THE United States notes, known as “greenbacks,” are paper currency of a character quite different from the gold and silver certificates previously described. Their basis is very different, and the history of how they came to be placed in circulation is a story that has to do with the preservation of the Union. It has been declared that they saved the Federal Government.
No one now questions the legality of the greenbacks, but when the Government first began to issue them it was a grave question until the courts declared them valid.
Their use came about in the following manner : When the great expense of the Civil War had to be met, it was not possible for the Government to procure the gold and silver necessary for the purpose. It could not borrow enough money to meet the emergency. Up to that time no one had ever thought of such a thing as the United States Government’s declaring anything but gold or silver a legal tender for debt, and so far had such a policy been regarded as improper that our Federal Constitution prohibited, and still prohibits, any state from making anything a legal tender except gold and silver.
The expediency of arbitrarily printing paper money and declaring it to be money and a legal tender, which everyone would have to accept, was hit upon as a war necessity. It is said that Secretary of the Treasury Chase was the originator of the idea. It is a certainty that he was the prime sponsor, for the first issue was put out when he was Secretary of the Treasury, and later, when he was Chief Justice of the Supreme Court, the greenback was declared lawful money by the decision of that tribunal.
During the Civil War, and for a good many years thereafter, the greenback was not exchangeable at par for gold ; but it stood its ground as a legal tender and everyone had to use it. The time finally came when the Government was able to place it on a par with gold. The act of Congress requiring redemption in coin was passed July 14, 1875, but it was not required that the act take effect until three years thereafter.
The greenbacks at once began to rise in value. Coin payments at 100 per cent began on January 1, 1879, and the accomplishment is referred to as “the resumption of specie payment.”
The greenback has been maintained at par ever since; and because the Government has seen fit, as a matter of policy, to adopt means to maintain it at par and sets the example by paying gold for it at face value whenever presented, it is just as safe to accept a green-back now as it is to accept a gold certificate, the gold itself, or any other kind of money.
As the United States currency (greenback) obligation now stands, $346,681,016 is outstanding in the hands of the public. That amount has stood exactly the same since specie payment was resumed, for the law requires that when redeemed it shall be reissued.
About 75 per cent of the greenbacks now in circulation are $5 bills. If you will look at one of them you will observe that it reads as follows;
United States Note
The United States of America will pay to the bearer on demand five dollars . . .
This note is a legal tender at its face value for all debts public and private except duties on imports and interest on the public debt. .
The object of excepting duties on imports was regarded as good policy, as it required aliens to bring gold to us in payment for the privilege of selling their goods on our markets; and the assurance that the interest on our public debt would not be paid to our bond-holders with anything other than coin was regarded as necessary to avoid further impairment of the public credit.
If a greenback could be used to pay interest on the public debt, it was anticipated that the Government would be charged with bad faith and that it would prove to be a great handicap to future loans. If a former promise to pay had been met by forcing acceptance of another, but postponed, promise, it was thought that such a practice would be regarded as rendering Uncle Sam open to the charge of having adopted “the financial policy of Micawber.”
Whatever might have been justly charged to the authorities who sponsored the greenback, it could not be alleged that there was ever any intention to use the greenback to pay the interest on the bonds.
But the public had to take the greenback. It accomplished its object, and everyone now admits that, under the circumstances, it was a proper and wise policy to issue it.
The power to tax and the good faith of the Government at the time its issue began were responsible for the greenback. For a time, the Government was greatly embarrassed as a result of the greenback issue. Its value in exchange for coin varied continuously from about 97.6 in January, 1862, declining steadily until July, 1864, when it touched 38. From that date its ex-change value rose with the improved prospects of the success of the Government’s arms. When the specie-payment bill became law in 1875, greenbacks stood at 87.2. As stated above, they rose steadily from that date to January 1, 1879. They have circulated at par, and for fifty years everyone has accepted them as freely as any other class of currency. That is the condition today.
The law now requires that $150,000,000 in gold be set apart in the Treasury in reserve for the express purpose of redeeming the greenbacks, and that the gold so set apart shall be utilized for no other purpose. Also, that if the redemption of the greenbacks should ever reduce that reserve, then, to the extent of fully restoring the reserve, the Secretary of the Treasury is required to utilize the gold in the Treasury’s general fund for the purpose. Furthermore, if at any time that expedient should not accomplish restoration, and the reserve should fall as low as $100,000,000, then the law requires that the Secretary shall procure the gold by the sale of bonds sufficient in amount to restore the re-serve to $150,000,000. Such have been the express provisions of the law since March 14, 1900.
Thus the Government intends that there shall be no question about the stability of the United States currency. The whole credit of the Government is back of it to maintain it at par. Since the act of Congress that assured the $150,000,000 gold reserve, that amount has been further increased by $6,039,088.03. The increase came about under the provisions of an act dated May 30, 1908 (the Aldrich-Vreeland Emergency Currency Act), which authorized the tax receipts on that class of currency to be added to the gold reserve fund. It produced about $3,000,000. The franchise taxes, derived from the Federal reserve banks and the intermediate credit banks, have been applied to the reserve fund to the extent of about the same amountthus producing an addition of over $6,000,000.
Thus there is back of the $346,000,000 in greenbacks not only the law that guarantees their redemption at par, but also the great reserve of over $156,000,000 actually in hand to redeem whatever is presented.
As a matter of fact, no one asks that greenbacks be redeemed. As the notes become worn out, they are replaced by new notes, and the amount outstanding has remained exactly the same for over fifty years. This illustrates well the fact that if the Government could not pay in gold everyone would want it, but since every-one knows it would be paid, if demanded, no one wants it. The piece of paper is therefore “as good as gold.”
To those theorists who shy at any currency that is not backed by coin, dollar for dollar in hand, it does not seem improper to call attention to the fact that for over fifty years Uncle Samuel has had, and still has, the use of about $190,000,000 on which he has had to pay no interest. The currency circulation has stood increased that much; no one has been injured by it to the extent of a single dime since 1878, and the Federal taxpayer has certainly been saved the interest on that great sum for fifty years. Of course, the issuance of too much fiat money, or paper money not redeemable in coin, would have been dangerous. Those who as young boys can recall the currency debates of forty or fifty years ago that took place almost daily in front of the village grocery stores will remember that many a stick whittler among those economists used to insist, sometimes angrily, that greenbacks could just as well be issued to an unlimited extent by Uncle Sam and money thus be supplied in such abundance that no one need ever be deprived of whatever amount his necessities required.
The writer recalls a particularly heated argument about 1885 between two whose views were diametrically opposed to one another on the subject of fiat money. The greenbacker, who, by the way, was known by everyone in the community as “Greenback Williams,” insisted that greenbacks should be utilized to pay Federal expenses in lieu of taxes against the citizens. His opponent that day, in derision of that proposal, suggested that “Greenback” petition Congress to make pants buttons legal tender for pennies. The jest was so uproariously enjoyed by some fifteen or twenty men in the outdoor audience that “Greenback” lost his temper so badly that he had to be restrained from using violence against the less muscular debater who had ridiculed his pet scheme for meeting everyone’s financial needs.
Of course the greenback currency that is in circulation in excess of the actual gold in hand to meet it when presented is safe because of the comparatively small amount of it, and because the gold to meet it all could very easily be procured by the Government in one day if occasion should arise to make that necessary.
As to fiat money, the question seems to be pretty well settled. The voter appears to have a decided preference for our currency being kept on a sound basis.
The amount of money represented by the difference between the gold reserve of $156,039,088.03 and the $346,681,016 in greenbacks, which the reserve is maintained to support, and by the difference between the face value of coins, whether silver, copper, or nickel, and the bullion value of the metal, is “fiat,” that is, it is a value supported by the Government’s credit.