The War Between the States:
(or the War of Northern Aggression - as it is called down here in the Deep South).
After secession of the Southern States, Mr. Lincoln wanted to raise an army and invade the South, but he had one large overriding problem - MONEY! In order to raise an army and equip them, large amounts of money would be needed. Contrary to what your history books might have said, there were quite a few Northerners who were against Mr. Lincoln's war. Many newspaper editors, a U.S. Representative and the entire Maryland legislature were just some of the Northern citizens jailed at one time or another (and held without charges) by Mr. Lincoln for speaking out against the war. The New York conscription riots were also a testament to the fact that the North was not 100% in solidarity against the "evil" Southerners. All you had to do in the North to avoid the draft was to pay (a large sum in those days) or find someone to fight in your place. I speak of these facts just to demonstrate that raising funds to fight an unpopular war can be quite a problem for a leader. Income tax was even passed, and an entire collection system set up before it was struck down as unconstitutional.
During the War Between the States, the Secretary of the Treasury was Mr. Salmon Portland Chase. He came up with the idea that the government could issue unfunded paper money directly and then issue a moratorium on the redemption of their own paper bills! They were really just small "no interest" bonds issued by the government with nothing more than a promise to redeem them at some time after the war at an "unspecified" later date. These were the first paper dollars issued by the federal government. On February 25th, 1862 the northern government printed $?,000,000 of these new "greenbacks." They were used to pay the army and make purchases for the army. The Northern Government agreed to continue to pay its interest payments on their regular bonds in gold and naturally demanded that all taxes continue to be paid in gold. The North insisted, however, that the greenbacks were just as good as gold redeemable currency and should circulate side by side with regular gold redeemable currency.
Many of the Congressmen of the day spoke out against these greenbacks but they reluctantly voted them (narrowly) into existence. Many of the "yes" votes were qualified on the floor of the House and Senate. Many statements to the effect that "however bad greenbacks may be, we see no other alternative, and we therefore reluctantly vote for them" were recorded. This was clearly unconstitutional and the representatives and Senators knew it at the time! Many people and newspaper editors pointed this out and many were imprisoned.
Lincoln issued his "greenbacks" and paid for the war with them. They were supposed to be of equal value with gold redeemable currency but as you might imagine two prices for everything developed. One price was in greenbacks and the other in gold. Under the legal tender laws the two-tier price system was declared illegal, however, not recognizing the differences in the two moneys quickly led to bankruptcy. The exchange rate of the greenbacks with regular gold redeemable money changed as the fortunes of war changed with each battle. When the North's chances of winning the war fell, so to did the exchange rate of its greenbacks. When the fortunes of war improved for the North, so did the fortunes of its greenbacks.
On July 11th 1862, a second issue of $?,000,000 greenbacks was issued. Again, on March 3, 1863, a third batch of $?,000,000 was quickly authorized and printed up. At the low point for the greenback, it's value dropped to only about 1/3 of its face value. Over the course of the war, the North issued millions of dollars in greenbacks.
Meanwhile, down in Dixie, President Davis was having his own problems raising his army to defend the newly formed C.S.A. (The term "Dixie" is believed to have evolved from the Citizen's Bank of New Orleans' ten-dollar note. In French, the number "ten" is "dix." These ten-dollar notes became know as "dixes." New Orleans, one of the richest cities in the country, and the surrounding area became know as the "land of dixes".) Nearly one billion notes were issued by the C.S.A. over its brief existence. During the five year span, from 1860 to 1865, prices in the North rose by 46%. During the same time in the South, prices rose almost 100 times or 10,000%. This started slowly, at about 12% per year, and picked up steam. The young C.S.A. only had less than $50 million in assets and was pledged not to implement any type of national tax system. The very essence of the C.S.A. was a weak central government with strong State governments. This led to a real problem raising funds to continue the defense of the South. In spite of this problem, men still volunteered to defend their homes. Eventually, perhaps, this problem could have been overcome, just as the Continental Dollar Crisis was resolved as a result of the American Continental Congress' similar funding of the American Revolutionary War. In many ways, it was a very similar problem.
John Kenneth Galbraith wrote, "The miracle of the Confederacy, like the miracle of Rome, was not that it fell, but that it survived so long."
When the C.S.A. finally collapsed, the loss of one billion dollars to the South's economy from currency failure, along with the utter destructive force of the war, and the horrors of reconstruction, left the richest area of the country before the war, one of the poorest for generations afterwards. Part of Lincoln's War Strategy was to break the "economic back" of the C.S.A. He achieved this by Sherman's (A.K.A. "Kerosene Billy") "march to the sea" where towns, farms, private property (and the City of Atlanta) were burned and the population of women and children were either killed or turned out to suffer the winter homeless and starving. Sheridan, likewise, looted the entire Shenandoah Valley killing noncombatants, looting and destroying private property everywhere they went. This same strategy was followed after the war to irradicate the Plains Indians. Even the capitol of Richmond was burned (now the site of the new Lincoln Memorial, courtesy of the National Parks Service). All this was done in spite of the new Geneva Convention of 1864. This economic and physical devastation of property along with the murder and rape of non-combatants left bitter feelings long after the war was over.
The North's greenbacks were finally redeemed fifteen years later in full. Many people in the North lost money and many speculators in greenbacks became rich men. The greenbacks ceased to be legal tender after a Supreme Court ruling struck them down as "unconstitutional money."
Who was the man who led the Supreme Court to strike down the very financing tool of the North's victory? It was the same man who ushered in its birth. For you see, by 1870, the Chief Justice of the Supreme Court was none other than former Secretary of the Treasury, Salmon P. Chase.
Always remember, the victors write the history books.
Larry LaBorde
Silver Trading Company
