Pacific Rebels: California’s Monetary Secession during the Civil War
1
Daniel Barbeau
History 572
December 16, 2013
In this 1891 illustration, a populist Senator blows ‘thin air’ into a windmill-powered U.S. Treasury, producing a
pipeline exodus of “Unlimited Greenbacks,” accompanied by a sign extolling farmers to “Help Yourselves.”
Nearby, wagons filled with paper money pass by a general store with a sign that advertises, “Unprecedented
Reduction! 1 Ton of Coal for 1 Ton of Greenbacks!” while another placard asks customers, “Don’t Throw PaperMoney in the Ash Barrel.” From: Worth Robert Miller, Populist Cartoons: An Illustrated History of the Third-Party
Movement in the 1890s (Kirksville, Truman State University Press, 2011), 94.
1
1
Abstract: With initial battlefield defeats suffered by Union armies in 1862, federal
finances looked precarious while a simultaneous need for an unprecedented need for taxation
and centralization of capital emerged as imperative to blunt Southern military aims. However,
the wartime financial reorganization of the federal government set off another rebellion, led by
the Far West state of California, which legally retaliated with the Specific Contract Act.
Californians deeply mistrusted unbacked, paper notes, the federal greenbacks, and other
Western states soon followed the state by passing similar measures. These legal
countermeasures ensured that California maintained a high level of economic autonomy during
the war, and this rebellious monetary attitude stymied federal efforts to bring the state into line.
After the war, California’s renegade financial status not only continued, but ultimately emerged
victorious over the federal government after the Supreme Court declared the Legal Tender Acts
unconstitutional. Through these actions, California led the West in the most successful act of
economic secession in American history.
During the first heady months of the Civil War, the Union faced a multitude of political
and military disasters. The Battle of Bull Run followed the debacle of Fort Sumter, and these
crushing defeats stillborned the North’s plans for quick victory and a relatively bloodless
resumption of peace. In the chaotic aftermath of the war’s first significant engagement at Bull
Run, situated a scant 25 miles south of the national capitol, the Union’s defeated soldiers “came
in shambling…while a sullen rain came down, each man a visible proof of disaster, streaked with
dirt, almost out of their heads with wariness, [while] a huge [Washingtonian] audience [stood]
watching each and all.”2 Soon, eleven states declared their secession from the United States, and
coalesced into the Confederate States of America. Years of bloody warfare ensued before an
exhausted South acquiesced in surrender before the North’s overwhelming military power at the
Appomattox Courthouse in 1865. By that year, much of the South lay in smoldering ruins, its
economic model founded on the labor of chattel human slavery had been eviscerated, and more
than a half-million Americans lay dead across hundreds of battlefields. The Confederate bid for
secession through military rebellion collapsed at the behest of Northern manpower and industrial
2
Bruce Catton , The Coming Fury (New York: Doubleday, 1961), 470.
2
capacity, but the Union’s impressive feat was only feasible through an unprecedented nationwide
marshaling of economic and financial resources and centralization that evolved in order to fund
the federal government’s massive military juggernaut. However, while the South failed in its bid
to succeed from the United States government through military rebellion, another region
succeeded in another type of rebellion against wartime financial centralization and monetary
consolidation. With the federal passage of laws antithetical to local sentiment and popular
sympathy, the remote state of California began a decade long struggle to establish monetary and
financial independence against the federal government. While the South’s rebellion sought to
uphold human bondage by force, California’s rebellion sought to ensure economic prosperity for
citizens through an independent monetary policy. Unlike the disastrous and violent rebellion
launched by the Southern Confederates for political independence, the Californian drive for
monetary autonomy emerged as relatively successful. Instead of relying on the fighting abilities
of regiments and strategic guile of generals, California’s rebellion utilized the rhetoric of
lawyers, the pens of editors, and popular sympathies at the ballot box. Ultimately, by 1865, the
South’s insurrection would prove futile, while California’s monetary rebellion would be
vindicated through legal means and become adopted de jure nationwide.
During and in the immediate aftermath of the Civil War, the federal government’s
attempts at capital centralization faced rampant open hostility in California. Popular monetary
opinions solidified around the protection of the monometallic gold standard, and nearly universal
popular sentiment endorsed monetary stability and the gold standard. Using accounts and
opinions gleaned from contemporary newspapers, written polemics, and modern empirical data,
this essay will first outline how the nineteenth century monetary system functioned in the context
of the Civil War, and then argue the several reasons to as why California rejected the fiat
3
greenback standard and sat squarely in the gold standard camp. The paper will then argue that
during the years of the Civil War and in the years afterward, Californian courts, legislators, and
the general public launched a successful war of monetary secession against the backdrop of the
war of political secession waged by the Confederate South, in reaction to the economic and
financial revolutions that sought to centralize the nation’s capital for utilization in the war effort.
In response to Eastern financial centralization, California emerged as the rebellious epicenter of
hard-money sentiment, and garnered little sympathy for federal paper money due to the popular
fears of inflationary prices, a desire for a ‘natural’ currency, and a gold-sympathetic judiciary.
Wartime Finance Brings Unprecedented Problems
The massive wartime transformation of American finance, national economic trajectory,
and Californian monetary mindsets were rooted before the dark days of the Civil War when
Union military victory looked remote after a string of early Confederate battlefield victories.
Financial legislation passed during the era of state-chartered banks placed veritable manacles on
the ability of the federal government to transform significant amounts of private capital into
public through bonds.3 The Independent Treasury Act of 1846 mandated that government
financial assets be held in gold and silver, and all federal payments were mandated to also be
denominated in gold or silver. These legal specie holding requirements severely limited the
amount and liquidity of public expenditures through the natural scarcity of the precious metals.
While adequate for an antebellum nation whose federal government expenditures and tax
3
In total, the federal government spent a total of $3 billion during the course of the war, and only a fifth of this
immense sum was paid for with collected taxes. By August of 1865, the national debt stood at $2.8 billion, about
half of annual gross domestic product. However, the method of debt issuance varied widely, and included the
aforementioned greenbacks, short term notes, certificates of indebtedness, so-called 7-30 loans (which the
government had the option to pay after five years, and was forced to redeem in 30) and the controversial 5-20 notes,
which bore six percent interest payable in gold, but were ambiguously worded so as that controversy erupted on
whether after 20 years the principle would be redeemed in gold or greenbacks. Irwin Unger, The Greenback Era: A
Social and Political History of American Finance, 1865-1879 (Princeton: Princeton University Press, 1964), 16.
4
revenues remained a tiny fraction of total national economic activity, the Civil War would
ultimately demand $2 billion in funding, an unprecedented amount of capital for the agrarian and
politically decentralized nation. In the summer of 1861, the federal government found itself
desperate for the credit and capital necessary to fund a long and bloody campaign against the
Southern rebel secessionists. Soon, President Lincoln threw Salmon P. Chase, a veteran Ohioan
politician but financial novice was thrown into this cauldron of financial uncertainty. As
Lincoln’s treasury secretary and former presidential rival, Chase managed to cobble enough
financing to meet temporary wartime expenditures, but the vast sums of capital needed to fund
the war effort demanded a complete paradigm shift of government financing. 4 After the expected
quick military campaign to subdue the rebels turned into a multiyear endeavor, Chase convinced
Congress to approve $250 million in bonds that matured after 20 years at 7.3 percent interest
and, more significantly, paper notes that paid no interest but could be technically redeemed into
gold through the treasury. Chase intended that these ‘demand notes’ would circulate and act as a
national uniform medium of exchange.5 However, by mid-November of 1861, the tenuous
financial lifeline of the Union began to tremble. That month, a Union Navy ship stopped a
British mail cutter en route to England and forcibly removed two Confederate agents. With
British genteel dignity ironically outraged at this apparent disregard of Britain’s high-seas
neutrality, the two nations stood precipitously close to a declaration of a war that would have
The Union’s financial situation remained desperate in the early months of the war: “The economic Panic of 1857,
corruption in the Buchanan administration, and the partial dismemberment of the Union had taken a massive toll on
the government coffers. With Congress not in session to authorize new tariffs and taxes, Chase was forced to rely on
government loans to sustain war expenditures. Banks held back at first, demanding higher interest rates than the
government could afford to pay, but eventually, Chase cobbled together enough revenue to meet expenses until
Congress convened.” For an in depth account of the political rivalry between Salmon P. Chase and Abraham
Lincoln, see Doris Kearns Goodwin, Team of Rivals: The Political Genius of Abraham Lincoln (New York: Simon
and Shuster Paperbacks, 2005), 364-5. Also see: Stephen Mihm, A Nation of Counterfeiters: Capitalists, Con Men,
and the Making of the United States, (Cambridge: Harvard University Press, 2007), 309.
5
However, Salmon Chase did not venture into morass of paper money lightly. In October of 1862, he wrote that
“The expenditures everywhere are frightful. The average daily drafts of the Treasury for two weeks past have been a
million and three quarters at least [and] largely in excess of its means.” See: Bray Hammond, “The North’s Empty
Purse, 1861-1862,” The American Historical Review, Vol. 67, No.1 (1961), 1-18.
4
5
made the Union’s task of subduing the rebellious South immensely more difficult. 6 With the
news of several Union reversals in addition to the threat of a wider war, public confidence in
Chase’s new demand notes plummeted, and panicked note-holders quickly drained the
government’s gold reserves by redeeming notes in mass.7 By December 1861, banks veered
toward insolvency with their specie reserves ran dangerously low, and in response, suspended
gold redemption in order for the federal government stay financially afloat. With that momentous
outcome, the nation had left the gold standard, from which the nation would not return for
another 17 years. After the suspension of gold redemption, the country nervously found itself on
a purely fiat currency, unlinked to any metallic standard.
Meanwhile, with the convenient vacancy of the rebellious Democratic lawmakers in
Congress, newly dominant Northern legislators found themselves liberated from Southern
legislative obstruction and began to push through a fundamental reorganization of the national
banking system. The old system of decentralized state-chartered banks and private issuance of
circulating bills of credit that resulted from President Jackson’s refusal to re-charter the Second
Bank of the United States was about to come to an end. Prior to wartime overhauls, the
American economy relied on privately issued bank notes that were often released by chartered
banks with little capital and circulated at deep discount, depending on the distance and reputation
of the institution. This morass of shaky notes engendered deep distrust among those who used
privately issued banknotes in daily transactions, and the so-called wildcat banks that possessed
6
During the Napoleonic wars half-a-century prior, it was Americans who were outraged at French and British
impressments of American sailors upon neutral American ships in international waters. These actions led in part to
the Quasi War with France in 1798 and the War of 1812 with Great Britain. Within another half-century, the shoe
would again be on the other proverbial foot, with Americans again outraged at the maritime predations of German
U-Boats upon neutral American merchant ships.
7
Irwin Unger identifies these additional Union problems as the Trent Affair and threat of war with England,
Lincoln’s removal of General Frémont from command in the Western theater, and Grant’s reversal at Belmont, and
the Treasury’s Annual Report that revealed massive federal deficits. See: Irwin Unger, The Greenback Era: A Social
and Political History of American Finance, 1865-1879 (Princeton: Princeton University Press, 1964), 14.
6
virtually no capital reserves in their vaults blurred the line between legitimate note issuance and
fraudulent counterfeiting. The National Banking Act of 1863 granted the federal government the
ability to bestow banking charters and required such private banking associations to deposit a set
amount of federal bonds with the Treasury, who would then issue 90 percent of those bonds’
market price in federal greenbacks. More significantly, a later 1866 banking regulation measure
also mandated a prohibitive 10 percent tax on each private banknote issued, payable in legal
tender.8 Since private banks had no way to raise 10 percent of their issuance in legal tendered
greenbacks, private banknote issuance virtually ceased overnight.
Another piece of reform legislation proved equally transformative. In part to rectify the
problem of disreputable monetary media but also to strengthen the power of the federal
government to raise money through a stable bond market, Secretary Chase pushed through
Congress the Legal Tender Act of 1862. The act revolutionized American finance by turning
governmental demand deposits, or bonds, into legal tender. The Act stipulated that the new green
notes were “legal tender for all debts public and private, […] and [are] exchangeable for U.S. six
per cent. [sic] bonds redeemable at the pleasure of the United States, after five years,” and Chase
promised that “the United States notes are made a legal tender and maintained at near the par of
gold by the provision for their conversion into bonds bearing six per cent. [sic] interest, payable
The Act provided that “every National banking association, State bank, or State banking association, shall pay a
tax of ten per centum on the amount of notes of any person, State bank, or State banking association, used for
circulation and paid out by them after the 1st day of August, 1866, and such tax shall be assessed and paid in such a
manner as shall be prescribed by the commissioner of internal revenue." In 1869, the Supreme Court heard Veazie
Bank v. Fenno, which tested the constitutionality of the tax in tow ways. First, by asserting that the 10 percent tax
was a direct tax, and thus only able to be apportioned by population, as per Article 1, Section 2, Clause3 of the
Constitution, and second, that with the Act, the federal government overstepped its power vis-á-vis the reserved
powers of the states by impairing state charters and franchises. The court, led by Chief Justice Chase, affirmed the
constitutionality of the banknote tax contained within the National Banking Act. From: Isaac Grant Thompson,
National Bank Cases, Containing All Decisions of Both the Federal and State Courts Relating to National Banks
with Notes and References (Albany: John D. Parsons Jr., Publishing, 1878) 22-34.
8
7
in coin.”9 Chase first ordered the issuance of $50 million, then an additional $100 million, and
quickly thereafter, an additional $500 million in greenbacks as federal expenses ballooned during
the opening of hostilities in 1862. With these issuances, for the first time since Jackson, the
nation technically possessed a federally issued medium of monetary value, which could be traded
on the market without a discount. However, after the suspension of gold convertibility, these new
greenback notes could not be redeemed in coin of any metallic composure, but their value
instead relied on the stated promise of six percent interest contingent on federal credit, and also
an unstated promise of the future restoration of gold convertibility. Instead of representing
tangible assets, these new notes’ worth was predicated on the public’s confidence in their
unconvertible abstract value. Elbridge Gerry Spaulding, the Congressman who authored the Act
in December 1861, later lamented what he saw as the “great mistake [of the Legal Tender Act]—
greater than all other mistakes in the management of the war—[which] was the abrogation of the
right to fund the greenback currency in gold bonds [but if] the right to fund [greenbacks with
gold bonds] had been continued, the greenback currency would have appreciated to par in gold
along with bonds.”10 In short, the massive wartime inflationary and subsequent peacetime
deflationary episodes could have been avoided if even a tenuous linkage to gold remained.
Californians largely agreed with Spaulding’s later sentiment. The Sacramento Daily Union
applauded that a national currency would “prove a vast improvement over any circulating which
the country has been furnished with since the Bank of the United States was in existence,” but
expressed concern that greenbacks “will lack but one element of a perfect national currency, and
that is convertibility into specie at the will of the holder.”11 Only after paper greenbacks began to
9
Elbridge Gerry Spaulding , The Legal Tender Act (Baker, Jones & Company, 1875), 8.
Ibid., 8.
11
“A National Currency,” Sacramento Daily Union, April 4, 1862.
10
8
lose value at a precipitous rate did public opposition to federal monetary policy growth in
strength and ferocity.
During the course of the war, Congress authorized an unprecedented amount of public
debt to fund military operations, which led to spectacular price increases in consumer goods. 12
Since only a fifth of the roughly $3 billion spent during the war years was allocated through
taxation, an additional $2.4 billion worth of bonds, circulating currency, and other debt
instruments had been added into the monetary base. 13 When compared to the size of the
contemporary monetary base, this figure becomes astounding. In 1867, when the first reliable
records were recorded, the public held about $585 million in greenbacks, circulating bonds, and
subsidiary coinage, another $729 million in commercial bank deposits, and another $276 million
in mutual savings bank deposits, for a total of $1.59 billion in what can be described as money.14
Unsurprisingly, wartime inflation surged as an increased volume of money chased fewer goods
in the marketplace. By 1865, average prices had jumped by 85 percent from prewar levels,
standards of living had fallen on account of redirection of goods toward wartime needs, and
wages failed to keep up with price inflation.15 The decoupling of the greenback dollar from the
gold standard precipitated years of inflation and set the stage for decades of postwar deflation
while prices settled to pre inflationary lows. However, the steady fall in prices that afflicted the
postwar era remained a phenomenon far in the future during the years of ferocious fighting that
marked the Civil War. For many, and not just Salmon Chase, gold seemed to be the natural
12
By the end of the Civil War, the Treasury had issued $450 million in greenbacks alone to the public. Unger, The
Greenback Era, 15.
13
Ibid., 16.
14
Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867-1960 (Princeton: Princeton
University Press, 1963), 4.
15
Between 1860 and 1865, wholesale prices increased by an average of 85 percent, retail prices by 76 percent, and
costs of living by 56 percent. As usual during times of high inflation wages failed to keep pace with other
inflationary benchmarks, and increased by only fifty percent during the same time period. See: Wesley C. Mitchell,
Gold, Prices, and Wages under the Greenback Standard (New York: Augustus M. Kelley Publishers, 1966 [original
1908]), 279.
9
element placed upon the earth for use as a medium of monetary exchange, and a monetary
system unmoored by the natural restraints placed upon it by the finite nature of a metallic
standard struck most contemporary observers as radical and unsettling.16
A New Dilemma: California Rejects National Monetary Policy
Nowhere did these feelings of unease with the fiat monetary system gain more traction
than the remote state of California, which served as the origination of the majority of circulating
specie. Within in the state’s founding constitution in 1848, paper money had been outlawed, with
the stipulation that “The legislature of this state shall prohibit by law any person or persons,
association, company, or corporation from exercising the privileges of banking or creating paper
to circulate as money.”17 During the events that ultimately led to federal greenback and gold
redemption suspension, public opinion in California remained decidedly against greenbacks and
a fiat currency for the understandably valid fear of uncontrollable inflation. The Daily Alta
warned that:
David Ricardo (1772-1824) reflected common sentiment when he wrote that “[t]hough undoubtedly a variable
measure of value, there is no commodity subject to fewer variations [as gold and silver]. This and the other
advantages which these metals posses, such as their hardness, their malleability, their divisibility, and many more,
have justly secured the preference every where [sic] given to them, as a standard for the money of civilized
countries.” From: Piero Sraffa, ed., The Works and Correspondence of David Ricardo: Volume 1, On the Principles
of Political Economy and Taxation (Ann Arbor: Edward Brothers, Inc., 2004), 86-7.
17
Bernard Moses, “Legal Tender Notes in California,” The Quarterly Journal of Economics, Vol. 7, No.1 (1892): 125. Drafted in 1848, the constitutional prohibition went even further. Section 34 of Article IV mandated that “The
legislature shall have no power to pass any act granting any charter for banking purposes, but association may be
formed, under general laws, for the deposit of gold and silver; but no such association shall make, issue, or put into
circulation any bill, check, ticket, certificate, promissory note, or other paper, or the paper of any bank, to circulate
as money.” The California Constitution of 1880 contained a superficially similar but substantially different paper
money prohibition. Article 12, Section 5 stipulated that “The Legislature shall have no power to pass any Act
granting any charter for banking purposes, but corporation or associations may be formed for such purposes under
general laws. No corporation, association, or individual shall issue or put into circulation, as money, anything but
the lawful money of the United States.” By 1880, the revamped California Convention made no mention of the
circulating media of gold or silver, and noted the preeminence of the federal government in the monetary realm. See:
J. Ross Browne, Report of the Debates in the Convention of California in September and October, 1849,
(Washington: Printed by John T. Towers, 1850) and Robert Desty, The Constitution of the State of California
Adopted in 1879, (San Francisco: Sumner Whitney & Co., 1879). For a complete reference guide for each of
California’s constitutions, see: Joseph R. Grodin, Calvin R. Massey, and Richard B. Cunningham, The California
State Constitution, A Reference Guide, (Westport: Greenwood Press, 1993).
16
10
The masses have at length become very aroused on the subject of the currency…The
laboring man, under the existing law, receives every Saturday night a certain sum of gold
and silver, which can neither increase of diminish in value before he finds it necessary to
spend it [but] now he will receive a bundle of paper, which, at the time it is handed to
him, may be worth seventy-five cents on the dollar; but when he comes to lay it out, it
may have depreciated to sixty-five or sixty cents.18
Other newspaper editors were even more critical of Chase. Weeks after the federal treasury
suspended greenback to gold convertibility, the Los Angeles Star lamented, somewhat
histrionically, that:
It is to be hoped, for the good of the people at large, and especially for the benefit of the
mechanic and laborer, that a change in the aspect of the planets will relieve him [Chase]
from the lunacy of his financial hallucinations, and that, restored to the guidance of
unclouded judgment, he will do that which is in his power, and relieve us from the
oppression of a paper currency.19
In addition to fears of inflation, Californians also mistrusted because of the perception that paper
currency was the preferred currency of Eastern capitalists and banking titans, whom they blamed
for the fact that“[e]very ten years, for half a century, there has been a financial revulsion in the
Eastern States, owing directly to the inflation inseparable from a badly regulated paper
currency.”20 From the beginning of the convertibility suspension debacle, Californians remained
decidedly against a paper monetary system, since “in a country whose great staples (so to speak)
gold and silver, a paper currency would be an absurdity, and that any effort on the part of the
General Government, to force paper upon the people there, would be attended with the most
disastrous consequences.”21 With adequate hard specie floating within the local economy, the
California public rejected and feared the effects of a paper currency and dangerous inflation.22
“The Masses Moving,” Daily Alta California, January 30, 1864.
“Our Finances,” Los Angeles Star, January 16, 1864.
20
“The Effects of Repeal,” Daily Alta California, January 31, 1864.
21
“The Controversy between the Treasurers,” Daily Alta Californian, January 5, 1863.
22
As early as 1862, “[t]he leading merchants of San Francisco a circular agreement neither to receive nor pay out
notes at any but market standard, taking gold as a standard…Should any one [sic] refuse to pay in gold, his name
was to be entered in the black book, and in future dealings he would be expected to pay for goods in gold in advance
18
19
11
A series of legal suits and historic precedents established California as the center for
greenback repudiation and highlighted the desire of Californians to retain a specie backed
currency. In July 1862, John Perry Jr. brought suit against E.H. Washburn, and after the Fourth
District Court ruled in favor of the tax-collector Washburn on July 29, 1862, the action landed
before the California Supreme Court as Perry v. Washburn.23 Washburn worked as a taxcollector employed by the city of San Francisco and had refused to accept a tax bill in
greenbacks instead of specie, citing the Constitutional mandate that he would accept only “legal
coin of the United States or foreign coin at the value fixed for such coin by the laws of the
United States.”24 Perry, the plaintiff, argued that state currency law remained subordinate to the
federal Legal Tender Act of 1862, which authorized greenbacks as the “lawful money and legal
tender in payment of all debts, public and private, within the United States,” and that the
definition of a debt included tax payments. 25 Hamstrung by clear federal law but sympathetic to
the ideal of a gold-backed currency, the California Supreme Court’s judgment crafted a puzzling
and convoluted argument, which differentiated the legal definitions of ‘debt’ and ‘taxes.’ The
court defined taxes as a payment which were not mutually agreed upon by two consenting
parties, but instead owed:
its existence to legislative power and does not depend for its validity or enforcement upon
the individual assent of the tax-payer, [taxes] are not debts, within the meaning of that
clause of the [Legal Tender] act which provides that the notes shall be ‘a legal tender in
payment for all debts, public and private.’ Congress, by these terms, only intended such
obligations for the payment as of money as are founded upon contract.
of delivery.” Joseph Ellison, “The Currency Question in Oregon during the Civil War Period,” Oregon Historical
Quarterly, Vol. 28, No.1 (1927): 39-48.
23
“United States Treasury Demand Note Suit,” Sacramento Daily Union, July 29, 1862.
24
Moses, “Legal Tender Notes in California,” 10-2.
25
The Legal Tender Act of 1862. For an in-depth analysis of the several legal tender acts, see: Wesley Clair
Mitchell, “History of the Legal Tender Acts,” (PhD diss., University of Chicago, 1903).
12
Instead, the court established that a “tax is a charge upon persons or property to raise
money to raise money for public purposes. It is not founded upon contract, and does not establish
the relation of debtor and creditor between the taxpayer and the State.”26 Further, the court
determined that the Legal Tender Act “only speaks of taxes due to the United States” and not to
“taxes levied under the laws of the State.”27 Thus, despite the federal government’s designations
of the depreciating greenbacks as ‘legal tender,’ California’s state government remained legally
uninhibited to collect taxes in any monetary denomination so desired, while the state’s citizens
could pay any federal taxes not in valuable gold or silver, but in inflationary paper currency. 28
For residents of the state, this court decision provided an especially strong rebuke to federal
issuance of paper currency and national power. Not only did Californians preserve the integrity
of the metallic standard by upholding its use in local taxation, but also allowed taxpayers to
return depreciating greenbacks back to the East through federal tax payments. A proposed bill in
the California Assembly to allow tax collection with the legal tendered greenbacks instead of
26
Curtis J. Hillyer, Reports of Cases Determined in the California Supreme Court of the State of California (San
Francisco: Law Publishers and Law Booksellers, 1906), 318-51.
27
Hillyer, Reports of Cases, 350.
28
Ibid., 350-1. The court further elaborated this position in the decision, which stated, “The question then presented
for determination is this: Are the notes of the United States thus receivable for State and county taxes under the
[Legal Tender] Act of Congress? On the argument, the question on whether it is within the constitutional power of
Congress to make these notes a legal tender in payment of debt, was ably and elaborately argued by counsel; but
from the construction we give to the Act of Congress, this question is not before us. The question is one of great
magnitude and importance, upon which the first legal minds of the country differ; and until it is legitimately and
directly before us, we have no disposition—nor indeed would it be proper—to express or even intimate an opinion
upon it. The Act does not, in our judgment, have any reference to taxes levied under the laws of the State. It only
speaks to taxes due to the United States, and distinguished between them and debts. Its language is, ‘for all taxes,
internal duties, excises, debts, and demands of every kind due to the United States,’ the notes should be receivable.
When it refers to obligations other than those to the Unites States, it only uses the term ‘debts;’ the notes it declares
shall be ‘a legal tender in payment of all debts, public and private.’ Taxes are not debts within the meaning of this
provision. A debt is a sum of money due by contract, express of implied. A tax is a charge upon persons or property
to raise money for public purposes. It is not founded upon contract; it does not establish the relation of debtor and
creditor between the taxpayer and State; it does not draw interest, it is not the subject of attachment; and it is not
liable to set-off. It owes its existence the action of legislative power, and does not depend for its validity or
enforcement upon the individual assent of the taxpayer. It operates in invtium [against one’s will].”
13
silver and gold received little serious consideration, and as greenbacks continued to lose value,
local legislators felt little incentive to change current laws.29
Californians’ opposition to paper money and reluctance to abandon gold soon put the
state in a collision course with the federal government. With the passage of the Legal Tender Act
in 1862, Congress designated greenback dollars as the legal tender of the United States and
stipulated the famous maxim that the notes were legal payment for any debt, public or private.
On March 17 of 1863, the California state government passed a law anathema to the federal
government and the warfare-oriented financial reforms that allowed billions of dollars in capital
to be centralized and allocated for the conflict. Titled the Specific Contract Act, California’s
legislators, by a vote of 42 to 18 in the Assembly and 22 to 11 in the Senate, affirmed a measure
that “provides that all contracts made for the payment of money in a specific form shall be
enforced— that men shall be compelled to live up to their agreements in good faith.”30 In other
words, the Specific Contract Act allowed private contracts to be specifically denominated in
either greenbacks, gold, or silver. For example, before the Specific Contract Act and the Perry
decision, if a bank made a loan in 1860, the national Legal Tender Act mandated the debtor to
repay the interest and principle of the loan using depreciating greenbacks, which had been
deemed legal tender by the federal government. In real terms, any loan repaid with a depreciated
currency could prove ruinous to the lender, and future loans would thenceforth incorporate high
interest rates to compensate for anticipated future inflation. Californians sought to remedy this
problem by allowing contracts to specify if a loan were to be repaid in stable gold or fiat and
29
30
Moses, “Legal Tender Notes in California,” 14-7.
“The Contract Bill,” Sacramento Daily Union, April 1, 1863.
14
depreciating greenbacks.31 The Specific Contract Act allowed commercial exchanges to continue
without the fear of future inflation and economic disruptions, and provided a heartened
reassurance to Californians worried about a flood of federal greenbacks and associated price
inflation.
Soon, other states began to copy California’s rebellious rejection of central monetary
authority. Despite “meet[ing] with very strong opposition,” which “occupied the attention of the
Legislature for several days,” a similar Specific Contract Act passed the Oregon legislature on
October 7, 1864.32 Then, on December 31, 1864 and against the opposition of federal authorities,
Nevada’s state legislature passed a similar measure, titled the Nevada Specific Contract Act,
which promised monetary independence from the federal government and protected the validity
of gold contracts to an even greater extent than California. Sections 11 and 12 of Nevada’s Act
allowed for any contracts made within the state to be denominated in any monetary medium as
decided by respective contractual parties, be they in gold, silver, or federal paper, by mandating
that “[w]hen the [court] judgment under which the [plaintiff’s] sale has been made is payable in a
specified kind of money or currency, said payment shall be made in the same kind of money or
currency, and a tender of the money shall be equivalent in law to payment.”33 This clause gave
Nevadan courts the specific authority to enforce payment specifications for contracts in litigation
in whatever medium of exchange that was specified in the respective contract. The law also
specified that “[t]he provisions of this act shall apply to all actions brought to recover any tax,
This is an implicit result of the so-called Gresham’s Law, named after the sixteenth-century Englishman, Sir
Thomas Gresham, but commented upon by other luminaries, including Nikolas Copernicus. The law states that
whenever a government overvalues (through legal tender laws usually) one currency over another concurrently
circulating currency, the undervalued currency will disappear into hoards and the overvalued currency will be used
for commercial transactions. For example, if a merchant had the choice to either pay for goods with the stable
medium of gold or depreciating (and inflating) greenbacks, he would most likely spend the greenbacks and retain
the gold. In that way, ‘good money drives out the bad.’
32
“The Specific Contract Bill in Oregon Passed Both Houses,” Sacramento Daily Union, October 8, 1864.
33
“The Nevada Specific Contract Act,” Daily Alta California, January 6, 1865.
31
15
fine, fee, cost, duty, or impost, where by law such tax, fine, fee, cost, duty, or impost be required
to be paid in any particular or specified kind of money or currency,” which specifically
enumerated the state government’s power to collect taxes in gold or silver while rejecting
taxpayers’ ability to pay state taxes in depreciating greenbacks.34 However, the Nevada Specific
Contract Act went even further in challenging the federal government’s monetary authority than
did California. In a further rebuke to federal paper money, the law declared that “[t]he provisions
of this act shall apply to all actions on implied contracts or obligations contracted or incurred
after the passage of this act, when it shall appear on the trial to the satisfaction of the Court, jury,
or referee, that the debt or obligation was contracted or incurred upon the basis of any particular
kind of money or currency.”35 Unlike California, whose Specific Contract Act only implicitly
protected written contracts, Nevada’s version covered unwritten, ‘implied’ contracts negotiated
by word of mouth. The Daily Alta approvingly noted that “These [Nevadan specific contract
laws sections 11 and 12] are good additions. Our [Californian] law only applies only to written
contracts, whereas oral contracts should be protected in the same manner as those in writing,”
and predicted that a further protections of the Specific Contract Law would “no doubt get a place
upon our statute book at the next session of our Legislature.”36 Around the same time,
Washington Territory followed its southern neighbors and adopted a “Specific Contract Law
[that] is precisely similar to that enacted by your [Californian] Legislature, and will have a
beneficial effect in creating confidence, and regulating the monetary transactions of the two
States.”37 The territories of Idaho, Colorado, Montana and Utah also adopted variations of
“The Nevada Specific Contract Act,” Daily Alta California, January 6, 1865.
“The Nevada Specific Contract Act,” Daily Alta California, January 6, 1865.
36
“The Specific Contract Law of Nevada,” Daily Alta California, December 30, 1864.
37
“Chaos’ Letter from the North,” Daily Alta California, December 11, 1864.
34
35
16
California’s Specific Contract Act during the ensuing years.38 After California’s repudiation of a
national paper currency, this regional monetary rebellion promised dire consequences to federal
finances during a period of strained wartime budgets by severely limiting the federal
government’s power to collect taxes within the Western states and territories. Federal officials
realized that their power would have to be reestablished or the West’s vast economic resources
might slip from the federal government’s net of taxation.
The Union Strikes Back: Federal Attempts at Imposing Central Monetary Authority
Federal officials and Unionists reacted with alarm at this apparently flippant violation of
national unity during a time of war. From the federal government’s perspective, the National
Banking Act, Legal Tender Act, and the circulation of greenbacks existed as wartime emergency
measures designed to strengthen the Union and assist in raising war-related revenue through
bonds and taxation. With greenback inflation resulting in rising prices and wages, the federal tax
code began to embrace more Californians as their inflating incomes crept into higher tax bracket
thresholds within the nation’s first income tax. However, if as the Specific Contract Act stood,
Californians’ wages could be denominated in gold instead of greenbacks and gold’s price
stability would ensure that wages and prices remained consistent. Thus California residents
could avoid tax bracket creep that encompassed a greater percent of income with continuing
38
Interestingly, the Idaho Territory faced unforeseen problems with their own state Specific Contract Act when in
“1863, [the] influx of greenbacks into the Pacific coast at first had the same result in Idaho as it had in California
and Nevada. Lenders denied credit to those who paid in greenbacks. Business sought and won a Specific Contract
Act for the territorial legislature. But mercantile experience demonstrated the need for legal tender notes. The
circulating medium in Idaho prior to greenbacks was primarily gold dust. But the counterfeiting of gold dust resulted
in consistently higher values for notes in Idaho that in the San Francisco market. Hence, Idaho merchants lobbied for
a repeal of the Specific Contract At, and business accepted greenbacks at par to avoid losses due to ‘bogus dust.’ I
this context, the Idaho court found the Specific Contract Act void. In Idaho the practical business policy question
was clearly one of the money supply and certainly of exchange. While California merchants could write contracts
for gold coin, Idaho dealers possessed few coins. Gold dust was less reliable because of counterfeiting and federal
notes thereby gained value.” From, Gordon M. Bakken, “Law and Legal Tender in California and the West,” in The
American West: Interactions, Intersections, and Injunctions, ed. by Gordon M. Bakken and Brenda Farrington,
(New York: Garland Publishing Inc., 2001) 323-41.
17
inflation. In response to Californians’ intentions to avoid shouldering higher greenback taxes, the
federal government sent “certain Assessors of Internal Revenue” who “in defiance of law and
common justice,” proceeded to “screw just twice as much taxes out of [Californian taxpayers]”
by convert[ing] the [gold-based] incomes of Californians into greenbacks and compel[ing] them
to pay taxes in proportion.”39 By converting tax assessments from stable gold to inflating
greenbacks, federal tax assessors managed to increase dramatically the rate of taxation from
Californians, despite the protections contained within the Specific Contract Act.40
For Eastern Unionists, a legal or rhetorical assault on the greenback soon became
tantamount to an assault on the power of the Union and smacked of treacherous disloyalty during
a time of national crisis. Unionists warned that “[t]he good name of the peerless state of
California is in peril,” that the an embrace of the greenback was “but another name for patriotism
and love of country,” and lamented that “[t]he worst enemies of our State smile with wild joy as
they hear boasting Union men strike their blows against National credit.” Some Unionists even
pondered whether there were a “great difference […] between the acts of South Carolina
Nullification Laws in past years and the laws of California that nullified the currency (the only
money making authority of our nation) declares shall be legal?”41 After a vote to repeal failed in
the California Senate, the California Farmer and Journal of Useful Sciences snarled that “[a]ll
the Copperhead Senators voted against the bill, as was to be expected from their known
“No Apology Needed,” Daily Alta California, September 27, 1865.
Ibid. The Daily Alta further elaborated an example for the reader. “Let us illustrate: A citizen has returned his
income for 1864 at $2,000. The income tax upon $2,000 at 6 per cent. [sic] is $100. One hundred dollars in
greenbacks can now be purchased for $76; so the Californian who has $2,000 income will have to pay in addition to
all his other taxes, State, county, and the tariff, $75 to the General Government— a very handsome sum, it must be
admitted, and in times like the present by no means very easy to contribute. But in the eyes of certain Assessors of
the Internal Revenue, that was not enough. They asked for permission to take this $2,000 income for 1864 convert it
into greenbacks at the average price of 1864, (50 cents on the dollar) and charge taxes upon the whole — that is to
say, raise the $2,000 income to $4,000, and compel the payment of taxes upon that amount — $150 instead of $75.”
41
“California in Peril,” California Farmer and Journal of Useful Sciences, February 12, 1864.
39
40
18
sympathy with rebellion and nullification.”42 Soldiers were one special interest group especially
invested in the repeal of the Specific Contract Act. Locally garrisoned soldiers petitioned that
“they [who] deemed it their duty to enlist in the army” made only a pittance in government
paper, and “were unable to even [spend] their wages without first selling their greenbacks for
coin and submitting to a discount for the benefit of brokers.”43 Nevertheless, local constituents’
petitions against the Act’s repeal vastly outnumbered the occasional complaints from federal
employees.44
Critics also lambasted California’s Specific Contract act as a blatantly unconstitutional
measure that flew against established national law. In a debate that pitted “the Loyal People vs.
the Bankers, Copperheads, and avowed Traitors,” the California Farmer and Journal of Useful
Sciences asked facetiously:
Did Congress exceed the powers granted by the Constitution when it made Treasury
Notes a legal tender for all debts—or in other words the currency of the country? If
Congress did exceed its powers, then the act was unconstitutional, not binding, and the
special contract act which this bill sought to repeal was correct, and ought to remain. But
if Congress did not exceed its powers, then the Contract Act was nullification as rank as
that of South Carolina.45
Charges accusing the Specific Contract Act of unconstitutionality continued to reverberate
elsewhere. The Los Angeles Star lectured readers that “[i]f the act of congress is Constitutional,
it is ‘the supreme law of the land,’ and no State legislation or decision of a State Court can affect
“The Repeal Bill in the Legislature,” California Farmer and Journal of Useful Sciences, February 12, 1864. The
attempt at repealing the Specific Contract Act failed in the state Senate by a vote of 23 to15. The same story
reported that “[o]n Monday evening, D. W. Cheeseman, the U. S. Treasurer at San Francisco, who was denied a
hearing at the Platt's Hall meeting last week, delivered an address, by invitation, in the Assembly Chamber, to a
large audience, urging the repeal of the law, and the introduction of the U. S. currency into this State.” However,
federal officials’’ pleadings to locals for acquiescence to monetary authority gained little traction amongst most
unsympathetic Californians.
43
“California Legislature,” Sacramento Daily Union, February 1, 1864.
44
Ibid., At the same State Senate hearing, several petitions were read in support of the Specific Contract Act. “Mr.
Roberts presented a series of resolutions pastel at a large public meeting recently held at San Francisco against the
repeal of the Specific Contract Law, being signed by the President, Mr. Torrey, and the Secretary, Mr. Britton. Mr.
Roberts also presented a remonstrance against the repeal, signed by several thousand citizens of San Francisco.
Messrs. Pierce and Porter presented similar remonstrances from citizens of the counties of Sonoma and Marin.”
45
“Repeal of the Specific Contract Law,” California Farmer and Journal of Useful Sciences, January 22, 1864.
42
19
its provisions. The right of the Legislature to limit or place conditions upon the exercise of the
Congressional act, is based solely upon the ground that the act is unconstitutional and not ‘the
supreme law of the land.’”46 After the war, charges of unconstitutionally gained traction in 1866,
when opponents of the act reveled in a temporary legal vindication after the Nevada Supreme
Court declared the state’s Specific Contract Act unconstitutional after interpreting the definition
of ‘debt’ differently than had the courts in California.47 Treasury secretary Chase added his own
sentiments to the constitutionality debate by declaring that “[he was] clearly of the opinion that
the California gold law [Specific Contract Act] is against National policy, and I shall be much
gratified to see California declare herself in favor of one currency for the whole people by its
repeal.”48 Nonetheless, legal protections against forcing merchants into commercial exchanges
with depreciating greenbacks remained popular throughout the economically rebellious West,
but would soon face further constitutional challenges at the Supreme Court of the United States.
While the critics of California’s act of monetary rebellion hurled accusations of sedition
and unconstitutionality, many Californians fought back and protested their national loyalty and
financial rationality. Promoters of the Specific Contract Act avidly denied the accusations of
national treachery from the “fireside patriots,” who were “far removed from war and its
miseries.”49 Proponents of the Specific Contract Act countered that:
“Greenbacks and Loyalty,” Los Angeles Star, August 27, 1864.
“The Nevada Decision Against the Specific Contract Considered from a Legal Standpoint,” Daily Alta California,
January 9, 1866. “The Nevada Supreme Court decided against the Specific Contract Law, and issued this
explanation in their decision, with an emphasis on its interpretation of a debt: The demand for which this action was
instituted was a debt, as designated in the act of Congress, liable to be liquidated and cancelled by payment of legal
tender notes at their face value. It makes no difference in the eyes of the law that the contract calls for payment in
gold coin; the legal character of the demand and the force and effect of the law of Congress still remain impressed
upon it. Can a state law withdraw it from the operation of the paramount law? It is a debt which, in virtue of the
express mandate of the supreme law, may be paid in those issues which the law itself called into existence.”
48
The author tartly retorted “The people of California can think for themselves, and will not dance whenever Chase
whistles.” From, “Chase’s Opinion on the Repeal of the Specific Contract Law,” Sacramento Daily Union, February
10, 1864.
49
“California Legislature,” Sacramento Daily Union, January 15, 1864.
46
47
20
the very men who in the last Legislature denounced the friends of the Specific Contract
Act as disloyal, refused to consider a bill to make greenbacks receivable for [local]
taxes— and passed, without discussion, (and, if we remember rightly, without objection,)
the act quoted above. They thought the payment of contract in gold was disloyal, but they
compelled the payment of taxes in gold. They wished to deprive the people of the
privilege of paying gold in one case, and of paying greenbacks in another. They wished
to repeal an act which does not discriminate against greenbacks; they passed an act which
does discriminate against them.50
Proponents also argued that the Act was entirely constitutional and compared the Specific
Contract Act to the ability of merchants to receive payment for foreign goods in an international
denomination. The Daily Alta protested that “[t]here is nothing unconstitutional in the specific
enforcement of a contract; there is nothing unconstitutional in a contract for the payment of
foreign coin; there is nothing unconstitutional in a contract for the payment of any legal currency
of the United States.”51 The newspaper reasoned that just as contracts dealing across
international borders would often be denominated in foreign currency, there was no
constitutional mandate that could make illegal commercial transactions in monetary media other
than that of a legal tender. Further, proponents countered that the Specific Contract Act did not
actually discriminate against any medium of exchange, but only enshrined into law the right of
Californians to maintain discretion in their commercial transactions. Proponents also protested
that the Act made ensured wage stability for downtrodden workers whose livelihoods sat at the
mercy of mercurial employers and wage-labor. Since the greenback currency continued to lose
value throughout the war, wage-laborers who worked on contract wages saw their earnings
shrink in purchasing power as inflation took an ever-increasing bite from their wages. The Daily
Alta reasoned that “it is very clear that the repeal of the Specific Contract Act, and the
consequent adoption of greenbacks as the sole currency would break every engagement for labor
50
51
“The Enemies of the Specific Contract Law,” Daily Alta California, August 4, 1864.
“The Constitutionality of the Specific Contract Law,” Daily Alta California, August 5, 1864.
21
in the State, or else cause a serious [financial purchasing power] loss to the employé [sic].”52 If
the proponents of the national greenbacks succeeded in repealing the Specific Contract Act,
wage-laborers working under contract would face frequency unemployment as they would either
be forced to search for work that offered competitive wages, or live in destitution as inflation
reduced as their contractual earning power from falling relative wages. Californians remained
“unanimously in favor of the specific contract law, for the stability and the certainty which it
give to all our business transactions, and opposed to their placing the people on tenterhooks of
anxiety to know what is to be done, obliging them to lend their business in breathless anxiety.”53
In 1864, the economic repercussions caused by depreciating greenbacks forced even the
California Farmer and Journal of Useful Sciences to temper its enthusiasm for federal paper.
The California Farmer had been a consistent shrill for greenback campaign, and proudly
recounted that “[f]rom the first, we announced that we would receive Treasury Notes at par for
Subscriptions to the Farmer.” However, the paper lamented that:
the [greenback] notes were rejected, here [in San Francisco], as currency and many of our
subscribers have, in conformity with the custom, continued to pay us in gold; yet we have
never refused greenbacks at their face value when sent us by subscribers, though it has
subjected us to serious loss from our being obliged (from the rejection of the currency as
mentioned), to pay gold in our disbursements.54
By accepting revenue in depreciating greenbacks while paying expenses in stable gold, the
California Farmer began to suffer the economic consequences brought on by the depreciation of
greenbacks and was forced to raise their annual subscription price “to $5 a year, payable in U.S.
Legal Tender notes [or] the ruling premium when gold is tendered in payment.”55 In reaction to
these fears and realities of economic tribulation, California led the Western states into a state of
“The Proposed Exclusion of Gold as Affecting Contracts for Labor,” Daily Alta California, August 8, 1864.
“California Legislature,” Sacramento Daily Union, January 15, 1864.
54
“Greenbacks! Greenbacks!,” California Farmer and Journal of Useful Sciences, May 6, 1864.
55
Ibid.
52
53
22
monetary secession that troubled federal authorities but protected local residents from an
inflating currency. However, California’s predilection for a hard currency immune to the
inflationary impulses of the federal government’s printing presses soon set the state on a
collision course with federal policy and against the economic centralization trend that continued
throughout the course of the Civil War.56
The next federal attempt at limiting the circulation and price volatility of gold arrived
wrapped in the legal guise of the Gold Bill. The measure, signed by President Lincoln on March
21, 1864, included language that proclaimed “all sales or agreement to sell gold, silver, or
foreign exchange, are hereby declared null and void, unless the full amount of the purchase
money for such gold, silver, or foreign exchange shall be paid at the time of such sale or
agreement to sell.”57 The Bill included a further enforcement clause that threatened that “all
money paid in partial payment, or as a margin on the sale or agreement to sell gold, silver, or
foreign exchange, may be reclaimed at any Court of competent jurisdiction.”58 In other words,
the Gold Bill threatened to forbid gold purchased at speculative prices, as was often done by
56
Greenbacks were not the only medium of paper currency under rhetorical attack in California. One newspaper
letter-writer lamented the flood of newly-invented postage stamps, satirically titled ‘The Stick Plaster Currency,’ a
play on words alluding to ‘shin plasters,’ the worthless paper bills of bankrupt banks that circulated at deep discount
during the antebellum years. “‘A thing of beauty is a joy forever.’ Thus wrote the delicate Keats, but Keats never
knew the luxury as a stick plaster currency. Postage stamps, gummed with the best adhesive, sticking on sweaty
fingers, were unknown in his primitive age. If Congress had not adjourned, it is believed that it would have made
molasses candy a legal lender by this time. It seemed to be trying to invent a currency that would stick to people. It
is such a general complaint that money cannot be kept, that it was evidently the idea of this Congress to give the
people something that would stick to them. Just think, too, how delightful this currency is for my business! With
hands still wet with compounding drinks, I am just prepared to finger postage stamps! How they do stick, though!
By the way, why not make plug tobacco a legal tender? Have it put up in ‘cuds,’ from one cent upwards in price—it
would do just the thing, just the thing that would not stick. Those who use snuff might put it in envelopes after the
fashion of postage stamps. If the war s to continue a year or two longer, I go in for ‘the legal tender cuds.’ Away
with the postage stamp nuisance. It has caused more profanity since this adoption than can be atoned for in a twelve
month. If this is not speedily abolished I shall begin to think seriously about retiring from Behind the Counter.” N.Y.
Caucasian, “The Stamp Plaster Currency,” Los Angeles Star, September 27, 1862.
57
“The Gold Bill,” Daily Alta California, March 13, 1864.
58
Ibid.
23
banks and investors as a hedge against future anticipated inflation, and empowered courts to void
such transactions. Congress crafted the Gold Bill to tamp down on the “gambling in gold for
which Wall street [sic] has become so famous,” but the Bill’s language could also be interpreted
as a check against conversions of greenbacks into gold at speculative prices.59 However, the
Daily Alta, usually a stalwart opponent of greenbacks and defender of the Specific Contract Act,
dismissed the regulatory power of the Bill, and reassured readers that “[w]hen the bill was first
introduced fears were entertained that it would render a gold and silver currency impossible here,
but a perusal will satisfy every one [sic] that they were without foundation.”60 Meanwhile, the
Sacramento Daily Union scoffed at the power of the federal government to institute such
prohibitions against gold transactions in defiance of a hostile state judiciary, and predicted that
“[t]he Secretary of the Treasury will not employ any agents to carry into effect the power
conferred on him by the Gold Bill.61 Despite Congressional attempts, federal power appeared
impotent to coerce Californians to embrace federal paper and forgoing gold circulation against
geographic distance, popular hostility, and judicial sympathy.62
Return of the Goldbug: California’s Monetary Rebellion Manages an Unlikely Victory
Soon, legal decisions by state courts upheld the constitutionality of the Specific Contract
Act and stymied federal opposition to the law. In April of 1864, two merchants became involved
in a legal tussle after a gentleman named Atherton refused to repay $500 to another merchant
named Carpentier in the contractually specified denomination of gold. In lieu of metal, Atherton
The Gold Bill,” Daily Alta California, March 13, 1864.
Ibid.
61
“By Overland Telegraph,” Sacramento Daily Union, March 21, 1864.
62
Just a few months later, after Secretary Chase’s resignation in July 1864, Congress repealed the unenforceable and
impractical law and the whole episode became moot. “Congress gave a parting kick at the dead lion [Chase] by
repealing the Gold Bill, one of the straws at which the struggling financier had caught, on the day after his
resignation.” From: “Affairs at the Treasury Department,” Sacramento Daily Union, July 30, 1864.
59
60
24
offered to repay Carpentier in rapidly inflating greenbacks. This dispute set the stage for a
constitutional assessment of the Specific Contract Act through the state’s Supreme Court. In July
1864, while displaying a judicial velocity unimaginable in modern courts by reaching a judgment
only four months later after the dispute arose, the California Supreme Court heard the case of
Carpentier v. Atherton and upheld the contentious law by ruling that “enforcement in terms of
contracts made payable in a specified kind of money or currency is not in derogation of, nor does
it conflict with the laws of congress making United States notes lawful money and legal tender in
payment of debts.” However, the court specified that for any contract made before April 27,
1863, but which did not specify a monetary medium of payment, the federal government “has no
power to annex to the judgment rendered an order or direction specifying the kind of money in
which payment must be made in satisfaction of the judgment.”63 In other words, not only was the
Specific Contract Act compliant with federal law and constitutional, but the government had no
jurisdiction over the monetary medium used by private parties engaged in legal contracts prior to
the passage of the Act. The court’s decision immediately won praise among the local Californian
press, with the Daily Alta justifying that:
The notes of the Unites States, issued by the authority of the laws of the National
Legislature, are a lawful and authorized currency, and in that sense a lawful money and a
legal tender in the payment of private debts. But it does not follow that every kind or any
kind of money which by law is legal tender in the payment of debts may be tendered in
satisfaction of every obligation capable of performance by the transfer and delivery of
property in satisfaction of it.64
In effect, through the Specific Contract Act, Californian legislators sequestered the state from
monetary union with the remainder of the United States, and largely inoculated local citizens
from the disruptive effects of wartime inflation. In the process, the ‘Golden’ state demonstrated
63
A. L. Rhodes, California Digest: A Digest of the Reports of the Supreme Court of California (San Francisco: A. L.
Bancroft & Co., 1882), 1352.
64
“The Opinion of the Supreme Court on the Specific Contract Act,” Daily Alta California, August 17, 1864.
25
its affinity with metallic standards, and rejected the monetary centralization trend dominating
Civil War financial politics. Soon, the defiant Specific Contract Act would again find itself
before a judicial tribunal, this time headed by a familiar foe—Supreme Court Chief Justice
Salmon P. Chase.
In June 1864, a peevish Secretary of the Treasury Salmon Chase tenured his fourth letter
of resignation to President Lincoln after a series of minor slights and petty insults, but assumed
that, like his previous three resignation threats, the president would refuse and humbly request
Chase’s continued service. After a series of comic misunderstandings and errors, Lincoln
unexpectedly accepted Chase’s resignation and nominated William Pitt Fessenden, a radical
Republican senator from Maine, who was unanimously approved by his Senate colleagues on
July 1.65 However, the ever ambitious former war financier soon found himself nominated by
Lincoln as Chief Justice for the Supreme Court in December 1864. Once reviled within
California for his issuance of paper currency, Californians cheered Chase’s appointment with a
different attitude. The Sacramento Daily Union proclaimed that:
Goodwin, Team of Rivals, 635-7. Fessenden’s short tenure was followed by Secretary McCulloch, who initiated
another war of words with Californians over their defiant monetary stance. He blasted the state’s policies, as
reported by the Sacramento Daily Union: “The Secretary of the Treasury, McCulloch. in a recent letter to Thompson
Campbell, says that he has no hesitation in asserting that in his judgment California would have been a much richer
and more prosperous State if her circulation had been a mixed instead of a metallic one; that she has not only failed
to co-operate properly with the other States in maintaining the Government credit, but has misapprehended her own
in discountenancing the use of paper money within her limits. No country can prosper for any considerable time
where money commands so high a rate of interest as it does in California, and nothing would tend more directly to
reduce that rate of interest than the introduction of a sound paper circulating medium.” The Daily Union quickly
struck back, replying that “We cannot imagine what McCulloch means by saying that California would have been
much richer and more prosperous ‘if her circulation had been a mixed instead of an exclusively metallic one.’ He
cannot surely have intended to say that the use of bank notes would have benefited California, since he advocates
the tax on our State circulation with a view to suppress it. He cannot believe that that which he considers an evil to
the other States would have been a benefit to California. He must, therefore, mean that California would have been
benefited by a mixed circulation of gold and legal tender notes. But this is an impossibility, because it is a natural
law that where two or more currencies circulate, the poorest or cheapest invariably drive out all others. Had
California ever permitted legal tender notes to circulate, they would have suppressed the use of gold there just as
effectually as they have suppressed it there.” “Secretary McCulloch on California,” Sacramento Daily Union, May
18, 1865.
65
26
Next to the issuance of the Emancipation Proclamation, no public act of President
Lincoln has given such general satisfaction as the appointment of Salmon P. Chase to the
proud position of Chief Justice of the Supreme Court of the United States [...which] is
being reorganized in the interests of freedom, and as time and death causes breaks in the
bench, the gaps are filled with men of purity, probity, and love of liberty.66
In 1868, Chief Justice Chase presided over a groundbreaking case that tested the legality of
informal specific payment contracts across the nation, which granted the architect of the nation’s
uniform currency a chance to strike down the legality of gold contracts. The case originated in
New York in 1851, when Christian Metz borrowed fourteen hundred dollars from Arthur
Bronson at seven percent interest and payable in gold coin. After partial repayment, and a change
in debtors, Peter Rodes repaid the remaining principal plus interest of the amortization mortgage
to a total of $1507 in greenbacks in 1865. The dispute, legally known as Bronson v. Rodes,
landed at the feet of the Supreme Court in 1868, and Chase penned the 8-1 majority decision.
The former treasury secretary, architect of the greenback revolution and nemesis of self-styled
hard-money men, delivered a startling opinion. He declared that “[w]hen, therefore, contracts
made payable in coin are sued upon, judgments may be entered in coined dollars and parts of
dollars; and when contracts have been made payable in dollars generally, without specifying in
what currency payment is to be made, judgments may be entered generally, without such
specification.”67 Chase then cast doubt against the Specific Contract Act’s detractors’ cries of
unconstitutionality, and reasoned “[n]or do we think it necessary to examine the question
whether the clauses of the currency act making United States notes a legal tender are warranted
by the Constitution in this case.”68 The unexpected decision appeared to surprise even the aging
Chief Justice himself, and he later recounted in his memoirs that “[t]here was a good deal of talk
“Letters from Washington: Chief Justice Chase,” Sacramento Daily Union, January 11, 1865.
William B. Dana, editor, The Merchant’s Magazine and Commercial Review, Volume 60 (New York: William B.
Dana Publisher and Proprietor, 1869), 268-75.
68
“The United States Supreme Court on Gold Contracts,” Daily Alta California, March 18, 1869.
66
67
27
which manifested in a determination on the part of the present majority of the Court to force the
rehearing of the legal tender questions with a [fixed determination] as I fear to reverse the
decision already made.”69 Despite his previous affiliation with unbacked currency and wartime
denouncement of California’s monetary rebellion, Chase affirmed the legality and propriety of
private contracts using alternatives to the federal dollar, which further undermined the power of
the federal government to monopolize the monetary medium.70 Soon, the ‘father of the
greenback’ would go much further in destroying the legal basis from which government paper
could be issued.
Californian newspapers righteously applauded Chase’s decision. The Daily Alta cheered
that “[h]ere is the California Specific Contract Law established for the Union without troubling
Congress. Common sense and justice have triumphed at last, and contracts between man and
man mean what they express, and not what pettifogging political lawyers would have them
express.”71 The irony of Chase’s presiding over both the birth and death knell of greenbacks did
not fail to resonate on contemporary observers. In the wake of the ruling, the Daily Alta crowed
that “Mr. Chase has swallowed his own sophism,” and mused that:
Chief Justice Chase, the author of the sophism of “the premium on gold,” which sent the
country on such a “swinging around the circle” of finance, has just discovered that the
principle of common honesty is imbedded in the National Constitution, and that the man
who promises to pay gold is bound by that instrument to live up to his agreement. So,
69
John Niven, editor, The Salmon P. Chase Papers, Volume 1, Journals, 1829-1872 (Kent: The Kent State
University Press, 1993), 651.
70
However, the court’s decision was not unanimous: “Justice Miller dissented, holding that, although it was the
intention of the parties that gold should be paid, it was only so because gold was then the currency of the
Government, the lawful money of the United States, mentioned in the contract. There was nothing in the contract to
make it differ from any her ordinary contract payable in dollars. When treasury notes became lawful money of the
United States, their tender was sufficient to discharge the contract, and within its terms and within the understanding
and intention of the parties. This decision in no way affects the legal tender cases argued by Potter and the Attorney
General at the present term of the Court, although reargued at the time of the argument of those cases.” From the,
“Atlantic Intelligence: Important Decision of the United States Supreme Court,” Sacramento Daily Union, March
12, 1869.
71
“Financial and Commercial,” Daily Alta California, February 17, 1869.
28
after all this wild excitement and fierce struggling, we have got back to the position from
which we started, viz., that contracts are inviolable.72
Meanwhile, the Sacramento Daily Union commenting that “the ‘father of greenbacks’ himself,
and those who most stoutly upheld the Government in its war use of them, now most strenuously
insist upon their voluntary disuse by the people, and a general resort to the true standard.”73
Relieved of their constant worry of a perpetual peacetime greenback currency, Californians
looked forward to the return of overseas gold and a healthy resumption of commerce. The
Sacramento Daily Union predicted that “[w]ere our paper currency retired or made redeemable,
this foreign specie would flow back to us, instead of being augmented yearly by our own exports
of gold, which go abroad because we will give it no chance to be of use at home.”74 The prewar
gold standard appeared to be approaching a legal resurrection, in part to the efforts of a newly
sympathetic Chief Justice.
Chase’s apparent change of heart was motivated by several factors. First, by 1868, the
fiscal emergency in which the federal government found itself in the dark days of 1862 had given
way to fiscal stability and a steady postwar decline in the federal debt. Instead of the dire need of
issuing masses of treasury bonds and greenbacks, the government’s most pressing financial goal
was now aimed at retiring circulating paper currency and debt. National debate now centered on
how and when greenback to gold convertibility would be restored within the nation, and with
what speed to contract the monetary supply. The Sacramento Daily Union theorized that “it is
probable that their decision was influenced largely by the conviction that the public necessities of
the case are now diametrically different from what they were during the war — the use of
“The History of a Mischievous Sophism,” Daily Alta California, February 17, 1869.
“Let Government Set the Example,” Sacramento Daily Union, March 15, 1869.
74
“Senator Cole’s Speech,” Sacramento Daily Union, August 1, 1868.
72
73
29
greenbacks was a necessity; now, the use of specie is equally a necessity.”75 Ironically, Chase’s
legal decision cut from the federal government much of the legal punitive measures needed to
enforce the adoption of a standard national currency. With the 1868 decision, California’s
adoption of a duel the monetary media of gold and greenbacks became de jure throughout the
nation. After the apparent victory of specie-backed currency, gold again appeared triumphant as
the dominant legal currency, national monetary debates swirled around the methods of readoption of a strict gold standard.
The Chase Court’s decision in Bronson v. Rodes upheld the right of Americans to engage
in legal contracts without the use of governmentally designated legal tender, and extended that
right nationwide. Soon, the entire edifice of the greenback system would come crashing down as
the Supreme Court rendered a shock to the legal foundations of government paper. In 1870, two
years after the Bronson decision, the Supreme Court rendered a controversial decision in
Hepburn v. Griswold. The case originated in Kentucky, and involved years of litigation over
whether prewar debts made in gold could legally be repaid in greenbacks. While the Chase Court
could have declined to hear the suit and declare the matter settled law, they instead accepted the
hearing, likely to redress lingering issues on the constitutionality of certain aspects of the Legal
Tender Act and subsequent laws. In the majority decision again penned by Chief Justice Chase,
the court presaged the overturning of settled law by reminding readers that “[n]ot every act of
Congress, then, is to be regarded as the supreme law of the land; nor is it by every Act of
Congress that the Judges are bound.”76 With that caveat in place, the majority decision
continued, “[i]t has not been maintained in argument [...] that there is in the Constitution any
express grant of legislative power to make any description of credit currency a legal tender in
“Let Government Set the Example,” Sacramento Daily Union, March 15, 1869.
“The Legal Tender Act—The Decision of the United States Supreme Court,” Sacramento Daily Union, February
19, 1870.
75
76
30
payment of debts.”77 Chase soon turned against the concept of fiat paper money itself, writing
that whatever its limited benefits, they are “more than outweighed by the losses of property, the
derangement of business, the fluctuations of currency and values, and the increase of prices to
the people and the Government, and the long train of evils which flow from the use of an
irredeemable paper money.”78 The Court threw doubt onto the unconstitutionality of the legal
tender laws and, by implication, the issuance of greenback currency from several constitutional
standpoints. First, the Court concluded “that a law not made in pursuance of an express power,
which necessarily and in its direct operation impairs the operation of contracts, is inconsistent
with the Spirit of the Constitution.”79 In other words, since the Constitution never implicitly
stated that Congress possessed the power to print paper currency, the federal government had
acted improperly when issuing such paper. Secondly, since the Constitution explicitly forbade
state issuance of paper currency, the judges deduced that “it [is] clear that those who framed and
those who adopted the Constitution intended that the spirit of this [paper currency] prohibition
should pervade the entire body of legislation.”80 Finally, the Court found conflict between the
designation of paper currency as legal tender and the Fifth Amendment’s ‘due process’ and
‘takings’ clauses. Abrogation of gold-backed liabilities with paper substitutes represented an
unjust ‘takings’ of private property, and forced people “to accept in payment of currency of
inferior value [and] deprives such persons of property without due process of law.”81 With this
momentous legal decision, the monetary rebellion led by California managed to undermine the
legal framework from which greenbacks could be issued. As per the Chase Court’s logic, the
77
The Legal Tender Act—The Decision of the United States Supreme Court,” Sacramento Daily Union, February
19, 1870.
78
Ibid.
79
Ibid.
80
Ibid.
81
Ibid.
31
federal government possessed no legal authority to print unbacked currency. Greenbacks, for all
intents and purposes, became null and void overnight.
Buoyed by a remarkable string of judicial victories, the hard-money advocates in
California rejoiced at this latest ruling. The Daily Alta declared that the court acted “in
accordance with the plain principles of justice” and noted that “[f]ortunately for this State, we
have never resorted to the disreputable expedient of paying our State or County bonds in
greenbacks, though we believe the interest on some of the bonds of an interior town wore paid in
that currency.”82 The Daily Alta’s perennial rival, the pro-greenback Californian Farmer, also
embraced the decision with optimism, but countered that “[o]ur neighbor of the Alta, in its
wisdom, thinks the result of this decision will be to depreciate the value of Greenbacks. We
believe it will be just the reverse, for this decision in our opinion makes them of more value.”83
The Court also recognized oral contracts as equally valid as those written, extending nationwide
legal protections beyond even that of California’s Specific Contract Act, and as a result, even
“the specific contract law of California is repealed in so far as it implies that oral contracts for
82
The Daily Alta also commented that: The decision made a great sensation in Wall street, because it requires coin
payment of the principal and interest of large amounts of Railroad, City, County and State bonds issued before 1862,
which have heretofore been paid in currency; and it is thought that North Carolina and Tennessee may repudiate
because the burden of taxation will be too heavy for them to bear. The ruling is just, whatever the result may be.
These large State debts are bad proof of the management of political cliques, and of the importance of having
constitutional checks, limiting the amount to which obligations may be incurred by legislatures. One of the most
beneficental [sic] clauses in the Constitution of California is that restricting the State debt; and when our
Constitution is revised, the clause should be made more comprehensive, for it has already been evaded in several
cases. “The Last Legal Tender Decision,” Daily Alta California, February 9, 1870.
83
The California Farmer used a curious method of reasoning to deliver such unexpected conclusions: The recent
decision of the Supreme Court of the United States has now settled the “Currency Question.” It establishes contracts,
all made before the war, as payable only in Gold, and the issue of Greenbacks being a necessity, it does not and
cannot vitiate contracts among men. Our Specific Contract and t general understanding among all business men,
supported by this decision, is, Gold only is understood as legal tender. Our neighbor of the Alta, in its wisdom,
thinks the result of this decision will be to depreciate the value of Greenbacks. We believe it will be just the reverse,
for this decision in our opinion makes them of more value. The present rapid reduction of be National debt, and the
certainty that the entire property of the United States is pledged for their redemption, with the knowledge that the
interest on United States Bonds is always paid promptly in Gold, and always will be, and the evidence that every
dollar of the National indebtedness will be paid in Gold, must most certainly increase their value, for there is no
better security in the world than U. S. Bonds and U. S. Securities. From, “The Currency Question,” California
Farmer and Journal of Useful Sciences, February 10, 1870.
32
payment in a specific currency shall not be enforced.” 84 With the apparently conclusive
conclusion of the Hepburn case, the monetary rebellion begun by the citizens of California with
the Specific Contract Act vanquished the monetary framework of fiat currency, and re-anointed
gold as the reigning monetary unit of the nation. California’s monetary rebellion not only
managed to shield the traditional rights of private commercial contract from federal power, but
also ultimately reestablished those traditional prerogatives throughout the nation. In short,
California’s battle against the central monetary authority of the United States government
emerged as the era’s most successful rebellion.
Gold’s Epilogue
For even the few California proponents of greenbacks in the years after the Civil War,
time for the unbacked currency was growing short, and the pertinent political quandary remained
when and under what circumstances gold convertibility would be legislatively resumed, and not
whether resumption would indeed happen. However, the sudden legal termination of the federal
government’s authority to print greenbacks stemming from Hepburn case was overturned by the
Knox v. Lee decision in 1872. The Daily Alta noted that they possessed “a copy of the dissenting
opinion of Justice Field in the case of Knox vs. Lee, before the United States Supreme Court, in
in which he takes the ground that the Legal Tender Act is unconstitutional. It is the most
complete and forcible summary of the arguments upon that side yet published, and will for that
reason possess a permanent interest to lawyers and legislators,” but that the:
Legal Tender Act was necessary as a war measure, and has served the main purpose for
which it was designed; but its sudden overthrow by judicial decision, however consistent
it might be with the Constitution, would be very severe upon debtors who have incurred
“Important Decision of the U.S. Supreme Court on Gold Contracts,” Daily Alta California, March 8, 1872. Yet
another case, Trebilcock v. Wilson established that the specific monetary contracts “appl[ied] not simply to contracts
mode before the passage of the legal tender Act, but to all contracts without reference to date.”
84
33
obligations in a depreciated currency. When the change must be made to an exclusive
gold legal tender, it can be best managed under legislative enactment.85
With greenback to gold resumption all but politically assured, the Daily Alta felt little threat from
the weakened greenback movement, and instead warned against radical monetary measures
brought on by an over-activist judiciary instead of a gradual program of greenback retirement
stemming from a carefully considered legislative plan. The most remorseful sentiment in the
wake of the Knox decision seemed to be Chief Justice Chase, who dissented with the minority.
He lamented in his private diary that “[i]t is, I think, a sad day for the [country] & for the cause
of constitutional government…The only thing that I regret in connection with my administration
of the Finances is that I expressed even a qualified opinion that the making the United States
notes a legal tender was necessary.86 If Chase could prophesize the approaching economic
turbulence and decades of grinding deflation set in course by unstable monetary policy, he would
likely be even more regretful, if not mortified, of his role that set the nation on tortuous monetary
rollercoaster.87
The devastating financial Panic of 1873 convinced most Californians that a return to
stable to a tangible, stable gold standard was prerequisite to economic stability. Amid bank
failures, a precipitous drop in property value and sudden mass unemployment, the Daily Alta
warned that “the dread penalty of using depreciated greenback paper currency must be paid
“Important Decision of the U.S. Supreme Court on Gold Contracts,” Daily Alta California, March 8, 1872.
John Niven, editor, The Salmon P. Chase Papers, xlviii.
87
Many contemporary accounts laid part of the blame for the Panic of ‘73on years of inflation and greenbacks
distorting financial fundamentals. “The stock bubble has bursted as a thousand bubbles of similar general nature
have done before. Any attempt to obtain money, to render paper firm, when there is no value received back of it
must of necessity be a failure. [John] Laws, failure, the Mississippi scheme, the paper expansion preceding the
French Revolution—all are instances [of economic Panics following a monetary expansion]. The government of the
time, and the laws bolstered them up as best they could, their machinators [sic] concealed the absence of a value
received back of their paper; but all was useless the bubble burst as it always will sooner or later. Money represents
value of some kind. You may make a pretended value; you may call n dollar, a million, but it makes not it a million.
Every dollar becomes but a millionth part of a real 'dollar. You may buy stocks until they sell for a hundred times
their value, but when return interest is not commensurate with their price, they must fall - the bubble must burst.”
From, “The Financial Panic,” Los Angeles Herald, October 3, 1873.
85
86
34
sooner or later, and if Congress takes warning now, and returns to honest dealing, much future
trouble may be saved.”88 The masses of circulating greenbacks were thought to distort the ability
of businesses to invest and save by replacing valuable assets with intrinsically worthless paper,
of which “our mushroom financiers have inflated their financial balloon to a degree of tension
beyond its power of resistance [which left the financial balloon] exploded and collapsed.”89
Another commenter noted that once “a greenback bank fails it always knocks down a whole row
of its brethren, and these in turn floor scores of mercantile houses that depend on them,” while
California financiers had “already practically recovered from a shock which would have
prostrated us utterly had we been doing business on a greenback basis.”90 For hard-money
advocates in California, paper greenbacks seemed to be behind the root cause of the severe Panic
of ’73 by disguising true value behind inflated promises of wealth, and the only way to
reestablish financial stability and prosperity was an immediate and complete return to the prewar
gold standard via Congressional action.
A political resolution to rectify the lingering problem of circulating greenbacks was soon
enacted with legal instruments. In January 1875, the Specie Payment Resumption Act passed
Congress and was signed by President Grant. The Resumption Act sought to begin redeeming
greenbacks in four years’ time, beginning January 1, 1879, and reduce the current level of
“The Panic,” Daily Alta Californian, September 25, 1873. Bank failures also occurred nationwide, and mass
layoffs ensued. The California Farmer reported that “This [report of layoffs is but one case in hundreds, probably
20,000 to 40,000 workmen will be discharged from the manufactories before this Panic is over, and great suffering
must be the result.” From, “Effects of Panic Upon Labor,” California Farmer and Journal of the Useful Sciences,
November 6, 1873. In addition, land values plummeted nationwide, such as in New York, where assessed land
values shrunk by 24 percent. From: “Effects of the Panic Upon Property Values,” Sacramento Daily Union, August
21, 1874.
89
“Peculiarities of the Panic,” Sacramento Daily Union, September 26, 1873.
90
“Rag-Money Versus Specie,” Sacramento Daily Union, September 7, 1875. The Daily Union further alleged that
had “we been doing business on a greenback basis; which would in that case have smashed every bank in San
Francisco; bankrupted fifty per cent. of the strongest firms; stopped our manufactures and improvements; and
plunged thousands of our people into destitution and ruin. Let the rag-money advocates examine the phenomena of
the California financial (situation carefully, for there is a nut here which cannot be cracked by their methods.”
88
35
circulating currency by 80 percent, down to $300 million.91 The steady contraction of the
nation’s monetary base through redemption initiated decades of falling prices as Congress set the
legal level of a dollar against gold at antebellum prices. In combination with higher productivity
brought on by mechanization and industrialization, consumer prices began to fall and years of
wartime price inflation reversed into decades of price deflation.92 In California, this combination
of deflation and a consistent public desire for ‘real money’ would soon about a political
movement that called for the free and unlimited coinage of free silver, and which would
constitute the next phase of Californian public monetary sentiment.
Conclusions at the end of a Monetary Saga
This paper has attempted to bring to light several historical processes. First, in the
whirlwind financial drama that threatened the Union with fiscal bankruptcy, California and
neighboring Western states initiated a set of economic and political actions that resulted in
monetary and economic secession contemporaneous with the Southern drive for political
secession. Second, Californians rejected the influx of circulating greenbacks because of previous
experiences with antebellum inflationary wildcat banknotes and a deep-seated fear of inflation
and federal taxation. Third, the federal government waged a legal campaign against California’s
monetary secession with a series of bills, acts, and laws that attempted to bring the rebellious
West back into the legal framework that the wartime Union utilized to consolidate national
“General News Items,” Pacific Rural Press, January 16, 1875. The Rural Press elaborated: The New Currency
Bill.—The bill for the resumption of specie payment which has just passed both Houses of Congress, provides:
First—A redemption of legal tenders, and of resumption of specie payments four years hence, on the 1st of January,
1879. Second —Free banking, in the widest sense of an unlimited issue of National Bank Currency. Third—A
withdrawal of 80 per cent. [sic] of the amount issued in new bank currency from the volume of greenbacks, until the
amount of $300,000,000 for United States notes is reached. Fourth—A substitution of small silver coin for fractional
currency. Fifth—An abolition of the mint charge.
92
With steady deflation hurting debtors and farmers, in 1878 Congress ordered the Treasury to halt the redemption
of greenbacks into gold, and kept $347 million of greenbacks in circulation. This seemingly innocuous action had
outsized ramifications, for it was the first time that Congress asserted the power to regulate the size of the monetary
base during peacetime for economic, and not governmental budgetary, reasons. For a more detailed history of the
legal history of monetary issues, see: James Willard Hurst, A Legal History of Money in the United States, 17741970 (Lincoln, University of Nebraska Press: 1973), 183.
91
36
capital for military financing. Finally, not only was the federal onslaught against California
monetary independence a failure, but the hard-money stance adopted by Californians eventually
managed a legal coup d’état against the federal government’s financial system with the Supreme
Court’s sanctioning of the Specific Contract Clause, and its subsequent nationwide adoption via
judicial means. With that legal revolution, the Court cast the legal die that eventually set the
political stage for Resumption and restitution of the gold standard. That the gold standard could
be politically reactivated in the aftermath of the war was owed in no small part to the stubborn
holdouts of hard-money sentiment in California, and the state’s preservation of a specie-backed
monetary regime. For several decades after Resumption, the dollar remained imbued with a
tangible promise of conversion into gold, and monometallic orthodoxy was enshrined into
national law with the Gold Standard Act of 1900. Not until 1933 were the guarantee of dollar to
gold convertibility unilaterally abrogated and the ownership of nontrivial amounts of gold by
private citizens declared illegal by Franklin Roosevelt via executive order. During the
intermediate era, the stability of a gold backed dollar helped propel American industrialization
and establish global American financial dominance. With the steady legal and legislative
victories of the California-led postwar gold standard revolution, the ‘Golden State’ monetary
rebellion emerged as the most successful act of secession in American history.
37
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39
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40