Greenback movement

The Greenback movement was a nineteenth-century social initiative in the United States that began as a push for currency reform and turned into a progressive and influential political group, the Greenback Party. The term greenback refers to a type of paper money printed mainly in the 1860s whose value was backed by government promises rather than by stores of gold or other precious metals. Supporters of greenbacks felt that this type of bill was more accessible to regular people, such as farmers and laborers, and helped to reduce the excessive financial powers of banks and big businesses.

Background

Currency is an ancient invention meant to help facilitate economic transactions. Prior to the introduction of currency, people generally used the bartering system to get the goods and services they needed. Bartering involves trading one good or service for another. It provided a practical means of exchange for small, simple economies; for example, a villager might give a chicken to the local blacksmith in exchange for some horseshoes.

Although bartering was the dominant economic activity for much of human history, it had major limitations. To barter, parties generally had to meet and exchange goods or services directly. For large transactions, or transactions taking place over great distances, that could be cumbersome or even impossible. In addition, bartering was an inexact practice because parties could place subjective values on the goods or services in question.

The invention of currency was meant to improve upon bartering. Currency served to indirectly represent the value of goods or services. Many early forms of currency depicted the items they represented, such as a cow or a quantity of wheat. Later, leaders and governments created more standardized currency in the form of coins.

Most early coins were made of precious or semi-precious metals such as gold, silver, and copper. These metals held intrinsic value that helped to reflect the value of the items being transacted using the coins. The metals also made transactions more exact, because governments could place a set amount of buying power on each coin, reducing the subjectivity of bartering.

However, transporting and using large amounts of metal coins became a chore, particularly for merchants and treasurers. To help solve this problem, many governments began creating paper money that would represent the value of precious metal. In essence, the paper money served as a bond, allowing the bearer to exchange the bill for its value in precious metal at any time. For example, a twenty-dollar bill could be exchanged at a designated bank for twenty dollars’ worth of gold. Therefore, governments could only issue as much paper money as the value of the actual precious metals the governments held in storage.

This practice, which came to be known as the gold standard or silver standard (depending on the metal in question), ensured that governments could not create more paper money than they could support with real precious metals. It made monetary systems very stable and reduced or eradicated the modern complexities of inflation, in which the buying power of money falls and consumer prices rise.

However, the precious metal standard system also created a variety of problems. During times when the precious metal supply was lowered, such as during wars and other crises, the currency supply was similarly restricted. This meant that many people, particularly those in lower financial classes, would have less access to usable funds. Meanwhile, banks, powerful business owners, and others who had direct access to precious metals would have a great advantage over people who simply had paper money. The government would also have limited ability to make economic corrections. These problems and other factors greatly contributed to the rise of the Greenback movement of the late nineteenth century.

Overview

The development of the Greenback movement can be traced to the American Civil War (1861–1865), a clash between Northern (Union) and Southern (Confederate) states that resulted in catastrophic loss on both sides. The US government, overseeing the Union effort, had to invest much of its gold holdings in the war. This, in turn, added complications to taxation at a time when the government seriously needed more tax money to fund the ongoing conflict against the Southern states.

Government leaders turned to war bonds as a means of raising the needed funding. War bonds are documents that represent a deal in which a citizen gives money to the government for a particular cause or a given period, and the government promises to repay the loan in the future. Although war bonds do not offer interest, so they do not provide a positive financial return to the buyer, they have proven highly popular in many instances due to their patriotic nature and the belief of citizens that buying war bonds is a show of support for a shared cause.

The issuance of large amounts of war bonds did help to ease the financial strain on the country. However, the conflict over gold reserves continued, with banks attempting to turn away patrons seeking to exchange their paper bills for precious metal. Economic panic began to spread, and many Americans wondered if the longstanding gold standard—the method by which all paper money is linked to real gold—was in danger. Ultimately, this theory proved correct, as government officials were planning to create an alternative to gold-backed currency.

In 1862, Secretary of the Treasury Salmon P. Chase supported a plan for issuing a new series of paper currency that was backed by government bonds rather than by gold reserves. To differentiate these new bills from prior, gold-supported bills, minters printed the backs with a design in bright green ink, thus serving as the origin of the term “greenback.”

Many officials hoped that this would prove a simple and effective remedy, but complications arose almost immediately. One problem was that the greenbacks were worth less than their respective gold-backed counterparts. Another problem was that a sudden and significant increase in greenbacks might destabilize the established monetary system and cause harmful inflation. These concerns cast pessimism over the greenback project, and when the war concluded with Union success, the printing of greenbacks was abandoned, and the gold standard resumed.

Following the war, many people who had purchased greenbacks attempted to return them to the government for refunds. This practice rose sharply in 1867 when an economic recession began. The government attempted to deny further refunds on the already-defunct greenback. However, according to US law, any money printed by the government remains officially usable as long as it exists and may be exchanged at its original face value.

In addition, the greenbacks had spread widely through the economy, and, in many communities, had become the main form of exchange among people who did not hold significant amounts of gold-backed currency. Many people who had officially unredeemable greenbacks continued to use them as a form of exchange. They were particularly popular among farmers, small-town merchants, laborers, and reformers who felt that greenbacks represented greater economic power for the common people against the country’s financial elites.

The greenback issue became increasingly divisive in the 1870s, when the United States entered a financial depression. The unstable state of the national economy led to a wellspring of support for the greenback, along with other issues of importance to farmers, laborers, and others on the lower rungs of the financial hierarchy. Leaders in this movement, united around currency reform, formed their own political party called the Greenback Party, or the Greenback-Labor Party.

In the late 1870s and 1880s, the Greenback Party made a sudden and notable impact on elections. At first, Greenback supporters helped to promote like-minded politicians of other parties, largely at state and local levels. Then, members of the Greenback Party began to win political offices themselves, including numerous seats in Congress.

In 1876, a Greenback leader named Peter Cooper entered the presidential race, though he gained only a small share of the popular vote. In the next election, in 1880, the Greenback Party backed a candidate named James B. Weaver. By this point, the Greenback Party had expanded far beyond its original focus on economic reform. Weaver’s platform included many other kinds of social reform, including then-radical promotion of labor protections, female suffrage, and improvements in racial equality. Although the expanded platform drew in support from many other reform-minded voters and organizations, it also alienated more conservative voters, and Weaver performed only slightly better than Cooper in the vote tallies.

Following this second presidential loss, the Greenback Party merged into the Populist, or People’s, Party, and continued pursuing many of the same objectives. The Populist Party met improved, but still limited, success in upcoming election cycles. Despite this, over time, many of their proposals influenced Democratic and Republican candidates, who carried these ideas into office and helped to bring about numerous economic reforms and the Progressive Era of the 1890s to 1920s.

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