The Greenback Union: the Politics and Law of American Money in the Civil War Era
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The Greenback Union: The Politics and Law of American Money in the Civil War Era Michael Timothy Caires Castro Valley, CA M.A., San Francisco State University, 2007 B.A. San Francisco State University, 2005 A Dissertation presented to the Graduate Faculty of the University of Virginia in Candidacy for the Degree of Doctor of Philosophy Corcoran Department of History University of Virginia August 2014 i ©Copyright Michael T. Caires All Rights Reserved August 2014 ii Abstract This dissertation explores the growth of federal monetary powers in the United States during the American Civil War and how it realigned American political economy in the nineteenth century. Contrary to works that highlight how class interests guided Republican economic policy, my dissertation shows how the new national currency of the 1860s grew out of the failure of financial markets and state governments to create and regulate paper money. This new centralized currency of greenbacks and national bank notes expanded federal authority, rearranged national politics, remade economic exchange, and promoted a new brand of political conflict in postwar America. Part 1, “Problems and Traditions,” recounts both the immediate and deep origins of the Legal Tender Act of 1862 and the National Banking Acts of 1863-64, and their relationship to the war and the political economy of the nineteenth-century. Chapter one considers the financial crisis faced by the Union in 1861-1862 and roots those problems, and the solutions offered by Republicans, in in the practices and traditions of the prewar past. Chapter two provides a history of the constitutional law of money and legal tender and its relationship to Congress’s hesitation to pass the Legal Tender Act in early 1862. Chapter three argues for the significance of Union nationalism and the depth of the financial emergency in 1862 in pushing a reluctant Congress to create the first fiat currency in U.S. history. Chapter four lays out the problem of law and politics iii surrounding the issue of state banks in the prewar period and the resolution of the problem of state bank notes in the form of the National Banking Act. The second section “Conflict and Consolidation” documents the various reactions of northerners for and against this intrusion into their economic affairs. Chapter five deals with the immediate reactions of the northern public to these policies in the Civil War years, arguing that the centrality of the greenbacks to the war and northern commerce stifled resistance to the act in places like New York, with the lone exception of California, where legislators and jurists found a way to secede from the new monetary union created by the war, while remaining in the political union of the United States. Chapter six traces efforts to do away with the greenbacks and national banks in Congress and before the U.S. Supreme Court during Reconstruction, and the ultimate failure of these efforts to destroy the new regime of national currency. Chapter seven explains how greenbacks and national banks altered the worlds of finance, statecraft, and politics for the rest of the century. iv To RaeAnne v TABLE OF CONTENTS INTRODUCTION: THE ALCHEMISTS CRUCIBLE 1 THE PROBLEM OF AMERICAN MONEY 4 POWER AS MONEY, MONEY AS POWER 12 PART 1: PROBLEMS AND TRADITIONS 19 1 THE INVENTION OF A TRADITION 20 LIMITATIONS OF THE PAST 22 A DEMOCRAT IN THE TREASURY 27 AN ADAPTIVE GOVERNMENT 34 THE REPUBLICANS LOOK TO THE TREASURY NOTE 53 THE CHASE PLAN 58 THE THREAT OF A THOUSAND DOLLAR BREAKFAST 67 2 CUSTOM LEAVENED BY CRISIS 78 AN UNOFFICIAL OPINION 81 LEAVING THE DOOR AJAR: 1787 85 THE CONSTITUTIONAL SAFEGUARUDS OF BORROWING 99 1837: THE YEAR OF MONETARY THINKING 106 1862: OLD VIEWS AND NEW REALITIES 117 3 THE LEGAL TENDER MOMENT 120 THE PROBLEM WITH BANKERS 124 A UNION WAR 134 A PROBLEM OF POLICY 139 A SABBATH MADE FOR MEN 147 WHAT NO MAN CAN CONTROL 161 VOTING WITH A MOUTH FULL OF ASH 168 WHAT HATH CONGRESS WROUGHT? 175 4 ONE UNION, ONE CURRENCY, MANY BANKS 180 OLD WINE IN NEW BOTTLES 186 BUILDING A CAGE FOR A HYDRA 189 1850-1860: PRELUDE TO REFORM 200 FROM CREATION COMES DESTRUCTION 208 PART 2 CONFLICT AND CONSOLDIATION 217 5 ENMESHED IN GREENBACKS 218 THE GREENBACK ZONE 218 vi THE LIMITS OF DISSENT 227 ROAD TO THE COURTS 236 NEW YORK 238 CALIFORNIA 254 WAITING FOR THE WORLD TO CHANGE 269 6 SETTLING DEBTS 272 STATUS QUO ANTEBELLUM? 274 OLD GREENBACKS AS CHIEF JUSTICE 287 THE PROBLEM OF MRS. HEPBURN’S DEBTS 298 THE JUDGE AS ECONOMIST 313 STUFFING THE COURT WITH GREENBACKERS? 320 WHAT WE OWE 335 7 THE GREENBACK UNION 339 THE SETTLEMENT OF 1875 340 RIVERS OF GREEN 348 THE GREENBACK STATE 360 THE GREENBACKER’S MILLENNIUM 375 EPILOGUE: FIAT GREENBACKS 393 THE ELUSIVE MOMENT 393 LEGACIES 399 FIAT GREENBACKS 404 ACKNOWLEDGMENTS 411 BIBLIOGRAPHY 416 1 Introduction The Alchemist’s Crucible The federal paper money and national banks of the American Civil War remade the relationship between Americans and their federal government in the nineteenth- century. To understand this claim, we must understand a prewar world of American capitalism that no longer exists. Prior to 1862, American currency consisted of hundreds of different kinds of notes issued by banks. While the dollar, composed of gold or silver, was the national currency, in reality a person needed to navigate a complicated world in which the currency in their pocket was constantly fluctuating in value, counterfeit, or not good in all parts of the country. The Civil War wiped out this world on two fronts. In 1862, the U.S. Congress created the first fiat money in American history since before the Revolution, what would become known as “greenbacks.” In 1863, Congress followed this act with the creation a new system of national banks, controlled by the federal government. To secure the place of these banks in the market, Congress passed a tax that destroyed the existing system of state banks. Together, these actions brought a central aspect of the country’s growing economy under the aegis of the federal government. This outcome of the war resulted in a closer bond between the federal government and Americans in the spheres of economics, law, politics, and everyday life in the nineteenth century. The origins and significance of these two measures, and the system they created, remain obscure in our understandings of the war and its effects on American government and American capitalism. From the perspective of the war, they are part and parcel of a 2 slew of economic legislation passed by the Republicans in the 1860s. From the perspective of the Gilded Age, the creation phase during the war was merely an opening to the class conflict of the Gilded Age in which arguments about monetary policy would play a central part. Bray Hammond once called this new power, along with the sword, “one of the two basic supports of sovereignty.” Understanding the origins and consequences of this new form of monetary sovereignty is the focus of this dissertation.1 Getting our bearings on the history of money, let alone American money, is a difficult proposition. Most work dealing with the history of "monetary policy" in America concentrates on the story of volume. These scholars follow and reconstruct debates in society about exactly how much money there should be--and in doing so create the conditions for economic prosperity. In our histories of the money question, as it is often called, in post-Civil War America, scholars document a rich debate about how much money there should be, which dictated their support for either paper or gold money. In the past, scholars have used the volume question to uncover and describe the growing class and regional divisions that divided the country in nineteenth century America. Yet, what these works presuppose, or glide over, is the story of how nineteenth-century Americans decided who would create and control their money. In other words, existing parallel to this traditional framework is another history of money that looks at government power. 1 Bray Hammond, Sovereignty and an Empty Purse: Banks and Politics in the Civil War (Princeton: Princeton University Press, 1970), 360; Bray Hammond, Banks and Politics in America, from the Revolution to the Civil War (Princeton: Princeton University Press, 1957); Robert P. Sharkey, Money, Class and Party: An Economic Study of Civil War and Reconstruction (Baltimore: The Johns Hopkins Press, 1967); Irwin Unger, The Greenback Era: A Social and Political History of American Finance, 1865-1879 (Princeton: Princeton University Press, 1964); Leonard Curry, Blueprint for Modern America: Non-Military Legislation of the First Civil War Congress (Nashville: Vanderbilt University Press, 1968) ; Heather Cox Richardson, The Greatest Nation of the Earth: Republican Economic Policies during the Civil War (Cambridge, MA: Harvard University Press, 1997). 3 Money, in the modern world, is something that we often take for granted. Despite the arguments of eighteenth-century and nineteenth-century liberals to the contrary, money is the product of human hands. As an idea and an object, money provides a medium that can seemingly convert anything, an hour’s work, a ton of steel, or a home, into a form that can be traded for something else one desires. Nevertheless, acceptance of a slip of paper or a metal token requires an act of trust in the idea that the object will retain its value. Using a precious metal, or other commodity that everyone in a community values can inspire confidence. But as a historical fact the state, or government authority of some kind, has been at the center of this development for centuries.2 What follows is a history of American money during the mid-nineteenth century that is attuned to this key.