Legal Tender Act
LEGAL TENDER ACT
LEGAL TENDER ACT (1862). To provide funds to carry on the Civil War, Congress found it necessary to issue fiat money. By the act of 25 February 1862, and by successive acts, the government put into circulation about $450 million of paper money dubbed "greenbacks." These acts did not set aside any specific gold reserve to back the paper issue, nor did they announce any date when greenbacks could be redeemed for hard currency. To insure the negotiability of the new paper currency, Congress declared these notes legal tender in "payment of all taxes, internal duties, excises, debts, and demands of every kind due to the United States, except duties on imports, and of all claims and demands against the United States … and shall also be lawful money and legal tender in payment of all debts, public and private, within the United States." Wall Street and the metropolitan press opposed this measure, fearing runaway inflation. On the Pacific coast people frequently evaded the law through the passage of acts allowing exceptions on the basis of specific contracts. By imposing a wide range of taxes, however, Congress generated a steady stream of revenue into the federal treasury, inspiring confidence in the Union's ability to pay its debts and offsetting some of the inflationary characteristics of paper currency. In 1870 the Supreme Court declared the Legal Tender Act unconstitutional and void in respect to debts contracted prior to its passage, but after two vacancies were filled, the Court reversed its decision.
Ellison, Joseph. "The Currency Question on the Pacific Coast During the Civil War." Mississippi Valley Historical Review, June 1929.
Unger, Irwin. The Greenback Era. Princeton, N.J.: Princeton University Press, 1964.
J. W.Ellison/c. w.