Economic history of the United States
Middle 19th century
The Civil War had been financed primarily by issuing short-term and long-term bonds and loans, plus inflation caused by printing paper money, plus new taxes. Wholesale prices had more than doubled, and reduction of inflation was a priority for Secretary of the Treasury Hugh McCulloch. A high priority, and by far the most controversial, was the currency question. The old paper currency issued by state banks had been withdrawn, and Confederate currency was worthless. The national banks had issued $207 million in currency, which was backed by gold and silver. The federal treasury had issued $428 million in greenbacks, which was legal tender but not backed by gold or silver. In addition about $275 million of coin was in circulation. The new administration policy announced in October would be to make all the paper convertible into specie, if Congress so voted. The House of Representatives passed the Alley Resolution on December 18, 1865 by vote of 144 to 6. In the Senate it was a different matter, for the key player was Senator John Sherman, who said that inflation contraction was not nearly as important as refunding the short-term and long-term national debt. the war had been largely financed by national debt, in addition to taxation and inflation. The national debt stood at $2.8 billion. By October 1865, most of it in short term and temporary loans. Wall Street bankers typified by Jay Cooke believe that the economy was about to grow rapidly, thanks to the development of agriculture through the Homestead Act, the expansion of railroads, especially rebuilding the devastated Southern railroads and n opening the transcontinental line to the West Coast, and especially the flourishing of manufacturing during the war. The goal premium over greenbacks was hundred and $145 in greenbacks to $100 in gold, and the optimists thought that they heavy demand for currency in an era of prosperity would return the ratio to 100. A compromise was reached in April 1866, that limited the treasury to a currency contraction of only $10 million over six months. Meanwhile, the Senate refunded the entire national debt, but the House failed to act. By early 1867, postwar prosperity was a reality, and the optimists wanted an end to contraction, which Congress ordered in January 1868. Meanwhile, the Treasury issued new bonds at a lower interest rate to refinance the redemption of short-term debt. while the old state bank notes were disappearing from circulation, new national bank notes, backed by species, were expanding. By 1868 inflation was minimal.
Economic history of the United States-201