Author: Samuel P. Chase
During the war, the Republican-controlled Congress enacted a series of measures which carried long-term consequences for the future. The Homestead Act of 1862 provided public land free to pioneers who agreed to farm the land for five years. The Morrill Act of 1862 helped states establish agricultural and technical colleges. Congress also authorized construction of the nation’s first transcontinental railroad.
The Civil War also brought vast changes to the nation’s financial system. Before the Civil War, the federal government did not issue paper money. Instead, paper notes were issued by more than 1,500 state banks in 1860, which issued more than 10,000 different kinds of currency.
To end this chaotic system and to impose federal regulation on the financial system, Congress enacted two important pieces of legislation. The Legal Tender Act of 1862 authorized the federal government to issue paper money. Because these notes were printed on green paper, they became known as greenbacks. The National Bank Act of 1863 created the nation’s first truly national banking system.
In the following letter, Treasury Secretary Samuel P. Chase (1808-1873), writing to his eventual successor, describes his plan to make banks more trustworthy and stable. As finally adopted by Congress, the National Banking Act of 1863 chartered national banks which met certain requirements, made the notes of national banks legal tender for all public and private debts, and levied a tax of 2 percent on state bank notes, which gradually increased over time. By imposing a tax on state bank notes, the federal government forced state banks to join the federal system. By 1865, national banks had 83 percent of all bank assets in the United States. After 1870, interestingly, state banks made a comeback; they avoided the tax on their bank notes by issuing checks.
In my first report (July 1861) I suggested a tax on bank notes as well as other internal taxes: but at that session no internal duties at all were imposed. We all hoped that the increased customs duties & the direct tax might suffice.
In my second report–just before the Suspension–I proposed a national Banking system and a tax on circulation…. It is my considered judgment that had these views been adopted at the last session…there might have been comparatively little financial embarrassment at the time.
But Congress through otherwise. The system of conversion was adopted and the Banking Association Bill was only ordered…for public information & consideration.
Source: Gilder Lehrman Institute