After intense debate, Congress approved the issuance of paper money, popularly known as “greenbacks,” on that day in 1862, which was not backed by an equal amount of gold or silver. He declared them legitimate currency for all payments, with the exception of interest on public debt and import duties. Originally, the Legal Tender Act, which President Abraham Lincoln quickly signed, was designed as an emergency measure. Over time, he significantly expanded federal power and changed the country`s monetary norm. The three dissidents argued that the war threatened the existence of the government. By making the banknotes tender legal, they provided the government with the supplies needed to continue the war. With regard to paper money, Nathaniel Gorham told the Constitutional Convention that he was in favor of removing an explicit congressional power to issue paper money, but Gorham was also opposed to “inserting a ban.” [16] This is what ultimately happened at the Convention: language that explicitly gave the federal government the power to issue paper money as legal tender was removed by a vote of 9 to 2, but an option allowing issuance and a prohibition on making it legal was not implemented. Article I, Section 8 of the Constitution gives Congress the power to “lend money on credit to the United States,” and so Gorham contemplated that “the power [for example, to issue promissory notes] is involved in borrowing to the extent necessary or secure.” [17] The power to issue paper money (e.g. bank notes) was justified by the use of the necessary and appropriate clause in conjunction with the other powers listed, including the power to borrow money. [18] The power to “issue credit bills” is explicitly mentioned in the Constitution as a prohibition for the states and could therefore be interpreted as such a significant power that it should be expressly conferred on the federal government and should not be derived from the necessary and appropriate clause, although it is not entirely clear whether or not the authors intended such an interpretation.
nor did the Oberster Gerichtshof give such an interpretation either in the cases of legal tender or subsequently. The bill signed by President Abraham Lincoln was intended to be an emergency measure. Over time, he significantly expanded federal power and changed the country`s monetary norm. | Ted Shaffrey, File/AP Photo As the Civil War progressed, tax receipts did not keep pace with government spending. The result was an increase in the budget deficit ($931 million in 1865) and an accumulated debt of $2.68 billion (compared with a debt of $64.8 million in 1860). While the budget deficit declined significantly in 1866, the accumulated national debt continued to rise. Another legal tender was adopted in 1863, and by the end of the war, nearly half a billion dollars had been spent on greenbacks. The law on legal tender laid the foundation for the creation of a permanent currency in the decades following the civil war. On that day in 1862, Congress passed the Legal Tender Act to fund the Civil War.
It allowed the federal government for the first time to print paper money, called greenbacks, that was not backed by an equal amount of gold or silver. Article I, Section 10 of the Constitution expressly prohibits states from issuing “letters of credit” (promissory notes) or from doing anything other than gold and silver coins as “legal tender”. There are no corresponding explicit prohibitions that limit the power of the federal government, nor are there explicit authorities. The Tenth Amendment refers to reserved powers that only states can exercise, as well as undelegated powers that remain in the hands of the people. There are also “competing powers” that can be exercised by the states or the federal government, such as the power to repel invasions and presumably also the power to make legal tender (for example, in federal areas or elsewhere). Article I, Section 8 of the Constitution explicitly gives Congress the power to “borrow money” as well as the power to “mint money and regulate the value” of U.S. and foreign coins and to regulate interstate commerce, but does not expressly and unambiguously grant Congress the power to print paper money or to make it legal as legal tender. The government passed the Legal Tender Act in 1862, which allowed the creation of paper money that was not exchangeable for gold or silver. “Greenbacks” worth about $430 million were put into circulation, and this money had to be accepted by law for all taxes, debts and other obligations – including those born before. The federal government first issued paper money in 1861 to finance the Civil War.
[10] Before that, all U.S. paper money was money issued by banks. For example, the paper notes were issued by the First Bank of the United States, a federally licensed private corporation. [11] Congress had also approved paper money (e.g., the Continentals) even before the Constitution was adopted. The Continental was issued both by the individual states and by the Continental Congress in accordance with the Articles of Confederation. These sections expressly authorized the issuance of legal tender notes, which at the time were called “letters of credit”. [12] The U.S. federal government had issued paper money known as U.S. notes during the American Civil War under the provisions of the Legal Tender Act of 1861. In Hepburn v. 1869 Griswold, the court ruled that the legal tender law violated the due process clause of the Fifth Amendment to the United States Constitution.
In his majority opinion, Chief Justice Salmon P. Chase did not hold that Congress did not have the power to issue paper money, but ruled that bank notes could not be used as legal tender for existing debts. The Supreme Court struck down Hepburn v. Griswold in legal tender cases in which he concluded that U.S. debt securities could be used to repay existing debt. Let us now reflect on what has actually been done to provide a national currency. In July, August 1861, and February 1862, the issuance of sixty million dollars in American notes, payable on demand, was authorized. They were converted into receivables in payment, but were not declared legal tender until March 1862, by which time circulation had been considerably reduced by receipt and cancellation. In 1862 and 1863, the issue of four hundred and fifty million American notes, payable not on demand, but at the discretion of the government, was authorized, subject to certain restrictions concerning fifty million. These banknotes have been the subject of claims on domestic loan obligations, on all debts owed to or from the United States, with the exception of import duties and interest on government debt, and have also been declared legal tender. In March 1863, the issuance of banknotes for portions of a dollar up to an amount not exceeding fifty million dollars was authorized. These notes have not been declared legal tender, but have been made refundable in accordance with regulations to be issued by the Minister of Finance.
In February 1863, the issue of three hundred million dollars in bank notes from the national banking associations was authorized. These debentures were rendered receivable to the same extent as U.S. debt securities, and arrangements were made to guarantee their repayment, but they were not legal tender. [3] More Americans died in the Civil War than in any other war in which the United States has ever been involved. Financing of the war also weighed on the economy, with the national debt increasing 40-fold from pre-war levels. Congress was forced to pass historic laws and introduce new taxes to pay the cost of the war and rebuild the country. These laws have permanently changed the federal budget and the U.S. economy. To learn more, check out the infographic below. concerned the constitutionality of the Legal Tender Act of 1862. The court, in a 5-3 vote (including a majority by the sick Grier), repealed the Legal Tender Act, denying Congress the power to issue fiat currency as legal tender. As the government`s hard currency reserves dwindled, legislation created a new way to pay bills.
By forcing creditors to take the greenbacks at face value, the legislation also stimulated the economy, even as Congress got inflationary pressures under control by imposing high income and excise taxes. The law legitimized paper money in “the payment of all taxes, domestic duties, excise duties, debts, and receivables of every kind owing to the United States, except import duties, and all claims and demands.” and [it] shall also be legal money and legal tender for the settlement of all public and private debts in the United States. Soon after the war began, the federal government ran out of cash. Several proposals were made on the use of bonds. Eventually, Congress began printing money, which the Confederate government had been doing since the war began. The Legal Tender Act allowed the government to print $150 million in paper money that was not backed by a similar amount of gold and silver.