Crucial to the success of Lincoln’s creation of fiat money and bond-sales was master publicist and financier Jay Cooke. The latter “subsidized editors and columnists of most of the important papers of the nation” whose journalists were still receiving bribes from him when he pushed for bond redemption in gold. At the end of the war, Cooke worked hard to convince the Northern populace that their onerous debt was justified and “His efforts were supplemented by the Loyal Publications League, which was resuscitated in 1868 in order “to spread throughout the country correct views upon the subject of taxation and currency.”
Bernhard Thuersam, www.circa1865.org
Radical Ideology Printed on “Lincoln Green”
“The cruel quandary which the effort to rein in the lower classes created for radicalism became enmeshed in the debate over the greenback currency. Despite all its complexities, the currency question typified the fate of Radical doctrines, for here the Republican party repudiated its own radical handiwork.
Both the plan for a managed fiat currency and the rhetoric subsequently used in its defense were the offspring of the Radical wing of the Republican party. The legal tender bill was taken up by Congress at the end of 1861 because gold loans floated by the Treasury had exhausted the coin supply of the banks and forced them to suspend specie payments.
The Union was confronted by the prospect of runaway bank-note inflation and the sale of bonds below par value, either of which would have raised the cost of prosecuting the war toward a prohibitive level. At this juncture, Elbridge Spaulding, a Buffalo banker and Republican congressman, proposed a solution in defiance of the national traditions of States’ rights, hard money, and bank control of currency: that the federal government should issue its own interest-free notes receivable for all public dues and legal tender for all private transactions.
The value of these notes was to be stabilized by permitting their conversion into government bonds bearing 6 per cent interest, which were payable in five years and redeemable in twenty, commonly known as 5-20s’.
This majestically simple scheme met with furious opposition from the Democrats and many bankers. Pendleton, Vallandigham, Conkling and Justin Morill stood shoulder to shoulder against the bill; but its Radical supporters, led by Thaddeus Stevens, enlisted enough Conservative (and even banker) support for the scheme as a temporary war measure for it to pass the House 93 to 59. Senate opponents were strong enough to graft on an amendment providing for payment of interest on the 5-20 bonds in coin.
This action created the problem of how to raise the promised gold. [but compromise established a dual-currency system]: gold for the importer [tariffs] and bond-holder, greenbacks for everyday domestic purposes.
As the war continued and governmental needs for borrowed funds soared, both the currency supply and the debt structure grew ever more complex. By the war’s end the country was faced with rampant inflation, constant manipulation of gold prices by speculators, a morass of different bond issues, and four major forms of currency – greenbacks, specie, national bank notes, and State bank notes. The task of unraveling the mess fell on Treasury Secretary Hugh McCulloch . . . [and] with authority granted by Congress in March 1866, [he] initiated a steady withdrawal of greenbacks from circulation, and redemption of short-term notes.
[A] bill introduced by Robert Schenck to force a halt to the Treasury’s contraction policy enlisted the support not only of Stevens, Butler and Logan, but also Senator Sherman and Jay Cooke, and of numerous Democrats. The measure swept the House by a vote of 127 to 14, and in the Senate only four Conservative Republicans voted against it. The Conservative economic program had been thoroughly defeated.
Hard money advocates characterized their own position as scientifically sound and moral, and that of their [fiat money] foes as demagogic and dishonest. Speaking for Spaulding’s bill in 1862, Henry Wilson had described the debate as “a contest between brokers and jobbers, and moneychangers on the one side, and the people of the United States on the other.”
Not to be outdone, John Bingham charged the bill’s foes with misconstruing the Constitution for “the purpose of denationalizing the people . . . [and stripping] the power of the people over their monetary interests in this hour of national exigency.”
Here was the Radical ideology in its purest form, printed, as it were, on bills of “Lincoln green.” Understandably, Henry Carey attributed both the economic vigor and the patriotic spirit of the nation to protection and greenbacks . . . Thaddeus Stevens [had] judged the whole national banking system as a “mistake,” [and] declared: “Every dollar of paper [money] in circulation ought to be issued by the Government of the United States.” [Republican editor Benjamin Bannon of Pennsylvania] devised a scheme for the circulation of greenbacks as the exclusive currency of the nation, with national banks serving as distribution centers only.
From the tariff of 1846 until the Republican legislative triumphs of 1862, Bannan argued, nonproductive capital had ruled the land, and now it was again “striving to gain the ascendancy.”
(Beyond Equality, Labor and the Radical Republicans, 1862-1872, David Montgomery, University of Illinois Press, 1981, pp. 340-345)