California and Oregon: Rebel States

Although California and Oregon never seceded, they defied federal law during the Civil War. When the US Treasury released its first paper money as legal tender the two states refused to honor the notes at face value.

Prior to the Civil War the federal government was constitutionally authorized to stamp coins out of gold or silver (specie) but was prohibited from issuing paper currency. While independent banks might print paper money, consumers expected that such banknotes could be redeemed for specie upon demand. Any bank failing to promptly honor such redemptions suffered a loss of public faith in its banknotes, which were no longer accepted at face value, if at all. Thus, before the war, America’s currency in circulation consisted of specie and private banknotes, amounting to about $450 million of which specie accounted for $250 million.

However, the Civil War confronted the US Treasury with unprecedented financial challenges. For example, the federal budget in 1860 was only about $80 million but grew to $1.3 billion in 1865. As the table below indicates, taxes met only 25% of the needs. Although the bulk of the remainder came from borrowings, the government also issued paper currency, which amounted to 18% of total funding.

Percent Breakdown

After the February 1862 Legal Tender Act about $430 million in greenback paper money was issued. Although not redeemable in specie, the federal government tried to mandate greenback acceptance by declaring them to be legal tender with two exceptions that required payment in specie. One was the custom duty due on tariffs and the other was interest on federal bonds. Treasury Secretary Salmon P. Chase proposed to make greenbacks superficially more palatable by adding the “In God We Trust” motto that he had earlier put on coins but Lincoln suggested wryly, “If you are going to put a legend on the greenbacks, I would suggest that of Peter and John, ‘Silver and gold I have none, but such as I have I give to thee.’”

Consequently, as the graph below illustrates, greenbacks traded at fluctuating discounts to specie. At the low point in the early summer 1864, when Grant was stalled before Petersburg and Sherman did not seem to be making progress in Georgia, a greenback dollar was only worth thirty-seven cents in specie. (The graph shows the inverse relationship, which is the number of greenbacks dollars required to buy a single gold dollar.)

greenback

Since gold was more common on the West Coast, Californians and Oregonians were contemptuous of greenbacks. In November San Francisco merchants refused to accept greenbacks at anything above the discounted quoted rates. In April the following year the California legislature adopted a Specific Contracts Act, clarifying that contracts entered on the basis of specie were enforceable in specie. Finally the California state government refused to accept greenbacks in payment of taxes.

Oregon quickly followed California. For years gold had been the exclusive Oregon currency. Shortly after the San Francisco merchants’ agreement, those in Salem and Portland followed suit. Portland merchants also circulated a black list of residents and businesses that tried to settle bills with greenbacks. Finally, the state’s Supreme Court ruled that it was unconstitutional to accept greenbacks for tax payments.

Ultimately, greenbacks were redeemable at par in 1879, but that’s a controversial Reconstruction story. Nonetheless, the wartime defiance of California and Oregon is a rare example of state sovereignty successfully resisting federal authority.

If you would like more interesting Civil War stories, consider reading one, or more, of my four books.

Lee’s Lost Dispatch and Other Civil War Controversies
Trading With the Enemy
Co. Aytch: Illustrated and Annotated
The Confederacy at Flood Tide

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