Foner’s Misstep on Civil War Fiat Currency

(January 1, 2017) When history professor Eric Foner applauds the North in this lecture for making Civil War paper money legal tender (which the South did not) he overlooks exceptions, including a rebellion in otherwise Union-loyal states that was never punished. The excerpt below summarizes his remarks:

The paper money issued in the North was declared…legal tender. That is to say, “You’ve got to accept this money [even] if you don’t think it is worth anything.” [If I] borrow [money from you] before the war, it’s gold. Now I can pay you back with [paper money]. But creditors don’t want to be paid in money that is worthless. But [the Legal Tender Act] makes paper money acceptable everywhere.

The South did not make their money legal tender. Therefore you could accept it or not, as you saw fit, which meant that it’s value fell far faster.

To be sure, the professor correctly notes that the value of paper money fell much faster in the South than in the North. He fails to mention, however, that the authority forcing everyone to accept Northern paper money (Greenbacks) in trade for debts originally incurred in gold—The Legal Tender Act—had limits. For example, Greenbacks could not be used to pay tariff duties, which remained a major source of federal tax revenue. As Foner acknowledges in a later lecture, they also could not be used to pay interest on federal bonds, but that was a limitation on the government, not the people. Most significantly, however, the Pacific Coast states simply rebelled against Greenbacks.

Although California and Oregon never seceded, they defied the February 1862 Act by refusing to accept Greenbacks as legal tender. They would not honor the notes at face value.

Since gold was more common on the Pacific Coast, the two states were particularly contemptuous of Greenbacks. In November ‘62 San Francisco merchants refused to accept the notes at anything above the discounted rates at which they were exchanged for gold. As the accompanying chart indicates, those rates fluctuated. (The chart shows the value of a gold dollar in relation to a Greenback dollar. In July 1864 after Grant had lost 50,000 men during the overland campaign and was stalled before Petersburg, for example, one gold dollar was worth about 2.7 Greenbacks.) The following April California’s legislature adopted a Specific Contracts Act, clarifying that contracts entered on the basis of gold were enforceable in gold. Finally, the California state government refused to accept Greenbacks in payment of taxes.


Oregon quickly followed California. For years gold had been the state’s exclusive 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.

Neither California nor Oregon was punished for their defiance. Instead, the federal government eventually conformed to the Pacific Coast monetary principles. First, when Grant became President in 1869 his first step was to sign the Public Credit Act, which required that all federal bonds be repaid in gold even though most had been purchased during the war with Greenbacks for as little as thirty-seven cents on the dollar. It was a huge windfall to the bondholders, among whom there were almost no Southerners, if any. Second, all Greenbacks became redeemable at par in gold in 1879, but few were presented for redemption.

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.’”

Instead, Chase put his portrait on the face of the one-dollar denomination. He reasoned that the circulating notes might help him win the Presidency in the 1864 election. Instead, his self-promotion led Congress to eventually stipulate that no image of a living person could be placed on US currency or postage stamps.

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3 thoughts on “Foner’s Misstep on Civil War Fiat Currency

  1. Cotton Boll Conspiracy

    History has shown that patriotism usually takes a backseat to financial self-interest. Of course, financial self-interest is often dressed up as patriotism by those in power in order to get the masses to do the heavy lifting. Excellent post.

    1. Phil Leigh Post author

      Thanks for the encouragement and best wishes for the New Year.

      As Banker J. P. Morgan, who epitomized Gilded Age wealth, cogently observed, “A man always has two reasons for the things he does¬—a good one and the real one.”


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