An Historical Precedent

Congress made the Greenback notes redeemable in gold in 1879, and the effect of this action can help us plan for a similar action in the future.

By the end of the Civil war, a Greenback dollar was worth less than 50¢ in gold. But as it became obvious that Congress would redeem them in Constitutional money, gold, they became worth more. The government also stopped inflating.

By 1868 it only took $138 in Greenbacks to buy $100 in gold, and by 1874, $111.

Late in 1875, Congress passed a law saying that on January 1, 1879, Greenbacks would be redeemable in gold on a one-to-one basis. And the notes were to be retired gradually.

As the date approached, says Dr. Donald Kemmerer, “the price of $100 in gold in greenbacks declined from $111.50 in 1876 to $104.70 in 1877 and $101.10 in 1878. On December 17, 1878, two weeks before the official specie resumption day, the price of $100 in gold reached $100 in Greenbacks.

Dr. Kemmerer summarized the rather placid experience:

“The New York Herald relegated the story to page 3, and headlined it ‘Resumption—An Unexciting Event Throughout the Country.’ There were flags flying from many buildings on Wall Street, and a Navy Yard battery at ten o’clock officially announced the opening of the New York Subtreasury. This was the only place in the country actually required to exchange gold for greenbacks. Banks everywhere prepared to redeem greenbacks, however, as a matter of convenience. When the doors of the New York Sub-treasury opened at ten, there were fifteen clerks inside ready to serve the expected crowd. ‘Behind the glass were piled immense quantities of gold in coins all the way from dollars to double eagles.’ Actually the ‘crowd’ at the opening consisted of only one person who demanded gold for his $210 of greenbacks. No one else appeared for another half hour. There were only about 15 or 20 people altogether before half past one. But then the clerks had redeemed $3000 in gold, the most frequently requested amount being $50. Technically $50 was the smallest amount the Sub-treasury was permitted to pay out under the Resumption Act. Some people came to the Subtreasury merely to collect monies owing to them by the government. Each was asked whether he wanted to be paid in gold or greenbacks, and most of them preferred greenbacks which were easier to handle.

“One young man called at the Subtreasury and asked for $5000 in gold. He got a bag of it (weighing about 17 pounds) and handled it somewhat carelessly. Gold eagles were soon rolling in every direction. After gathering and recounting them he returned the gold and asked for ‘some currency that will not roll about.’ ”