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Updated: July 28, 2025
These were declared legal tender, that is, made by law as good as gold and silver, and the people were forced to receive them in payment of debts and for commodities. It was questioned whether the Government had by the Constitution power to do this. The legal-tender decisions declared that it had. Judicial System and Jurisdiction of the United States Courts.
The entire system was abolished in 1872. Aside from the tariff, the "legal-tender" notes gave rise to the greatest number of political and constitutional tangles. By acts of February 25, 1862 and later, Congress had provided for the issue of four hundred and fifty million dollars of United States paper notes, which were commonly known as greenbacks or legal-tenders.
But our currency system is defective in one essential particular: it is not elastic. It is, so to speak, hide-bound at seven hundred and ten millions of paper, exclusive of fractional currency, three hundred and fifty-six millions of which are legal-tender notes, and three hundred and fifty-four millions National bank-notes.
The fact that during the morning the associated banks, in accordance with the recommendation of a committee of their own officers appointed on the previous day, had agreed to issue to each other seven per cent. certificates of deposit to the amount of ten millions, on the security of government bonds at par and approved bills receivable at seventy-five per cent. of their face value, as well as to equalize the legal-tender notes held by all for their common benefit and security, had no influence in tranquilizing the public mind, although it showed a determination on their part to stand or fall together.
To prevent the latter it seems to me that one great step would be taken by prohibiting the national banks from paying interest on deposits, by requiring them to hold their reserves in their own vaults, and by forcing them into resumption, though it would only be in legal-tender notes. For this purpose I would suggest the establishment of clearing houses for your consideration.
He held that under the Acts of June, 1864, and March, 1865, the Secretary had power to sell at home or abroad six per cent coin bonds in any amount to meet short obligations of the Government. "Under the proposed measure," he said, "authority is specifically asked to withdraw the fractional currency and legal-tender notes, in whole or in part, and to substitute bonds for them.
It is my firm conviction that the issue of legal-tender paper money based wholly upon the authority and credit of the Government, except in extreme emergency, is without warrant in the Constitution and a violation of sound financial principles.
He recited the growing demand for gold in Europe, and explained that "France ceased coining silver because she already had in circulation as full legal-tender from $350,000,000 to $400,000,000 in that coin."
Morgan of Alabama said the law did not deal with commercial values. It promised coin to the bondholder coin of silver or coin of gold. Mr. Thurman of Ohio thought that the contract provided for the payment of public debts in coin of the standard of 1870, when the dollar of 412½ grains was full legal-tender, and that such dollar would approximate to gold in value. Mr.
Gold and silver are now the recognized medium of exchange the civilized world over, and to this we should return with the least practicable delay. In view of the pledges of the American Congress when our present legal-tender system was adopted, and debt contracted, there should be no delay certainly no unnecessary delay in fixing by legislation a method by which we will return to specie.
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