Purpose of Legal Tender Act 1862

Purpose of Legal Tender Act 1862

On the same day the court ruled, President Ulysses S. Grant nominated two candidates to fill judicial vacancies. They were confirmed by the Senate. At its next session, the Tribunal agreed to reconsider the issue of the greenback. He reversed his earlier decision in a 5-4 decision that found the Legal Tender Act of 1862 to be a justified use of federal power during a national emergency. Article I, Section 10 of the Constitution expressly prohibits states from issuing “letters of credit” (promissory notes) or from doing anything other than gold and silver coins as “legal tender”. There are no corresponding explicit prohibitions that limit the power of the federal government, nor are there explicit authorities. The Tenth Amendment refers to reserved powers that only states can exercise, as well as undelegated powers that remain in the hands of the people. There are also “competing powers” that can be exercised by the states or the federal government, such as the power to repel invasions and presumably also the power to make legal tender (for example, in federal areas or elsewhere). Article I, Section 8 of the Constitution explicitly gives Congress the power to “borrow money” as well as the power to “mint money and regulate the value” of U.S. and foreign coins and to regulate interstate commerce, but does not expressly and unambiguously grant Congress the power to print paper money or to make it legal as legal tender. Let us now reflect on what has actually been done to provide a national currency.

In July, August 1861, and February 1862, the issuance of sixty million dollars in American notes, payable on demand, was authorized. They were converted into receivables in payment, but were not declared legal tender until March 1862, by which time circulation had been considerably reduced by receipt and cancellation. In 1862 and 1863, the issue of four hundred and fifty million American notes, payable not on demand, but at the discretion of the government, was authorized, subject to certain restrictions concerning fifty million. These banknotes have been the subject of claims on domestic loan obligations, on all debts owed to or from the United States, with the exception of import duties and interest on government debt, and have also been declared legal tender. In March 1863, the issuance of banknotes for portions of a dollar up to an amount not exceeding fifty million dollars was authorized. These notes have not been declared legal tender, but have been made refundable in accordance with regulations to be issued by the Minister of Finance. In February 1863, the issue of three hundred million dollars in bank notes from the national banking associations was authorized. These debentures were rendered receivable to the same extent as U.S. debt securities, and arrangements were made to guarantee their repayment, but they were not legal tender. [3] Printed notes were called greenbacks, and their legal tender meant that creditors had to take them at face value.

The printing press worked much better than expected, helping the US government finance the war and stimulate the Union`s economy. By the end of the Civil War, the federal government had printed nearly $500 million in greenbacks. Ironically, in his previous position as Secretary of the Treasury, Chief Justice Chase had played a role in drafting the Legal Tender Act of 1862. On the same day Hepburn was decided, President Ulysses Grant appointed two new justices to the court, Joseph Bradley and William Strong, although Grant later denied knowledge of the decision in Hepburn when the appointments were made. [7] . The government passed the Legal Tender Act in 1862, which allowed the creation of paper money that was not exchangeable for gold or silver. “Greenbacks” worth about $430 million were put into circulation, and this money had to be accepted by law for all taxes, debts and other obligations – including those born before. What happened?? On February 25, 1862, U.S. President Abraham Lincoln signed the Legal Tender Act.

With regard to paper money, Nathaniel Gorham told the Constitutional Convention that he was in favor of removing an explicit congressional power to issue paper money, but Gorham was also opposed to “inserting a ban.” [16] This is what ultimately happened at the Convention: language that explicitly gave the federal government the power to issue paper money as legal tender was removed by a vote of 9 to 2, but an option allowing issuance and a prohibition on making it legal was not implemented. Article I, Section 8 of the Constitution gives Congress the power to “lend money on credit to the United States,” and so Gorham contemplated that “the power [for example, to issue promissory notes] is involved in borrowing to the extent necessary or secure.” [17] The power to issue paper money (e.g. bank notes) was justified by the use of the necessary and appropriate clause in conjunction with the other powers listed, including the power to borrow money. [18] The power to “issue credit bills” is explicitly mentioned in the Constitution as a prohibition for the states and could therefore be interpreted as such a significant power that it should be expressly conferred on the federal government and should not be derived from the necessary and appropriate clause, although it is not entirely clear whether or not the authors intended such an interpretation. nor did the Oberster Gerichtshof give such an interpretation either in the cases of legal tender or subsequently. On that day in 1862, Congress passed the Legal Tender Act to fund the Civil War. It allowed the federal government for the first time to print paper money, called greenbacks, that was not backed by an equal amount of gold or silver. In 1862, the Union`s first income tax was introduced by President Lincoln. A 3% tax rate was levied on those earning between $600 and $10,000, while a 5% income tax was levied on income over $10,000. In 1863, the Confederation also introduced its first progressive income tax, which exempted wages up to $1,000, but imposed a 1% tax rate on the first $1,500 above the exemption and a 2% tax rate on all other income.

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