Tag Archives: Legal Tender

Legislation of the Thirty-Seventh U.S. Congress

July 16, 1862 – The lack of southern opposition made the Thirty-seventh U.S. Congress one of the most productive in history, as the Republican majority worked to enact nearly every plank of their party platform.

U.S. Capitol Building under construction | Image Credit: Wikimedia.org

Regarding the war effort, Congress approved a measure authorizing the distribution of the Medal of Honor to Federal army personnel. The Medal had been established last year only for officers and men of the Federal Navy or Marine Corps. This later became known as the Congressional Medal of Honor, the only individual decoration for valor during the war besides a congressional vote of thanks.

The Federal Navy

President Abraham Lincoln signed a bill into law establishing that “… every officer, seaman, or marine, disabled in the line of duty, shall be entitled to receive for life, or during his disability, a pension from the United States, according to the nature and degree of his disability, not exceeding in any case his monthly pay.” This was intended to help wounded naval personnel, as well the widows and children of those killed in service. Another law appropriated money for the families of Federal sailors killed in action against the Confederate ironclad C.S.S. Virginia at Hampton Roads, Virginia, in March.

Congress approved a measure stating that “… the spirit ration in the Navy of the United States shall forever cease, and… no distilled spirituous liquors shall be admitted on board vessels of war, except as medical stores… there shall be allowed and paid to each person in the Navy now entitled to the ration, five cents per day in commutation and lieu thereof, which shall be in addition to their present pay.” This law was sponsored by Republican Senator James Grimes of Iowa, at the request of Assistant Navy Secretary Gustavus V. Fox.

The Militia Act of 1862

Lincoln approved a bill that defined militias as consisting of all able-bodied men between the ages of 18 and 45, eligible to be called into Federal service for up to nine months. The president was to “make all necessary rules and regulations… to provide for enrolling the militia and otherwise putting this act into execution.”

This allowed for unprecedented Federal power over state militias, and it was the first step toward a military draft. Secretary of War Edwin M. Stanton authorized Federal officials to suppress any criticism of the Federal militia policy, including imprisoning anti-war protestors.

The law also authorized the president “to employ as many persons of African descent as he may deem necessary and proper for the suppression of this rebellion, and for this purpose he may organize and use them in such manner as he may judge best for the public welfare.” This included “any military or naval service for which they may be found competent.”

This was the first time in American legislative history that blacks were allowed (albeit implicitly) to serve as military combatants. Blacks would receive less pay than whites, and they would initially be used only for manual labor, but abolitionists saw this as a good first step toward racial equality. A moderate Republican senator acknowledged that “the time has arrived when… military authorities should be compelled to use all the physical force of this country to put down the rebellion.”

These wartime measures marked a turning point in the Federal war policy. The war would take a much harsher turn in future months, as the Federals sought to fight on “different principles” and toss aside the “white kid-glove warfare” that had produced stalemate.

The Ironclad Oath

Lincoln approved a measure requiring all Federal officials or employees, elected or appointed, to take an “ironclad oath” declaring that they had never done anything to aid the Confederacy. Those who could not take this oath or refused to take it would lose their jobs.

This had generated intense debate in Congress, but Lincoln’s moderate approach to readmitting Confederate states to the Union meant that this was rarely enforced at first. However, the oath requirement was later extended to cover Federal contractors, attorneys, and jurors, along with residents of Confederate states under Federal military occupation.

Financial Legislation

Republicans approved more measures raising the already high protective tariffs on sugar, tobacco, and liquor. This made up for land sale revenue lost by the Homestead Act and helped garner party support from bankers and industrialists who lobbied for the high rates.

Congress approved the Second Legal Tender Act, which authorized printing another $150 million in paper currency, or greenbacks. Greenbacks were worth only 91 cents in gold by the end of July, but many people supported them, especially westerners who had limited access to specie. Confederates under Federal military occupation also used greenbacks because they were still worth more than the nearly worthless Confederate currency.

There were now $300 million in greenbacks in circulation, which inflated the cost of living in the northern states. However, this was somewhat offset by the new Federal income tax enacted this month, as well as the strengthening northern industry to bolster the economy.

Another bill addressed the problem of dwindling amounts of metal currency by authorizing the use of postage stamps as money.

Other Legislation

Lincoln signed a bill into law approving a treaty to work with Great Britain in suppressing the illicit African slave trade. The U.S. Senate approved a measure endorsing the secession of western Virginia from the rest of the state and admitting “West Virginia” into the Union as a new state. West Virginia had been created by a legally questionable legislature on May 23 on the condition that blacks would not be permitted there, slave or free.

Lincoln also signed the Morrill Anti-Bigamy Act into law, which banned polygamy in U.S. territories. This was part of the Republican Party’s campaign pledge of 1860 to end polygamy within the Mormon Church of Jesus Christ of Latter-Day Saints in the Utah Territory. Mormons argued that such a law violated their First Amendment right to freely practice their religion.

Conclusion

Members of this 37th U.S. Congress overhauled the nation’s financial system, distributed land to states and homesteaders, laid the groundwork for a transcontinental railroad, and took steps to abolish slavery. All these measures permanently changed the direction of America’s social and economic development. They also gave the Federal government unprecedented control over the states and the people, which was exactly what southerners had argued against (and were now fighting against) since the nation’s founding.

Before Congress adjourned, one last controversial measure would be enacted.

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References

CivilWarDailyGazette.com; Denney, Robert E., The Civil War Years: A Day-by-Day Chronicle (New York: Gramercy Books, 1992 [1998 edition]), p. 176, 193-94; Faust, Patricia L., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 323, 385; Fredriksen, John C., Civil War Almanac (New York: Checkmark Books, 2007), p. 178, 180-81; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 236, 238-41; McPherson, James M., Battle Cry of Freedom: The Civil War Era (Oxford History of the United States Book 6, Oxford University Press, Kindle Edition, 1988), p. 303, 446, 450, 491-92, 499-50; Robertson, Jr., James I., Tenting Tonight: The Soldier’s Life (Alexandria, VA: Time-Life Books, 1983), p. 32-33; Stanchak, John E., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 213-14; Sylvia, Stephen W., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 484; White, Howard Ray, Bloodstains, An Epic History of the Politics that Produced and Sustained the American Civil War and the Political Reconstruction that Followed (Southernbooks, Kindle Edition, 2012), Q362

The Legal Tender Act

February 25, 1862 – President Abraham Lincoln signed a bill into law establishing the first Federal paper currency in U.S. history–the “U.S. Note.”

Treasury Secretary Salmon P. Chase | Image Credit: Wikimedia.org

Treasury Secretary Salmon P. Chase | Image Credit: Wikimedia.org

By this time, the northern banking community was nearing collapse. Doubts about the Federals’ ability to win the war and a possible European recognition of Confederate independence had prompted panic buying of precious metals, resulting in a gold shortage. This shortage hindered Federal efforts to obtain loans or repay debts. In a message to Congress, Treasury Secretary Salmon P. Chase finally conceded: “I came with reluctance to the conclusion that the legal tender clause is a necessity. Immediate action is of great importance. The Treasury is nearly empty.”

The “legal tender clause” was a measure that would enable the U.S. Treasury to print paper money that was not backed by specie (i.e., precious metals such as gold or silver). Prior to this, all American currency had value based on its ability to be converted to specie. The printing of this new paper money would be financed by bond sales.

Chase called the issuance of paper money “indispensably necessary” as a means to increase the money supply and help pay for the war. Printing money out of thin air sparked intense debate in Congress, with most Democrats opposing and most Republicans favoring the move. Republican William P. Fessenden of Maine, chairman of the Senate Finance Committee, acknowledged that it was “of doubtful constitutionality… It is bad faith… It shocks all my notions of political, moral, and national honor…” however, “to leave the government without resources in such a crisis is not to be thought of.”

Republican Congressman Elbridge C. Spaulding of New York, a member of the House Ways and Means Committee and chairman of a sub-committee working on wartime emergency measures, proposed printing $150 million in paper money. This would pay for all debts except import tariffs and interest on the national debt. Spaulding declared:

“The bill before us is a war measure, a necessary means of carrying into execution the power granted in the Constitution ‘to raise and support armies’… These are extraordinary times, and extraordinary measures must be resorted to in order to save our Government and preserve our nationality.”

Democratic Congressman George Pendleton of Ohio countered:

“The wit of man has never discovered a means by which paper currency can be kept at par value, except by its speedy, cheap, certain convertibility into gold and silver… prices will be inflated… incomes will depreciate; the savings of the poor will vanish; the hoardings of the widow will melt away; bonds, mortgages, and notes–everything of fixed value–will lose their value.”

A banker argued that “gold and silver are the only true measure of value. These metals were prepared by the Almighty for this very purpose.” Constitutionalists asserted that Congress only had the power to “coin” money, which meant create coin, not money based on worthless paper. Moreover, allowing for the payment of debts with this paper violated the Constitution’s contracts clause.

Republican Congressman Samuel Hooper of Massachusetts contended, “Every intelligent man knows that coined money is not the currency of the country,” because state banknotes were the prime medium of exchange, and they often depreciated in value. Hooper stated that the real question was whether national paper money would have “as much virtue… as the notes of banks which have suspended specie payments.”

Lawmakers added a provision authorizing payment of bond interest in specie, up to six percent. It was hoped that this would encourage more bond sales, which would finance the new currency. Tariffs would also continue to be paid in specie to finance interest payments on the bonds.

The Republican-dominated Congress, influenced by increasing pressure from the Treasury, business leaders, and bankers, ultimately cast the votes needed to approve the bill. Three-fourths of congressional Democrats opposed the measure, but their minority status could not overcome the three-fourths of Republicans in favor. Lincoln, admittedly no expert in finance, signed the measure into law.

The Legal Tender Act created the first national monetary system based on paper, or fiat, currency. The new currency, which featured the image of Treasury Secretary Chase, was called “greenbacks” due to the green ink used to print the notes. Issuing paper money in place of specie was intended as a wartime emergency measure only. Attorney General Edward Bates wrote a legal opinion arguing the law’s validity because it fell under the Constitution’s “necessary and proper” clause. Ironically, Chase himself would later rule this measure unconstitutional as Supreme Court chief justice after the war.

The first $150 million in notes were to begin issuance in April; ultimately $400 million was circulated. The paper money helped restore enough investor confidence to sell the $500 million in six-percent bonds issued at the same time. It also provided access to the funds that had been hoarded since the financial crisis of December. Paper money circulation ended when specie currency was finally restored in 1879.

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References

Denney, Robert E., The Civil War Years: A Day-by-Day Chronicle (New York: Gramercy Books, 1992 [1998 edition]), p. 134; Donald, David Herbert, Lincoln (Simon & Schuster, Kindle Edition, 2011), Loc 7452; Faust, Patricia L., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 323; Fredriksen, John C., Civil War Almanac (New York: Checkmark Books, 2007), p. 114; Jackson, Donald Dale, Twenty Million Yankees: The Northern Home Front (Alexandria, VA: Time-Life Books, 1983), p. 58-59; Linedecker, Clifford L. (ed.), The Civil War A to Z (Ballantine Books, 2002), p. 164; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 175; Longacre, Edward G., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 432-33; McPherson, James M., Battle Cry of Freedom: The Civil War Era (Oxford History of the United States Book 6, Oxford University Press, Kindle Edition, 1988), p. 444-46