At Eastertime, Christians are reminded of the story that Jesus was betrayed for ‘thirty pieces of silver’. Big pieces…little pieces…we aren’t told. What is money and what is it worth? Almost two millennia later this is a question that, in the US, was largely settled in the Civil War.
The unexpected Union loss of the first major Civil War battle at Bull Run in 1861 shocked President Lincoln and his Cabinet. The Secretary of the Treasury was Salmon P. Chase, a New Hampshire-born Cincinnati politician, and he was given the task of financing what now looked like a long struggle with the Confederacy. His first act was to borrow money on the open market, but in short order he found that bankers and other financiers were loath to lend their funds to what now appeared to be a risky enterprise.
Likewise, foreign lenders were reluctant, even when high interest rates were offered. The British, especially, were dubious, as their main connection to America was through raw cotton imports from the South and the Union naval blockade threatened this trade. A number of concerns about Union strength kept the British on the fence, however.
In 1860, tariff revenues were the main source of federal income. The first of a series of Demand Note Acts required the federal Customs Houses to accept import duties in gold only, not in banknotes. Together with a Republican platform that called for higher duties on imports, this provided some extra hard revenue for the federal Treasury.
Chase also tried to sell Union bonds to individuals rather than banks, but it was not until a Yankee financial entrepreneur, Jay Cooke, undertook to sell them directly through what proved to be a successful national advertising campaign, plus using door-to-door salesmen called, of course, ‘Minutemen’, to find customers.
Even so, revenues still fell short, given the growing demands of a war economy, so Chase then changed all the currency rules and effectively ‘nationalized’ the banking system.
Chase set out rules for a set of local banks to act as ‘National Banks’. The banknotes these National Banks could issue had the bank’s information on the front and federal information that, by law, (‘fiat’) these were ‘legal tender’ printed on a green field on the rear; thus the term ‘greenback’. Eventually, the Treasury took over the whole currency process and the ‘greenback’ had federal information on both sides. Even today, when most countries’ paper currency is printed in different colors and/or sizes depending on the value ascribed to the note, American currency is a standard size and color, though, as a redesign has slowly been taking place since 2003, a few other color tints have been added to larger denomination bills.
Today, some other ‘moneys’ have been created and are used alongside ‘real’ money. The most revolutionary is crypto-currencies, like bitcoin, or complex computer-generated programs that can be bought and sold for real money, but their value varies widely in terms of real money. For the time being, at least, fiat money, or the greenback, still underpins today’s world.
Read more about finance, money and the Civil War in chapter 14 of my new release, The Yankee Road, Volume 2: Domination.