You might be wondering, when was it decided that small, green pieces of paper with pictures of people’s faces on them would be worth something more than they actually are? Whose bright idea was it to do that? Unfortunately, it wasn’t just a split second decision made on behalf of the United States by the government. A few major problems, one being the CIVIL WAR, caused a huge national debt and no way to repay it, but with a paper currency.
In the early 1860’s, the Union (the North) had gathered up a huge debt of 270 million dollars. Due to the complete failure on the Union’s behalf during the Battle of Ball’s Bluff and the increasing tension with Great Britain after the North seized their ship, Trent, banks in New York ceased the payment of gold and silver that could fund many different financial activities, including slowly but surely paying off the war debt.
There was only one solution to this awful situation, and that was saying goodbye to the gold standard and beginning the use of a national paper currency. On February 25, 1862, the Legal Tender Act was passed, which put into circulation paper money, known as “greenbacks”. But hey, it was either that, or an empty treasury.
Another way the United States tried to help itself financially was by enacting an income tax in 1861 and then passing the Internal Revenue Act a year later, which allowed taxes on many items, including liquor, tobacco, playing cards, billiard tables, and jewelry. And because this was taking place during the civil war, of course, the Republicans and Democrats had very different opinions on this topic. The Republicans were for it, while the Democrats hated the idea. This debate continued on during Reconstruction.
Although the debt rose during the war, by the late 19th century, the United States was running a surplus.
And now we’re in debt again… so how do we get out of it this time?
Blair, William. “Untold Civil War Stories: Goodbye, Gold Standard.” Washington Post. The Washington Post, 08 Oct. 2011. Web. 18 Dec. 2013.