FEBRUARY 25, 1862 – LEGAL TENDER ACT PASSED

1862 – LEGAL TENDER ACT PASSED
A bill authorizing the issuance of $150 million non interest-bearing United States notes (commonly referred to as Greenbacks). Congress would later grant $300 million more in US notes. This was interest free US money. The adminstration of Republican President Abraham Lincoln wanted to avoid the nation going into debt borrowing money from private/corporate bankers to pay for the Civil War. Greenbacks were not bonds or notes or any other promises to pay “money” at some future time. They were money. Since they were not borrowed, they didn’t add to the national debt. What later made them inflationary was they were used to pay for war  – which didn’t produce or add anything productive to the economy to offset the added money supply. The bill contained an “Exception Clause”, which stated that Greenbacks could not be used to pay the interest on the national debt, nor to pay taxes, excises or import duties.