Money In America, Part Two

In our last exciting episode, we saw barter, foreign coinage, fiat money, the rise of a banking system and systematic efforts to fiddle the system, by both banks and government. From one Turning to the next …

When the War Between the States ended, federal expenses had doubled, to $130 billion. The United States notes called the “greenback” arose from the Legal Tender Act of 1862, especially useful for all debts, public and private when there was already not enough specie to support the banking system.

The old state banking operations were supplanted by a system of banking entwined with the federal government. This new scheme led to the establishment of the Federal Reserve System.

First, of course, the government had assured the people that only $150 million greenbacks would be issued. Alas, they made two more issues, reaching a total of $415 million in 1864, all of which depreciated in real terms. Secretary Salmon P. Chase had tried unsuccessfully to manipulate the gold market to stem the depreciation along with other ‘tricks’. He ended up losing office.

Meanwhile, the state banks were still operational, and quite happy with the new fiat currency.

Needless to say, price inflation increased significantly. In the South, the Confederate fiat money issuance was far worse.

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