Greenbacks: Definition & History

Instructor: Jason McCollom
Should money be paper or gold? This was the big debate after the Civil War. Learn about greenbacks, the Greenback Labor Party, and the argument over 'hard' and 'soft' money, and check your reading with a quiz.

What were Greenbacks?

Cash. Lettuce. Moolah. Cheese. Smackeroos. There are many slang words for money. During and after the Civil War paper currency was called greenbacks. And though most of us would like to have more moolah, in the late 19th century the debate centered more around the form of money: should currency be gold or paper?

Before the Civil War, the U.S. economy functioned on the gold standard. This meant that though state banks did issue paper currency, the paper bills were linked directly to gold. In other words, you could trade in your paper money for an equal amount of gold coins, and vice versa. So, even if you didn't have a lot of money, you could always impress a date with pulling out a gold coin!

But the Civil War changed this situation. To pay for the war, the Legal Tender Act of 1862 provided for the printing of paper money not directly linked to gold. These paper bills were called greenbacks, because a green dye was used in the printing process. Issuing paper money led to inflation--the money itself was worth less (because when a product's supply rises, its worth declines).

A greenback issued during the Civil War
greenback

Many assumed the use of greenbacks was a temporary war measure, and the U.S. treasury moved to recall paper money from circulation. This would allow the U.S. to return to a hard-money system based on gold, silver, and copper coins, which had always been viewed as more dependable and stable than paper currency.

The Great Money Debate and the Greenback Labor Party

By the 1870s, the debate over the merits of paper money reached a crescendo. On one side were the advocates of hard money and the gold standard. Mostly creditors in the Northeastern states, they argued that gold was the only honest currency. They also did not want to be paid in devalued paper dollars. These bankers and financiers believed a civilized country like America should not be using paper money, and they probably enjoyed flashing their gold coins!

And then there were the backers of soft money, known as 'greenbacks'. They were debtors, such as farmers in the South and West. Inflation was good for them because it raised the prices of their crops and livestock and made it easier to pay back money they owed to lenders. They worked to keep paper money in circulation.

The president at the time, Ulysses S. Grant, supported the hard-money position and used the Public Credit Act of 1869 to require the debts of the Civil War to be paid back in gold, not greenbacks. As soft-money advocates predicted, this move led to deflation that harmed debtors and helped creditors. It also contributed to the worst economic downturn to date, the Panic of 1873.

Gold commemorative dollar coin featuring President Grant (1922)
gold grant

As a result, farmers and wage workers in the cities formed the Greenback Labor Party to press for the printing of more paper money not directly tied to gold. Greenback Labor representatives explained that there was an alternative to hard money, and that the federal government had the authority to define what money was. 'Paper is equally money, when…issued according to law,' their platform declared.

Furthermore, these farmers and laborers said that a nation's wealth and currency should be related to land and labor, not only to gold reserves. Labor produces wealth, in other words. On this platform, the Greenback Labor Party did well in 1878, electing 14 members to Congress.

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