United States Note
United States Notes that were issued in the large-size format, before 1929, differ dramatically in appearance when compared to modern American currency, but those issued in the small-size format, starting 1929, are very similar to contemporary Federal Reserve Notes of the same denominations with the distinction of having red U.S. Treasury Seals and serial numbers in place of green ones.
[4] During December 1861, economic conditions deteriorated and a suspension of specie payment caused the government to cease redeeming the Demand Notes as coins.
[5] Recognizing, however, that his proposal would take many months to pass Congress, during early February Spaulding introduced another bill to permit the U.S. Treasury to issue $150 million in notes as legal tender.
[6] This caused tremendous controversy in Congress, as hitherto the Constitution had been interpreted as not granting the government the power to issue a paper currency.
Spaulding justified the action as a "necessary means of carrying into execution the powers granted in the Constitution 'to raise and support armies', and 'to provide and maintain a navy'".
Legal tender status guaranteed that creditors would have to accept the notes despite the fact that they were not backed by gold, bank deposits, or government reserves, and had no interest.
Thaddeus Stevens, the Chairman of the House of Representatives Committee of Ways and Means, which had authored an earlier version of the Legal Tender Act that would have made United States Notes a legal tender for all debts, denounced the exceptions, calling the new bill "mischievous" because it made United States Notes an intentionally depreciated currency for the masses, while the banks who loaned to the government got "sound money" in gold.
By the First Legal Tender Act, Congress limited the Treasury's emission of United States Notes to $150,000,000; however, by 1863, the Second Legal Tender Act,[9] enacted July 11, 1862, a Joint Resolution of Congress,[10] and the Third Legal Tender Act,[11] enacted March 3, 1863, had expanded the limit to $450,000,000, the option to exchange the notes for United States bonds at par had been revoked, and notes of $1 and $2 denominations had been introduced as the appearance of fiat currency had per Gresham's law driven even silver coinage out of circulation.
[13] At the end of the American Civil War, some economists, such as Henry Charles Carey, argued for building on the precedent of non-interest-based fiat money and making the greenback system permanent.
[14] However, Secretary of the Treasury McCulloch argued that the Legal Tender Acts had been war measures, and that the United States should soon reverse them and return to the gold standard.
By this time, the wartime economic prosperity was ended, the crop harvest was poor, and a financial panic in Great Britain caused a recession and a sharp decrease of prices in the United States.
[17] The contraction of the money supply was blamed for the deflationary effects, and caused debtors to agitate successfully for a halt to the notes' retirement.
[18] During the early 1870s, Treasury Secretaries George S. Boutwell and William Adams Richardson maintained that, though Congress had mandated $356,000,000 as the minimum Greenback circulation, the old Civil War statutes still authorized a maximum of $400,000,000[nb 1]—and thus they had at their discretion a "reserve" of $44,000,000.
Starting in 1872, Boutwell and Richardson used the "reserve" to counteract seasonal demands for currency, and eventually expanded the circulation of the Greenbacks to $382,000,000 in response to the Panic of 1873.
[15] While the United States Notes had been used as a form of debt issuance during the Civil War, afterwards they were used as a way of moderately influencing the money supply by the federal government—such as through the actions of Boutwell and Richardson.
During the Panic of 1907, President Theodore Roosevelt attempted to increase liquidity in the markets by authorizing the Treasury to issue more Greenbacks, but the Aldrich–Vreeland Act provided for the needed flexibility by the National Bank Note supply instead.
[22] In September 1994, the Riegle Improvement Act released the Treasury from its long-standing obligation to keep United States Notes in circulation.
[22] United States Notes are, depending on their issue, redeemable directly for precious metal – as after the specie resumption of 1879 which authorized federal officials to do so if requested.
The 1870 case Hepburn v. Griswold found unconstitutional the use of greenbacks when applied to debts established prior to the First Legal Tender Act as the five Democrats on the Court, Nelson, Grier, Clifford, Field, and Chase, ruled against the Civil War legislation in a 5–3 decision.
Secretary Chase had become Chief Justice of the United States and a Democrat, and spearheaded the decision invalidating his own actions during the war.
In 1884, the Court, controlled 8–1 by Republicans, granted the federal government very broad power to issue Legal Tender paper through the case Juilliard v. Greenman, with only the lone remaining Democrat, Field, dissenting.
During the 1870s and 1880s, the Greenback Party existed for the primary purpose of advocating an increased circulation of United States Notes as a way of creating inflation according to the quantity theory of money.
