Editing United States Note (section)

===The Legal Tender Acts===
[[Image:RunningtheMachine-LincAdmin.jpg|thumb|A political cartoon from the [[1864 United States presidential election|1864 U.S. presidential election]] depicting [[William P. Fessenden|Secretary Fessenden]] of the Lincoln administration operating "[[Salmon P. Chase|Chase]]'s Mill" at left to flood the country with Greenbacks.]]
The beginning of 1862 found the Union's expenses increasing, and the government was having trouble funding the escalating war.  U.S. Demand Notes&mdash;which were used, among other things, to pay Union soldiers&mdash;were unredeemable, and the value of the notes began to deteriorate.  Congressman and [[Buffalo, New York|Buffalo]] banker [[Elbridge G. Spaulding]] prepared a bill, based on the Free Banking Law of New York, that eventually became the [[National Bank Act|National Banking Act of 1863]].<ref>D.S. & Heidler, J.T. (2000). [https://books.google.com/books?id=SdrYv7S60fgC&pg=PA1167 Heidler, ''Encyclopedia of the American Civil War: a political, social, and military history'' (p. 1168)]. New York, NY: W.W. Norton</ref>

Recognizing, however, that his proposal would take many months to pass Congress, during early February Spaulding introduced another bill to permit the U.S. Treasury to issue {{US$|long=no|150}} million in notes as legal tender.<ref>McPherson, J.M. [https://books.google.com/books?id=GXfGuNAvm7AC&pg=PA445 (1988). ''Battle cry of freedom: the Civil War era'' (p.445)]. New York, NY: Oxford University Press</ref>  This caused tremendous controversy in Congress,  as hitherto the Constitution had been interpreted as not granting the government the power to issue a paper currency. "The bill before us is a war measure, a measure of ''necessity'', and not of choice," Spaulding argued before the House, adding, "These are extraordinary times, and extraordinary measures must be resorted to in order to save our Government, and preserve our nationality." Spaulding justified the action as a "''necessary means'' of carrying into execution the powers granted in the Constitution 'to raise and ''support'' armies', and 'to provide and ''maintain'' a navy{{'"}}.<ref>[https://books.google.com/books?id=dqWy8Qe4pqgC&pg=PA29 Spaulding, E.G. (1869). ''History of the legal tender paper money issued during the great rebellion''] (p.29). Buffalo, NY: Express Printing.</ref>  Despite strong opposition, President [[Abraham Lincoln]] signed the [[First Legal Tender Act]],<ref name="FirstLegal">ch. 33, {{USStat|12|345}}</ref> enacted February 25, 1862, into law, authorizing the issuance of United States Notes as a [[legal tender]]&mdash;the paper currency soon to be known as "greenbacks".

Initially, the emission was limited to {{US$|long=no|150000000}} total face value between the new Legal Tender Notes and the existing Demand Notes. The Act also intended for the new notes to be used to replace the Demand Notes as soon as practical. The Demand Notes had been issued in denominations of [[United States five-dollar bill|$5]], [[United States ten-dollar bill|$10]], and [[United States twenty-dollar bill|$20]], and these were replaced by United States Notes nearly identical in appearance on the obverse. In addition, notes of entirely new design were introduced in denominations of [[United States fifty-dollar bill|$50]], [[United States one hundred-dollar bill|$100]], [[Large denominations of United States currency|$500 and {{US$|long=no|1000}}]]. The Demand Notes' printed promise of payment "On Demand" was removed and the statement "This Note is a Legal Tender" was added.

Legal tender status guaranteed that creditors would have to accept the notes despite the fact that they were not backed by gold, bank deposits, or government reserves, and had no interest. However, the First Legal Tender Act did not make the notes an ''unlimited legal tender'' as they could not be used by merchants to pay customs duties on imports and could not be used by the government to pay interest on its bonds. The Act did provide that the notes be receivable by the government for short term deposits at 5% interest, and for the purchase of 6% interest 20-year bonds at par. The rationale for these terms was that the Union government would preserve its credit-worthiness by supporting the value of its bonds by paying their interest in gold. Early in the war, customs duties were a large part of government tax revenue and by making these payable in gold, the government would generate the coin necessary to make the interest payments on the bonds. Lastly, by making the bonds available for purchase at par in United States Notes, the value of the latter would be confirmed as well.<ref name="Greenbacks"/> The limitations of the legal tender status were quite controversial.  [[Thaddeus Stevens]], the Chairman of the House of Representatives Committee of Ways and Means, which had authored an earlier version of the Legal Tender Act that would have made United States Notes a legal tender for ''all'' debts, denounced the exceptions, calling the new bill "mischievous" because it made United States Notes an intentionally depreciated currency for the masses, while the banks who loaned to the government got "sound money" in gold. This controversy would continue until the removal of the exceptions during 1933.

By the First Legal Tender Act, Congress limited the Treasury's emission of United States Notes to {{US$|long=no|150000000}}; however, by 1863, the [[Second Legal Tender Act]],<ref name="SecondLegal">ch. 142, {{USStat|12|532}}</ref> enacted July 11, 1862, a Joint Resolution of Congress,<ref name="JointRex">[http://memory.loc.gov/cgi-bin/ampage?collId=llsl&fileName=012/llsl012.db&recNum=853 United States Congress. Resolution of January 17, 1863, No. 9. Washington D.C.: 1863]</ref> and the [[Third Legal Tender Act]],<ref name="ThirdLegal">ch. 73, {{USStat|12|709}}</ref> enacted March 3, 1863, had expanded the limit to {{US$|long=no|450000000}}, the option to exchange the notes for United States bonds at par had been revoked, and notes of [[United States one-dollar bill|$1]] and [[United States two-dollar bill|$2]] denominations had been introduced as the appearance of fiat currency had per [[Gresham's law]] driven even silver coinage out of circulation. As a result of this [[monetary inflation|inflation]], the greenback began to trade at a substantial discount from gold, which prompted Congress to pass the short-lived [[Anti-Gold Futures Act of 1864]], which was soon repealed after it seemed to accelerate the decrease of greenback value.

The largest amount of greenbacks outstanding at any one time was calculated as {{US$|long=no|447300203.10}}.<ref>Backus, Charles K., "The Contraction of the Currency", The Honest Money League of the Northwest, Chicago, 1878.</ref> The Union's reliance on expanding the circulation of greenbacks eventually ended with the emission of [[Interest Bearing Note|Interest Bearing]] and [[Compound Interest Treasury Note]]s, and the passage of the [[National Banking Act]]. However, the end of the war found the greenbacks trading for only about half of their nominal value in gold.<ref name="Greenbacks"/> The [[United States Secret Service|Secret Service]] was founded on July 5, 1865, to minimize [[Counterfeit money|counterfeiting]], which accounted for up to half of the currency.<ref>{{Cite web|title=How much currency is circulating in the economy, and how much of it is counterfeit? Is currency included in the money supply statistics?|url=https://www.frbsf.org/education/publications/doctor-econ/2004/april/money-supply-currency-counterfeit/|access-date=January 16, 2022|website=Federal Reserve Bank of San Francisco|date=April 2004 |language=en}}</ref>