United States Note - Politics and Controversy

Politics and Controversy

The concept of replacing precious metals with fiat paper as the medium of exchange was contentious and attracted attention.

The United States Congress had enacted the Legal Tender Acts during the U.S. Civil War when southern Democrats were absent from the Congress, and thus their Jacksonian hard money views were underrepresented. After the war, the Supreme Court ruled on the Legal Tender Cases to determine the constitutionality of the use of greenbacks. 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. However, Grier retired from the Court, and President Grant appointed two new Republicans, Strong and Bradley, who joined the three sitting Republicans, Swayne, Miller, and Davis, to reverse Hepburn, 5-4, in the 1871 cases Knox v. Lee and Parker v. Davis. 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.

The states in the far west stayed loyal to the Union, but also had hard money sympathies. During the specie suspension from 1862 to 1878 western states used the gold dollar as a unit of account whenever possible and accepted greenbacks at a discount wherever they could. The preferred forms of paper money were gold certificates and National Gold Bank Notes, the latter having been created specifically to address the desire for hard money in California.

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. However, as the 1870s unfolded, the market price of silver fell with respect to gold, and inflationists found a new cause in the Free Silver movement. Opposition to the resumption of specie convertibility of the Greenbacks in 1879 was accordingly muted.