Money & Finance › What money is & money theory › Fiat money: currency backed by law and trust, not metal
Legal tender laws and Civil War greenbacks
1862· Law or rule
Fact, law or dataA rule, statute, definition or measured number.
Legal tender laws make a currency acceptable for settling debts; the first US federal paper money with that status was the 1862 Civil War greenbacks.
See it on the Money & Finance map →How it works
The Legal Tender Act of February 1862 let the Union print United States Notes, called greenbacks, not redeemable in gold, to pay for the war. About $450 million were issued. They lost value: at the 1864 low a greenback dollar bought about 35 cents of gold. The Supreme Court first ruled it invalid for debts made before the act (1870), then upheld it (1871, 1884). Today federal law makes US coins and notes legal tender for all debts, taxes and dues.
Why it matters
It established that Washington can create money by law, the legal backbone of today's fiat dollar. Stores may still refuse cash; the law covers debts.
Facts, rules and data
The 1862 act; the cases Hepburn v. Griswold (1870), Knox v. Lee (1871) and Juilliard v. Greenman (1884); 31 U.S.C. § 5103, the current legal tender statute.
Debates and risks
Economists debate how much legal tender status matters, versus taxes payable in dollars and general trust, in giving fiat money value.
Connections (2)
▸Legal tender laws and Civil War greenbacks give legal force to Fiat money: currency backed by law and trust, not metalFact, law or data
The connection
Legal tender laws require creditors to accept a currency for debts, and the government takes it for taxes. The 1862 greenbacks proved this could make unbacked paper circulate. That legal force, plus taxes payable in dollars, is part of what gives today's fiat dollar value.
When and why
Washington, 1862, under Treasury Secretary Salmon Chase; upheld by the Supreme Court in 1871 and 1884.
How we know
The statutes and Supreme Court rulings; 31 U.S.C. § 5103 is the current law.
Debates and risks
How much legal status matters compared with trust and tax demand is debated; many fiat currencies have failed despite legal tender laws.
▸Legal tender laws and Civil War greenbacks created the 1862 paper-money arm of Bureau of Engraving and Printing and the US MintFact, law or data
The connection
The 1862 Legal Tender Act authorized $150 million in paper 'greenbacks' to pay for the Civil War. Private bank-note companies printed the sheets, and Treasury staff began trimming and sealing them, then printing in-house. That operation became the Bureau of Engraving and Printing, the paper-money half of today's pairing; the Mint was already 70 years old.
When and why
Washington, D.C., August 1862: Spencer Clark and a handful of workers in the Treasury building's attic, under Treasury Secretary Salmon Chase and President Lincoln.
How we know
BEP records date the bureau to August 29, 1862; the Legal Tender Act of February 25, 1862 is the statute that created the notes.
Debates and risks
Whether greenbacks were constitutional split the Supreme Court: it ruled them invalid for older debts in 1870, then upheld them in 1871 and 1884.