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To finance the war effort, Congress enacted the Legal Tender Act of 1862, issuing a
paper currency not redeemable in specie, and statutorily declared
legal tender for all debts and taxes.
The currency became better known as Lincoln’s greenbacks. During the war, the paper currency
depreciated in value, as the government continued increasing circulation backed by little goods and
services. After the war, the Act was challenged in Hepburn v. Griswold, 75 U.S. 603 (1870).
Salmon P. Chase was the Secretary of Treasury during the war and reluctantly supported the Act. Later,
when the Act was challenged in Hepburn, Chase had become the Chief Justice of the Supreme Court
and writing the majority opinion in that case, ruled the Act unconstitutional. During that same time
President Grant appointed two new justices to the bench, both of whom were Republican Reconstructionists.
In two new cases, Knox v. Lee and Parker v. Davis, the Court overruled its ruling in Hepburn
and declared the Act constitutional. In that opinion, the Court reviewed several cases regarding
implied powers of the federal government. Full Text: Legal Tender Cases, 79 U.S. 457
(1871) |