5. Reconstructing the Nation’s Finances
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109 ★ ★ ★ ★ ★ 5 RECONSTRUCTING THE NATION’S FINANCES Besides the southern question, the other major item on the domestic agenda cited by Grant in his inaugural address concerned the disorGHUHG  VWDWH RI WKH QDWLRQ·V ÀQDQFHV DQRWKHU FRQVHTXHQFH RI WKH ZDU Preserving the Union had required enormous changes in the governPHQW ·VÀQDQFLDOV\VWHPLQFOXGLQJDYDVWQHZWD[VWUXFWXUHERUURZLQJ that saddled the country with a huge debt, the issuance of legal-tender paper money unbacked by gold or silver, and the creation of a system of national banks that issued notes of their own. For years, controversy UHJDUGLQJ ÀVFDO DQG PRQHWDU\ SROLF\ KDG SLWWHG KDUGPRQH\ IRUFHV who generally defended the interests of creditors, against soft-money VXSSRUWHUVZKREHOLHYHGWKDWLQÁDWLRQZRXOGEHQHÀWGHEWRUV7KHDUgument created deep rifts between sections of the country, between economic interests among the people, and between two wings in each of the political parties. During the 1868 campaign, Republican leaders embraced economic orthodoxy, especially condemning the Democrats for endorsing George H. Pendleton’s Ohio Idea, which proposed that the principal of some government bonds be paid with greenbacks. After the party’s November victory, conservative Republicans like James A. Gar- ÀHOGVDLG´,WZDVVROHPQO\GHFLGHGE\WKHJUHDWPDMRULW\ZKLFKHOHFWHG General Grant that repudiators should be repudiated and that the faith of the nation should be preserved inviolate.”1 In his inaugural address, Grant came out foursquare for the party’s CHAPTER 5 110 conservative monetary position. “No repudiator of one farthing of our public debt will be trusted in public place,” he declared, and “every dollar of Government indebtedness should be paid in gold, unless otherwise expressly stipulated in the contract.” Grant also called for specie resumption but added an important condition: “as soon as it can be accomplished without material detriment to the debtor class or to the country at large.” The new Congress acted immediately. Two weeks DIWHUWDNLQJR΀FH*UDQWDSSURYHGWKH$FWWR6WUHQJWKHQ3XEOLF&UHGLW WKHÀUVWODZWRUHFHLYHKLVVLJQDWXUH7KHVWDWXWHFDOOHGIRUWKHSD\PHQW of all the government’s interest-bearing bonds in coin, unless the original bond authorization stated otherwise. In addition, the law pledged that the government would “make provision at the earliest practicable period” for the redemption of greenbacks in coin. The law was more than mere symbolism. Grant and his allies in Congress were determined to undergird faith in the solvency and credit of the government, as well as drive a stake through the heart of the Ohio Idea. As the act itself explicitly stated, its aim was to “remove any doubt as to the purpose of the Government to discharge all just obligations to the public creditors.”2 In framing the administration’s policy, Grant relied heavily on Treasury Secretary George S. Boutwell. The new secretary laid out two central objectives: to reduce the national debt and to move the nation closer toward specie resumption. During the war, the US government had borrowed enormous sums, and in March 1869 the outstanding interest -bearing bonds still totaled more than $2.5 billion. The previous administration had reduced the debt somewhat, but Boutwell aimed WRDFFHOHUDWHWKHHͿRUW7KHUHVXPSWLRQTXHVWLRQJUHZRXWRIWKH/HJDO Tender Act of 1862, whereby Congress had tried to make up for the cripSOLQJ LQVX΀FLHQF\RIVSHFLHWRPHHWZDUWLPHQHHGV7KHODZDXWKRUL]HG the Treasury to issue new US notes, a non-interest-bearing currency unbacked by gold or silver that came to be called greenbacks. The notes were legal tender for all debts public and private, except for customs duties and interest on the national debt. They were “payable to bearer, at the Treasury of the United States,” but the law set no date or term for their payment. They represented a kind of forced loan; the government obligated citizens to accept greenbacks as currency while making only DQLPSOLHGSURPLVHWRSD\FRLQIRUWKHPDWVRPHXQVSHFLÀHGWLPH%\ war’s end, $400 million in greenbacks was circulating in the economy.3 What to do with this new currency dominated the money question in the years after the war. Some Americans—a minority—believed that WKHJRYHUQPHQWVKRXOGOHDYHWKHJUHHQEDFNVDVWKH\VWRRGDÀDWSDSHU Secretary of the Treasury George S. Boutwell. (Library of Congress) CHAPTER 5 112 currency inconvertible for coin, thus implicitly abandoning a specie standard. The general opinion, however, was that the Treasury should resume...