The term greenback refers to legal tender, printed in green on one side and issued by the United States during the American Civil War which was backed not by the conventional gold or silver standard but by the credibility of the U.S. Government. It was largely what financed the Civil War while promoting and making the industrial revolution possible in the process.
When Lincoln assumed office he already understood that the outcome of the war would be largely determined by resources and understood the importance of raising enough funds to effectively carry out the war effort. With this in mind Lincoln on the day after his inauguration nominated Salmon P. Chase to be Secretary of the Treasury. As Secretary Chase alone was authorized to act on all matters pertaining to the country’s finances, Chase, like most everyone else at the time, underestimated the severity of the War in terms of its duration and cost.
Confronted with the expenses of war, the Lincoln Administration sought loans from New York bankers, most of whom were fronts for, or connected to, European banks. Given the very high interest rates of 24 to 36 percent, President Lincoln refused to accept the terms of the loans and called for other solutions. Colonel Edmund D. Taylor of Illinois made the suggestion that the U.S. government could issue its own money. Taylor is quoted as saying: "Just get Congress to pass a bill authorizing the printing of full legal tender treasury notes . . . and pay your soldiers with them and go ahead and win your war with them also. If you make them full legal tender . . . they will have the full sanction of the government and be just as good as any money; as Congress is given the express right by the Constitution."
The idea to print Greenback based on the government's credibility was not Lincoln's idea originally, but with mounting pressure in Congress to accept the plan the President was quick to endorse it. The government could either print its own money or lead the country into perpetual debt at the hand of European banks. On February 25, 1862, Congress passed the first Legal Tender Act, which authorized the printing of $150 million in Treasury notes.
Printed on only one side with green ink, the bills were soon known as "greenbacks". These United States Notes or "greenbacks" represented receipts for labor and goods delivered to the United States. They could be traded in the community for an equivalent value of goods or services. The union used this money to keep the economy stable and help to pay for the war. There are at least two types of notes that were referred to as greenbacks: United States Note and Demand Note.
The Greenback's value began to decline against that of gold but was nothing compared to the "vanishing act" of the Continental dollar. Throughout 1862 the Greenback continued to decline against gold until 129 Greenback dollars were needed to buy 100 dollars in gold. Beginning in the spring of 1863 the Greenback continued to decline to 152 against 100 dollars in gold. However, after the victory at Gettysburg the Greenback made a marked recovery 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 of that year: 258 Greenbacks equal to gold's 100. When Lee surrendered to Grant in 1865 the Greenback made another remarkable recovery to 150. The rise and fall in the Greenback's value was due largely to the speculations of industrialists accommodating the war effort.
- Brands, 2011, p. 1
- Mitchell, 1903, p.3
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- Brands, 2011, p. 13
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