152 MONEY AND CREDIT 



they thought that money would thus be more easily obtainable. 

 A relatively small number of instructed persons, not belonging to 

 any particular section or party, but distributed among all, held a 

 balance of power and a preponderating influence. In all the vicissi- 

 tudes of the contest they were able to count upon the executive 

 branch of the government, which held the legislative branch in 

 check on some critical occasions. 



The Legal Tender Act of 1862, an incident of the Civil War, first 

 unsettled people's minds on the question: What is a dollar? There 

 was no such question under debate previously. We had had con- 

 troversies in plenty about bank-notes, but nobody had imagined that 

 a piece of paper was real money, or could ever be made such. The 

 distinction between paper promises and real money was sharply 

 defined and was kept alive by frequent bank failures and by the 

 numerous " bank-note reporters," which were used in business 

 circles to distinguish between notes that were at par and those that 

 were at a greater or less discount. 



In 1862 there came into the hands of the people a new kind of 

 paper currency called greenbacks, which seemed to be at par, 

 although they were actually at a discount. The average citizen, 

 unless he was a dealer in money or was engaged in foreign trade, 

 did not observe the discount. He perceived that the greenbacks 

 would pay his debts and buy the things he wanted. If the prices 

 of commodities were somewhat higher than before, they affected 

 both his sales and his purchases. If he had a fixed income or was 

 a wage-earner, and if his receipts did not keep pace with his expenses, 

 he thought that the difference was caused by the war. So the 

 definition of the dollar underwent a gradual change in the common 

 mind. Instead of being a fixed quantity of metal, it might be the 

 government's promise to pay the same at an indefinite future time. 

 Five years after the end of the war this new definition received the 

 sanction of the Supreme Court both as a legal and as an economical 

 proposition. When the court declared that 25.8 grains of coined 

 gold was in no sense a standard of a dollar, it gave a footing and 

 a license in Congress and on the hustings to every possible vagary in 

 finance. Congress, in 1874, availed itself of the court's permission 

 to pass a bill increasing the amount of greenbacks then existing. 

 But fortunately it was stopped by a presidential veto, which caused 

 the party in power to turn suddenly about and pass a specie resump- 

 tion act. This veto was the pivot upon which our financial policy 

 turned; for, although without it we should have found our true path 

 eventually, it would have been after a longer period and a more 

 painful experience. 



The Resumption Act was passed to meet a political rather than 

 a financial exigency. The party in power was rent in twain by the 



