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The Civil War and “Bills of Credit”

These “bills of credit” (i.e. "Greenbacks") came out in the course of a major political crisis—The Civil War, which to the Political Class rationalizes the use of “emergency powers”.

Constitutional Militia
By Constitutional Militia
Lincoln Greenback
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Last Updated on January 15, 2023 by Constitutional Militia

The Civil War and “Bills of Credit”

“The immediate aftermath of the Civil War was a time of unprecedented legal flux, during which new doctrines were spun out to rationalize extreme positions adopted during the conflict. Nowhere was this more true than in the area of monetary law.”[1]

The Civil War and “Bills of Credit” (A constitutional term of art for “paper money”)

The Civil War was over two generations removed from the ratification of the Constitution. Therefore few individuals active unpolitical and legal affairs at that time could be described as “contemporaries” of the Founding Fathers or the people who ratified the Constitution, who of all Americans were best situated historically to know what that document meant.[2] For example, in one of the Supreme Court’s most important cases on the subject of unconstitutional paper currency, one Justice pointed out that,

[t]he terms, “bills of credit,” are in themselves vague and general, and, at the present day, almost dismissed from our language. It is, then, only by resorting to the nomenclature of the day of the Constitution, that we can hope to get at the idea which the framers * * * attached to it.[3]

Perhaps amazingly, this observation was offered in 1830, a scant forty-two years after ratification of the Constitution, when men who had been young adults in 1788 were still alive and capable of remembering not only “the nomenclature of th[at] day” but also the actual “bills of credit”—such as the Continental Currency—which had then circulated throughout America. And, these possible witnesses aside, the pre-constitutional historical record more than adequately addressed the issue.[4]

The Civil War witnessed numerous innovations in government driven by the crisis of secession and insurrection, including the first national suspension of the writ of habeus corpus,[5] the first income tax levied by the United States,[6] and the first irredeemable legal-tender Treasury Notes (the so-called “Greenbacks” emitted by the United States).[7]

The immediate aftermath of the Civil War was a time of unprecedented legal flux, during which new doctrines were spun out to rationalize extreme positions adopted during the conflict. Nowhere was this more true than in the area of monetary law.[8] Chief Justice Salmon Chase was the very man who as Secretary of the Treasury had lobbied for for the legal-tender United States Notes, and who Abraham Lincoln had appointed to the Supreme Court to uphold the notes’ constitutionality.[9] But even he contritely conceded in Hepburn v. Griswold,[10] the Supreme Court’s first decision on the unconstitutionality of the Greenbacks, that

“amid the tumult of the late civil war, and under the influence of apprehensions for the safety of the Republic almost universal, different views never before entertained by American statesmen or jurists, were adopted by many. The time was not favorable to considerate reflection upon the constitutional limits of legislative or executive authority. * * *  Many who doubted yielded their doubts; many who did not doubt were silent.”[11]

And shortly thereafter, in the case of Dooley v. Smith[12] Justice Stephen Field (who unflaggingly opposed the constitutionality of the legal-tender Treasury Notes) premonished both his contemporaries and, perhaps even more, his future countrymen that,

“the doctrines advanced in [Knox v. Lee, which reversed Hepburn and upheld the emission of the Greenbacks,] are not only in conflict with the teachings of all the statesmen and jurists of the country up to a recent period, and at variance with the uniform practice of the government for nearly three-quarters of a century, but * * * tend directly to break down the barriers which separate a government of limited powers from a government resting in the unrestrained will of Congress.
* * * Those limitations must be preserved, or our government will inevitably drift from the system established by our fathers into a vast centralized and consolidated government.”[13]

Highly revealing are the debates in Congress. As noted before, legislative debates “are not appropriate sources of information from which to discover the meaning of the language of a statute”, because, “it is impossible to determine with certainty what construction [Congress as a whole] put upon [the act] * * * by resorting to the speeches of individual members”.[1] And even less are “debates * * * admissible as evidence to control the meaning of * * * words [in the Constitution]”,[2] the arguments of legislators being “so often being influenced by personal or political considerations, or by the assumed necessities of the situation”.[3] Yet congressional debates can serve “as a means of ascertaining the environment at the time of the enactment of a particular law”.[4]

The debates over emission of the Greenbacks are particularly instructive in elucidating the the environment of the period, at least with respect to the legislators’ attitudes concerning concerning Congress’s constitutional powers and disabilities in the monetary field. In the main, speakers divided into three groups: those who asserted the correct interpretation of the Constitution’s monetary powers and disabilities, as an absolute bar on the emission of Greenbacks; those who professed doubt on the legal issues, but supported legal tender paper currency as a regrettable, but unavoidable “emergency” measure; and those who advanced novel and far reaching theories of unlimited governmental authority over money, under which the Greenbacks were an unextraordinary exercise of Congress’s transcendent “sovereign” power.

There was, of course, consensus in Congress that the country’s plight was serious—militarily, politically, and financially. But many were beyond mature concern to invoke the “uncontrollable necessity” of emitting legal-tender paper currency.[5] “We were never in greater peril than at this moment” argued Representative Spaulding. The bill before us is a war measure —a measure of necessity, and not of choice * * * . These are extraordinary times, and extraordinary measures must be resorted to in order to save our Government and preserve our nationality.”[6] Indeed, for those such as Representative Hopper, not merely “the maintenance of the Government” and “the preservation of the Union” were at stake, but even “the enforcement of the laws, on which depend the existence as well as the security of property”[7]—as if the South’s successful secession could have overthrown the North’s entire legal system. In short, the debate screamed with panic.[8]

Footnotes:

1.) United States v. Trans-Missouri Freight Association, 166 U.S. 290, 318 (1897).

2.) United states v. Won Kim Ark, 169 U.S. 649, 699 (1898).

3.) Downes v. Bidwell, 182 U.S. 244, 254, (1901). 

4.) Standard Oil Co. v. United States, 221 U.S. 1, 50 (1911).

5.) Congressional Globe, 37th Cong., 2d Sess. (1862) at 659 (Representative Pike).

6.) Id. at 523.

7.) Id. at 615. 

8.) See W. Summer, A History of American Currency (1874), at 201.

Representative Pendleton accurately recalled, the Greenbacks differed from every previous issue of United States Treasury Notes

in several essential particulars. Every other law authorizing the issue of Treasury Notes provided that they should bear some rate of interest, whereas these are to bear none; that they should be payable at a fixed time * * * , whereas these are only to be payable at the pleasure of the United States; that the notes * * * should be receivable in payment of public debts only by those who were willing to receive them at par, while these notes are to be received by every public creditor who is not willing to forfeit his right to payment at all. These notes are to be made lawful money, and a legal tender * * * , a characteristic which has never been given to any note of the United States or any note of the Bank of the United States by any law ever passed. Not only * * * was such a law never passed, but such a law was never voted on, never proposed, never introduced * * * ; the measure was never seriously entertained in debate in either branch of Congress.[1]

Footnotes:

1.) Congressional Globe, 37th Cong., 2d Sess. (1862), at 549 (Representative Pike). 

Overall, the legislative debates document that the proponents of legal-tender paper currency could muster no sound constitutional argument or precedent in favor of the Greenbacks—having, instead, to proffer the anti-constitutional theory that Congress is a “sovereign” body with “inherent” powers far beyond those the Constitution enumerates in Article I, Section 8 and subject to no limitation or restraint save the discretion of its Members themselves.[1]

Congress passed the legal-tender bill; and President Lincoln signed it into law.[2] The statute provided for the emission of:

United States notes, not bearing interest, payable to bearer, * * * [that] shall * * * be lawful money and a legal tender in payment of all debts, public and private, within the United States, except duties on imports and interest [upon bonds and notes, which shall be paid in coin]. And any holders of said United States notes  depositing any sum not less than fifty dollars * * * with the Treasurer of the United States * * * shall receive * * * an equal amount of bonds of the United States, * * * bearing interest * * * , and redeemable at the pleasure of the United States after five years, and payable twenty years from the date thereof. And such United States notes shall be received the same as coin, at their par value, in payment for any loans that may be hereafter sold or negotiated by the Secretary of the Treasury * * * .[3]

Eventually, Congress authorized $850 million in Greenbacks.[4] Although in la “payable to bearer”, the Greenbacks were in fact irredeemable at the time, because the government had suspended specie payments. The government later pledged “to make provision at the earliest practicable period for the redemption of the United States notes in coin.[5] And the notes were in fact made redeemable “in coin” in the late 1780s.[6]

Predictably, the Greenbacks soon significantly depreciated against gold: At the end of 1862, 1863, and 1864 $100 in gold exchanged for $128, $148, and $225 in paper respectively—the low point being July of 1864, when $100 in gold exchanged for $285 in Greenbacks.[7]

Footnotes:

1.) See, e.g., Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution, (Chicago, Illinois R R Donnelly & Sons, Inc., GoldMoney Foundation Special Edition [2011] of the Second Revised Edition, 2002) by Dr. Edwin Vieira, Jr., Volume I, at 591.

2.) Congressional Globe, 37th Cong., 2d Sess. (1862) at 768.

3.) Act of 25 February 1862, ch. 33 § 1, 12 Stat. 345, 345.

4.) Act of 25 February 1862, ch. 33 § 1, 12 Stat. 345, 345 (authorizing $150 million), Act of 11 July 1862, ch. 142, § 1, 12 Stat. 532, 532 ($150 million); J. Res. 9, 17 January 1863, 12 Stat. 822, 822-23 ($100 million); Act of 3 March 1863, ch. 73, §§ 2-3, 12 Stat 709, 710-11 ($450 million). See W. Mitchell, A History of the Greenbacks (1903), chi 2-4.

5.) Act of 18 March 1869, ch. 1, 16 Stat. 1, 1.

6.) Act of 14 January 1875, ch. 15, § 3, 18 Stat.296, 296, discussed ante, at 471-72.

7.) See W. Mitchell, Gold, Prices & Wages Under the Greenback Standard (1908), at 288-301.

In Hepburn v. Griswold,[1] the Supreme Court declared the legal-tender Acts invalid.[2] Ironically, Chief Justice Salmon Chase who, as Secretary of the Treasury lobbied for the Greenbacks and whom Abraham Lincoln had appointed to the Court to uphold the legal-tender Acts,[3] wrote the majority opinion—apologizing for his part in the legislation:

It is not surprising that amid the tumult of the late civil war, and under the influence of apprehensions for the safety of the Republic almost universal, different views, never before entertained by American statesman or jurists, were adopted by many. The time was not favorable to considerate reflection upon the constitutional limits of legislative or executive authority. * * * Many who doubted yielded their doubts; many who did not doubt were silent.[4]

Hepburn was to have but a short life as precedent, however.[5] The legal tender issue was one of the most politically charged questions of constitutional law ever to reach the Supreme Court, on which jurists and lawyers divide along strict partisan lines. Indeed, before 1870, sixty judges in the highest courts of fifteen States had considered the constitutionality of Congressional legal-tender paper currency—and all but one of the Republicans had sustained it, whereas everyone of the Democrats had denied it.[6] Similarly, the majority in Hepburn was composed of Democrats; the minority Republicans. Thus hardly surprising was that, soon after publication of Hepburn, pressure was brought to beacon the Court to hear the issue.[7] And changes in the Court’s composition soon resulted in rearmament of the issue in Knox v. Lee (The Legal-Tender Cases),[8] and a five-to-four majority for reversal of Hepburn. These changes colored the charge that President Ulysses Grant had deliberately packed the tribunal in order to overrule Hepburn. But no substantial evidence supports the theory.[9] Moreover, the peculiar circumstances surrounding the decision in Hepburn militated against whatever form of stare decisis attaches to opinions of the Supreme Court on constitutional issues.[10] In addition, the majority opinion in Hepburn hardly did credit to a case so pregnant with momentous legal, economic, and political consequences. For Chief Justice Chase narrowly limited the issue to the constitutionality of “legal-tender [paper currency] in payment of pre-existing debts”,[11] and then held against the Greenbacks on only the vaguest of grounds predicated the legal-tender Acts’ retrospective application.[12] Thus, when Knox came before the Court, the major issues of Congressional legal-tender authority remained undecided. Some historians have condemned the rehearing of the question as a political blunder that undermined popular confidence in the Court.[13] In any event, as a matter of constitutional interpretation, Knox was an historical, economic, legal, and philosophical travesty and disaster of the first magnitude.[14]

Footnotes:

1.) 75 U.S. (8 Wall.) 603 (1870).2399.) Id., at 622-25.2400.) See E. Bates, The Story of the Supreme Court (1936), at 172.

2.) Id., at 622-25.

3.) See E. Bates, The Story of the Supreme Court (1936), at 172.

4.) 75 U.S. (8 Wall.) at 625. See also Chase’s more extensive apologia in Knox v. Lee, 79 U.S. (12 Wall.) 457, 575-76 (1871) (dissenting opinion).

5.) For that reason, this site will present no extended analysis of that decision, but will concentrate on the Court’s opinion overruling Hepburn, Knox v. Lee, 79 U.S. (12 Wall.) 457 (1871).

6.) C Fairman, Mr. Justice Miller and the Supreme Court, 1862-1890 (1939), at 152-54.

7.) See e.g., 2 C. Warren, The Supreme Court in United States History (rev. ed. 1926), at 515-16.

8.) 79 U.S. 12 (Wall.) 457 (1871). The two cases the Court decided were Knox v. Lee, which addressed the constitutionality of the legal-tender provision in the Act of 25 February 1862, and Parker v. Davis, which addressed the issue of whether that provision could constitutionally be applied to contracts entered into after its enactment. Here the two cases will be subsumed under the style of the first.

9.) See e.g., Sachs, “Stari Decisis and the Legal-Tender Cases” 20 Virginia L. Rev. 856, 867-73 (1934); Burton, “The Legal Tender Cases: A Celebrated Supreme Court Reversal”. 42 Amer Bar Assn. J. 231 (1856).

10.) Sachs, “Stari Decisi”, ante note 2406. At 879-81.

11.) 75 U.S. 8 (Wall.) at 606, 610, 613, 615, 619, 625, 626.

12.) Contrast the opinion of Robertson, C.J., in Griswold v. Hepburn, 2 Duv. 20 (1865).

13.) E.g., 2 C Warren, The Supreme Court, ante note 2404, at 522.

14.) See, e.g., Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution, (Chicago, Illinois R R Donnelly & Sons, Inc., GoldMoney Foundation Special Edition [2011] of the Second Revised Edition, 2002) by Dr. Edwin Vieira, Jr., Volume I, at 599-600.

Predictably, the Greenbacks soon significantly depreciated against gold: At the end of 1862, 1863, and 1864 $100 in gold exchanged for $128, $148, and $225 in paper respectively—the low point being July of 1864, when $100 in gold exchanged for $285 in Greenbacks.[14]

It’s important to note when these “bills of credit” came out—in the course of a major political crisis—The Civil War, which to the Political Class rationalizes the use of “emergency powers”. This is still the argument that is always made—“There is an emergency, so we have to do “X”, otherwise something terrible will happen”—people panic, politicians panic, and the next thing you know this “precedent” is on the books. In fact, this was the argument that was made for the emission of the Lincoln Greenbacks.

1.) Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution, (Chicago, Illinois R R Donnelly & Sons, Inc., GoldMoney Foundation Special Edition [2011] of the Second Revised Edition, 2002) by Dr. Edwin Vieira, Jr., Volume I, page 40.

2.) Id. at 39.

3.) Craig v. Missouri, 29 U.S. (4 Peters) 410 ,442 (1830) (Johnson, J., dissenting), referring to U.S. Const. art. I, § 10, cl. 1.

4.) See, e.g., Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution, (Chicago, Illinois R R Donnelly & Sons, Inc., GoldMoney Foundation Special Edition [2011] of the Second Revised Edition, 2002) by Dr. Edwin Vieira, Jr., Volume I, at 67-79, 94-96, 141-155, 391-454.

5.) U.S. Const. art. I, § 9, cl. 2. See J. Randall, Constitutional Problems Under Lincoln (1951), at 118-39.

6.) Act of 5 August 1861, ch 45, §§ 49-51, 12 Stat. 292, 309-10; Act of 1 July 1862, ch. 119 §§ 89-93, 12 Stat. 432, 473-75; Act of 3 March 1863, ch. 74, § 11, 12 Stat. 713, §§ 116-20, 13 Stat. 223, 281-83; Act of 10 March 1866, ch. 15, 14 Stat. 4; Act of 13 July 1866, ch. 184, § 9, 14 Stat. 98, 101-47; Act of 2 March 1867, ch. 169, 14 Stat 471; Act of 14 July 1870, ch. 255 §§ 6-14, 16 Stat. 256, 257-60. This tax was sustained on dubious grounds in Springer v. United States, 102 United States, 102 U.S. 586 (1881). See Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429, 578-79 (1895).

7.) Act of 25 February 1862, ch. 33, § 1, 12 Stat. 345, 345. See also Act 17 March 1862, ch. 45, § 2, 12 Stat. 370, 370;  Act of 11 July 1862, ch. 142, § 1, 12 Stat. 532, 532; Act of 3 March 1863, ch. 73 § 2, 12 Stat.709, 710. Although in law “payable to bearer” , these notes were irredeemable at the time, because the government had suspended specie payments. The government later pledged “to make provision at the earliest practicable period for the redemption of the United States notes in coin”. Act of 18 March 1869, ch. 1, 16 Stat. 1, 1. And the notes were eventually made redeemable.  Act of 14 January 1875, ch. 15, § 3, 18 Stat. 296, 296.

8.) Id. at 1.

9.) See E. Bates, The Story of the Supreme Court (1936), at 172.

10.) 75 U.S. (8 Wall.) 603 (1870).

11.) 75 U.S. (8 Wall.) at 625.

12.) 80 U.S. (13 Wall.) 604 (1872).

13.) Id. at 607-08 (dissenting opinion, referring to Knox v. Lee, 79 U.S. (12 Wall. ) 457 (1871).

14.) See W. Mitchell, Gold, Prices & Wages Under the Greenback Standard (1908), at 288-301.

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