August five, eighteen hundred and sixty-one, shall be lawful money and a legal tender in payment of all debts, public and private, within the United States, except duties on imports and interest as aforesaid.

This made the United States Notes' two legal tender payment exceptions, import duties & public debt interest payments, clear to the public. Import duties were a large part of the U.S. federal tax base at the time. Because Demand Notes were still backed by a promise of redeemability in gold (even though the U.S. Government did not physically possess enough gold to redeem the entire float of all Demand Notes all at once, the promise of an eventual redemption in gold was still backed by the power of the government), and because United States Notes had these 2 tender exceptions, Demand Notes retained superior economic value. This caused speculators to hoard the circulating Demand Notes, and as Demand Notes were used to pay import duties, they were taken out of circulation. By mid-summer of 1862, Demand Notes were available for an 8% premium over United States Notes. Newspapers were reporting on the falling amount of Demand Notes still left in circulation. By December it was estimated that the supply would soon be exhausted and that importers would have no option but gold for paying import duties."United States Notes and Gold", The New York Times, New York City, December 14, 1862. When the supply of Demand Notes had been nearly exhausted they commanded a price at parity with or at only a slight discount to gold dollarsMitchell, Wesley Clair, "A History of the Greenbacks With Special Reference To the Economic Consequences of Their Issue 1862–65", University of Chicago, Chicago, 1903. despite the fact that the latter continued to command a steep premium to United States Notes through the 1870s.

By June 30, 1863, only {{US$|long=no|3300000}} of Demand Notes were outstanding versus almost {{US$|long=no|400000000}} of Legal Tender Notes. By June 30, 1883 just {{US$|long=no|58985}} remained on the books of the treasury."The Nation's Finances – Weekly Treasury Statement – Currency Outstanding", The New York Times, New York City, July 1, 1883.

{{Main|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 Edmund Dick Taylor, a businessman who was serving as a volunteer officer. Taylor met with Lincoln in January 1862 and suggested issuing unbacked paper money.{{Cite book |last=Lincoln |first=Abraham |url=https://books.google.com/books?id=q4YcAAAAMAAJ&dq=dick+taylor+lincoln+January+1862&pg=PA348 |title=The Lincoln Year Book: Containing Immortal Words of Abraham Lincoln Spoken and Written on Various Occasions, Preceded by Appropriate Scripture Texts and Followed by Choice Poetic Selections for Each Day in the Year, with Special Reference to Anniversary Dates |collaboration=Hobson, J.T. |publisher=Press of United Brethren publishing house |year=1912 |edition=First |location=Dayton, Ohio |pages=348 |language=en}} On February 25, 1862, Congress passed the first Legal Tender Act, which authorized the issuance of $150 million (~${{Format price|{{Inflation|index=US-GDP|value=150000000|start_year=1862}}}} in {{Inflation/year|US-GDP}}) in United States Notes.{{sfn|Brands|2011|p=12}}

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.{{cite book

| last1 = O'Sullivan

| first1 = Arthur

| author-link = Arthur O'Sullivan (economist)

| first2 = Steven M. | last2 = Sheffrin

| title = Economics: Principles in Action

| url = https://archive.org/details/economicsprincip00osul

| url-access = limited

| publisher = Pearson Prentice Hall

| year = 2003

| location = Needham, MA

| page = [https://archive.org/details/economicsprincip00osul/page/n568 552]

| isbn = 0-13-063085-3}}

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.{{cite book

| last1 = Paul

| first1 = Ron

| author-link = Arthur O'Sullivan (economist)

| first2 = Lehrman | last2 = Lewis

| title = The Case for Gold: A Minority Report of the U.S. Gold Commission

| url = https://cdn.mises.org/Case%20for%20Gold_2.pdf

| publisher = Cato Institute

| year = 1982

| location = Auburn, AL

| page = 79

| isbn = 0-932790-31-3}}

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 recovery to 150.{{sfn|Brands|2011|p=13}} 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.{{Cite web |date=April 2013 |title=BEP HISTORY FACT SHEET - UNITED STATES NOTES |url=https://www.bep.gov/media/1056/download?inline |access-date=July 29, 2023 |website=The Bureau of Engraving & Printing, Department of the Treasury |publication-place=Bureau of Engraving and Printing, Fort Worth, Texas}}

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• Promissory note

{{Reflist|group="nb"|2}}

{{Reflist}}

• {{cite book |last=Brands |first=H. W. |year=2011 |title=Greenback Planet: How the Dollar Conquered the World and Threatened Civilization as We Know It |publisher=University of Texas Press|isbn=9780292739338 |url=https://books.google.com/books?id=p3IweU12jH0C }}
• {{cite book |last1=Friedberg |first1=Arthur L. |last2=Friedberg |first2=Ira S. |date=2013 |title=Paper Money of the United States |publisher=Coin & Currency Institute |isbn=978-0-87184-020-2 |edition=20th |url=https://books.google.com/books?id=PtuYv3DabYEC&pg=PR5 |access-date=January 25, 2020 |language=en}}
• {{cite book |last1=Hessler |first1=Gene |year=2004 |title=U.S. Essay, Proof and Specimen Notes |publisher=BNR Press |edition=2nd |isbn=0-931960-62-2}}
• {{cite book |last=Mitchell |first=Wesley Clair |year=1903 |title=A history of the greenbacks: with special reference to the economic consequences of their issue: 1862–65 |author-link=Wesley Clair Mitchell |publisher=University of Chicago Press |url=https://archive.org/details/ahistorygreenba03mitcgoog }}
• {{cite book |last=Oberholtzer |first=Ellis Paxson |year=1904 |title=Abraham Lincoln |publisher=George W. Jacobs |location=Philadelphia}} [https://books.google.com/books?id=HuT5Zj5JudIC Vol.I] [https://archive.org/details/jaycookefinanci02obergoog Vol.II]
• {{cite book |last=Oberholtzer |first=Ellis Paxson |year=1907 |title=Jay Cooke: Financier of the Civil War |publisher=George W. Jacobs |location=Philadelphia }} [https://archive.org/details/jaycookefinanci02obergoog Vol.I] [https://archive.org/details/jaycookefinanci01obergoog Vol.II]

• {{cite book |title=Lincoln's greenback currency |last=Bye |first=John O. |ref=Bye |publisher=University of Michigan |year=1963 }}
• {{cite journal |last=Noll |first=Franklin |title=The United States Monopolization of Bank Note Production: Politics, Government, and the Greenback, 1862–1878 |journal=American Nineteenth Century History |number=13 |date=March 2012 |volume=13 |pages=15–43 |doi=10.1080/14664658.2012.681942 |s2cid=144566502 }}

{{Alexander Hamilton|state=collapsed}}

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Category:1861 establishments in the United States

Category:1865 disestablishments in the United States

Category:Currencies introduced in 1861

Category:Historical currencies of the United States

Category:Economic history of the American Civil War

Category:Paper money of the United States

Category:Banknotes of the United States