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Burning the Constitution & Other Sixties Nostalgia
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(July 4, 2003) The words “inflation” and “paper bubble” were first used to describe rising consumer prices and a shaky dollar back in the '60s. The US was fighting a war that was widely protested, seemingly unwinnable, and escalating in cost. Inflation was rampant, and before the decade was over, US paper money, with no gold backing it, was starting to wobble...
But before we get too nostalgic for the Sixties, let’s confirm that of course we’re talking about the 1860s.

We’ll take the occasion of our nation’s 227th birthday this July 4th as an excuse to indulge ourselves in a little US history. This is not just summer laziness, or our desire to avoid any current topics, but in fact stems from our discovery of a piece of 125-year-old political memorabilia (transcribed later in this text) that seems as relevant today as it was when it was snapped off by author(s) unknown in 1878.

First of all, monetary history tells us that the gold standard prevailed in the Western world from around 1821 (when Britain formalized their own gold standard, and starting striking the gold sovereigns which became the leading gold coin in the world) up through the collapse of the world’s economies and the beginning of the Depression around 1930. What is less known is that there were times during this era when a dollar was not precisely, simply, and reliably a dollar in gold.

As with everything else in this world, the history of money is never as simple as it seems.

A major exception in the US was the issuance of "greenback dollars" to finance the Civil War in the 1860s. The Union entered that war with only $200,000 in the Treasury. In April of 1862, with the outcome of the war far from certain, Secretary of the Treasury Salmon P. Chase (later pictured on the $10,000 Federal Reserve Note) printed the first $150 million of paper money backed by nothing but the credit of the federal government. Within a year, with the war still on, another $300 million in these new paper dollars were printed and used to pay for war material. These greenbacks of course couldn't be converted into gold coin at the Treasury - there wasn't enough gold in the Treasury to make one day's payroll for the Union Army, much less run the war for years. The war had to be financed with the printing press.

Jason Goodwin writes of the split in values that prevailed between the traditional dollar (US minted gold coin) and the newly printed greenbacks:

"Like the revolutionary Continentals, the greenbacks were supported by promises only. The solidity of the promise was measured in depreciation: when the Union was winning, greenbacks rose in gold value - in August 1863, after Gettysburg and Vicksburg, they hit eighty-two cents a dollar. But by June the next year a greenback dollar was valued at thirty-five cents. A new word then entered the language via a pamphlet called "A Warning to the People: The Paper Bubble," which described the rise in prices in terms of "inflation." By May 1865 greenbacks had recovered to seventy-eight cents." - from Greenback, subtitled "The Almight Dollar and the Invention of America" page 220, by Jason Goodwin, published by Henry Holt, NY, copyright 2003.

Unfortunately the end of the war did not mean the end of the greenbacks. At first, Congress ordered the redemption of $10 million per month of greenbacks to get the hated things out of circulation, but a post-war recession was afoot, and shrinking the money supply proved unpopular. So Congress stopped the withdrawals, eventually going so far as to freeze the amount of greenbacks outstanding at $375 million. For nearly fifteen years following the Civil War, there were two distinct dollars - the constant gold dollar, and the fluctuating paper dollar.

Gold was always worth more than paper, sometimes as much as 45% more, as it was during the financial manipulations that caused the Gold Panic of 1870. Monetary instability had the effect of wreaking havoc on commerce and banking.

Just consider the ramifications for everyday commercial transactions: If I loan you $10 in gold, is it right for you to repay me with a $10 bill? How about rent payments on a long-term lease - payable in gold or paper? Those dollars I deposited in your bank last year - were they gold, or paper?

For the remainder of the 19th century, monetary policy was the most emotional and divisive political issue in America. Yet the greenbacks circulated and prevailed, and people had to learn to live with them.

But the greenbacks were not without their supporters, chiefly among the debtor class of the nation. In 1875, the Greenback Party was formed, and drew a million votes in the Congressional elections of 1878. Their platform? In essence, the same one that we hear from the Federal Reserve today: "Print More Money!"

As with many political struggles during the late 19th century, the two sides of the issue boiled down to debtor and creditors. Creditors supported hard money, of the strictly gold-backed variety. This group included bankers, financiers and industrialists who wanted no dilution of the value of their monetary returns. In short, they invested gold and wanted gold in return.

On the other side were the debtors, often farmers, who debts would be lightened by inflation – they could pay off those debts with cheaper dollars. Aligned also with the farmers were the silver mining interests. Beginning with the Comstock Lode discovery in the 1860s, tremendous stores of silver began to be harvested in the western US, and the working miners, the mine owners, and their backers wanted silver to become the dominant coinage metal over gold.

Which brings us to our piece of political memorabilia, a dollar-bill size satirical item. The front of this specimen of political play money features some fancy scrollwork, interspersed with images of Miss Liberty and other currency-like decorations, and states the following:

“This is United States Absolute Money, Five Dollars, Perpetual Money: Power of the People to Create and Issue, Washington D.C., Legal Tender for All Debts and Dues, Confiscation of Property and Imprisonment for Life for Counterfeiting, - Copyrighted July 17, 1878.”

On the back of the “note” is the title “Greenback Platform,” with subheadings surrounding the main text:

“Whoever Takes This Money is Swindled” “Fiat Money” “This is Not the Bloodstained Greenback of the War” “This Bill is to Deceive Honest Voters”

The main text is a satirical attack on the idea of fiat money, the Greenback Party, and the Democratic journalist/rabble-rouser Marcus Mills “Brick” Pomeroy. More about Mr. Pomeroy in a moment, but first here is the text transcribed verbatim:

GREENBACK PLATFORM.

Whereas, We are heavily in debt, and it is desirable to get rid of our liabilities in the cheapest manner possible; and

Whereas, Money has hitherto ignorantly been regarded by all civilized nations as an equivalent of value, and gold and silver of a specified standard have been considered and held to be such equivalent in defiance of all common sense and modern enlightenment; and

Whereas, The greenback that saved our country has upon its face a promise of redemption in said gold and silver, and because of such promise, solely and exclusively, it circulates and is excepted and treasured as a medium of exchange, and is now worth 99.5 cents in gold; and

Whereas, It is proposed by the Government to take up and redeem its notes on the first of January 1879, and give the people real money for such notes, and there is no question of its ability to do so, to the extent that may be demanded; and

Whereas, It is desirable to prevent such a consummation, which is in accord with the demands of honesty, and honesty is a relic of barbarism; and

Whereas, We monopolize the brains of the country, and we deem it essential to the prosperity of this nation to have a greenback redeemable in nothing, so that everyone will be anxious to get rid of it in exchange for something of value; and

Whereas, Modern political prostitutes of the Brick Pomeroy stripe have discovered that a promise to pay on a soldiers greenback destroyed its value as a circulating medium,

Hence it is decreed, That the government of the United States is omnipotent, and can make money out of nothing.

That this shinplaster is five dollars of Absolute Money, and shall be accepted as such, though it costs only the one-thousandth part of a cent; that it shall never be redeemed in anything. That no merchant shall dare to question its face value, or even insinuate that it is only a piece of paper, but that he shall be compelled to give in exchange therefore just as much of his goods, wares and merchandise as he would give for five dollars, worth intrinsically 500 cents.

The same rule shall apply to every farmer; that is, supposing his wheat is worth one dollar per bushel, he shall be compelled to take for each bushel one Absolute Dollar, the cost and value of which is one-thousandth part of a cent. The crippled soldier, the soldier's widow and the orphan, though entitled under the law to a redeemable dollar of paper money under their pensions, or a full dollar in gold or silver, shall be compelled to accept this irredeemable shinplaster worth only one thousandth part of a cent, or in default to do so his pension shall be abolished.

That the thousands of poor people who have for years been investing their saving in Government Bonds, and paid for such bonds one hundred cents coin, under the delusion that our Government would not go into a Fiat Repudiation Scheme, shall now be paid in this Absolutely cheap and worthless shinplaster money, and as it costs no more to make a thousand dollar bill than a one dollar bill, it is decreed, that each government creditior shall receive one bill of the denomination representing the sum total of indebtedness - there is nothing like economy.

That gold and silver shall henceforth forever be banished from the United States, and that it shall be a criminal offense to own or possess or countenance this base metal.

And the Supreme Court of the United States, having decided at their December term, 1870-71, that under the money power of the Constitution Congress has no right to make anything a legal tender, except gold and silver (and that the issue of paper money as a legal tender was only justified as a necessity to save the nation in time of war) shall be ignominiously executed, and their bodies shall be quartered, and the quarters distributed equitably, north, south, east, and west, to decide the execration due to their dead carcasses.

And if it should be found that the Constitution itself cannot be construed in any other way, then it is decreed that it shall be taken from the archives at Washington, brought out west, and in the presence of an outraged populace, the obnoxious document shall be publicly burned.

We must have wealth, and hence it is necessary to have plenty of printing presses and if there are not enough in the United States, it is decreed that one million more presses be imported.

Anyone doubting the propositions above set forth, shall be deemed guilty of felony, and shall suffer banishment from this Glorious Republic for the term of his natural life, and shall be compelled to abide with the barbarians of Europe, who have for ages ignorantly believed that gold and silver was the recognized money of the world.

Blessed be this shinplaster, and blessed be the inventor, Brick Pomeroy; and blessed be the printing presses, for by them we can all become rich without work.

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Marcus Mills Pomeroy was born in Elmira, NY in 1833. He published the newspaper Brick Pomeroy’s Democrat in New York starting in 1868, which Appleton’s Cyclopedia of American Biography says “gained a large circulation by its sensational character.”

Mr. Pomeroy authored several books over the years, none of which I could find copies of during my rather perfunctory bit of research into his life. He published a book entitled Perpetual Money in 1878, a book whose pro-Greenback political opinions must have been rather radical, judging from the reaction it drew.

As for the redemption of the greenback paper dollars for gold in 1879 as alluded to above, the Republican Congress of 1875 had committed the US to redeeming any and all greenback dollars in gold at their full face value starting on January 1, 1879. This day was looked forward to with no small amount of anxiety, but the economy was strong, and people believed the Treasury’s promise - therefore paper dollars gradually rose in value against gold until they were virtually at par.

Goodwin writes of that fateful day in his book:

“The doomsayers predicted that on that day a rush on government gold stocks would bankrupt the nation. They were wrong… …An anxious treasury secretary telegraphed from Washington to find out what was happening. The answer was nothing. A mere $135,000 in greenbacks had been presented for gold, while the same day $400,000 in gold had been changed into the more convenient paper money.”

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While researching the elusive Brick Pomeroy, I came across only a snippet of his own writing, from a book entitled Journey of Life, published in 1890.

And on this, the celebrated occasion of our American Independence Day, and in fond remembrance of our heritage of democracy, politics, and the various delights associated therewith, it seems appropriate to convey here Mr. Pomeroy’s reminiscences of an 1858 election in Wisconsin:

The Value of Election Day Treating: Wisconsin in the 1850s

“Then I brought in from the kitchen a clean washtub, poured half the whiskey into it, supplied the outfit with a tin dipper, and appointed a stout Belgian farmer to take charge of it and treat the men as they came in – with Judge Larabee’s compliments. ..It was not too long before the tavern was full of voters, as election day they all come out to meet each other and to vote. I asked the landlord if he could supply dinners for all, if I would pay for it ..Then I went into the bar room and through the man in charge of the washtub invited all who came to have dinner with me - with the compliments of Judge Larabee..We had a jolly time, and all agreed that the young man was a good one, and if all Democrats were like him they were a good lot.”

And I hope that you, too, had a happy Fourth of July.

-Richard Smith

 

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