Greenbacks, such as this $5 bill issued in March 1863, were a form of legal tender paper money created by the Union government to help finance the Civil War. The colors, ornate designs, unique identification number, signatures and denomination-studded borders were designed to limit counterfeiting, a major weakness of similar bills, called Continentals, issued during the Revolution. With the help of the newly formed Secret Service, counterfeiting was kept under control, but the other weakness of fiat money, rising prices, was not.
Greenbacks funded about 15% of the war effort but raised inflation rates to 14% in 1862 and 25% in 1863 and 1864. Inflation pushed up the cost of war material and reduced the welfare of workers, professionals, annuitants, bondholders and others whose incomes did not keep pace with the higher cost of living. The chief justice of Wisconsin, for example, needed to sell assets and obtain bank loans because the state did not raise his salary, fixed at $2,500 in 1857, during the war.
The new money also initiated debates about the proper anchor for the US monetary system that permeated national politics into the early 20th century. The Wonderful Wizard of Oz, conceived by L. Frank Baum in the 1890s, can be read as an allegory regarding those debates with the yellow brick road representing gold, Dorothy’s slippers (in the book) representing silver, and the Emerald City representing greenbacks.
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Memo from President Abraham Lincoln to Secretary of the Treasury Salmon P. Chase listing assets Lincoln wanted converted into bonds.
Bond issued to Abraham Lincoln featuring his portrait, 1864. Courtesy of the Bureau of the Public Debt.