The Specie Payment Resumption Act of 1875 was a pivotal federal law designed to restore the convertibility of the U.S. dollar into gold following the economic disruptions caused by the Civil War. During the war, the government suspended specie payments and issued paper currency known as “greenbacks,” which were not backed by gold or silver. The Specie Resumption Act aimed to stabilize the national economy by resuming specie payments and restoring confidence in the U.S. currency.
Life After the Civil War
The economy of the United States was in bad shape after the Civil War. The war had necessitated extensive government spending, leading to the suspension of specie payments—wherein people could redeem paper currency for gold or silver—and the introduction of “greenbacks,” a form of paper currency not backed by any physical commodity. This shift was intended to finance the war effort but resulted in widespread inflation and fluctuations in the value of money. The reliance on paper currency and fractional currency continued post-war, creating an unstable monetary environment. Specie payments, or the redemption of paper currency for gold, were crucial for restoring economic stability and confidence in the U.S. currency.
The Road to the Specie Resumption Act of 1875
Significant economic challenges and debates led to the Resumption Act of 1875. Post-war inflation eroded the value of the greenbacks, causing hardship for many, particularly those with fixed incomes. The Greenback Party emerged as a vocal opponent of resuming specie payments, advocating for using paper money to sustain economic growth and ease the burden on debtors.
Proponents of a return to the gold standard, including Secretary of the Treasury John Sherman, argued that resuming specie payments was essential for long-term economic stability. Sherman’s persistent efforts pushed for the legislation despite strong political opposition.
- 1865: The Civil War Ends
- The U.S. government faces massive war debt and economic instability.
- The U.S. suspended specie payments during the war, leading to a reliance on “greenbacks” and paper currency.
- 1868: Economic Challenges Emerge
- Post-war inflation becomes a significant issue, eroding the value of greenbacks.
- People on fixed incomes face economic hardships and political debates over monetary policy.
- 1873: Panic of 1873 and Continued Debate
- The Northern Pacific Railroad Company goes bankrupt, causing the financial “Panic of 1873.”
- Intensified discussions about the need for a stable monetary system and return to specie payments.
- 1874: Election and John Sherman’s Advocacy
- Democrats won a congressional victory in the 1874 elections based on a platform of resuming specie payments.
- Secretary of the Treasury John Sherman begins pushing for legislation to resume specie payments.
- January 14th, 1875: Passage of the Specie Payment Resumption Act
- Congress passed the Resumption Act, setting January 1st, 1879, as the date to resume special payments.
- The Secretary of the Treasury can build up gold reserves and issue new bonds if necessary.
- 1875-1878: Preparations for Implementation
- The U.S. Treasury accumulates gold reserves in preparation for the 1879 deadline.
- National banks adjust their reserves to support the transition to specie payments.
- January 1st, 1879: Resumption of Specie Payments
- The U.S. Treasury begins redeeming greenbacks for gold as planned.
- Successful implementation restores confidence in the U.S. currency and reinforces the gold standard
Key Provisions of the Resumption Act of 1875
Passed by Congress on January 14th, 1875, and signed by President Grant, the Specie Resumption Act set January 1st, 1879, as the date when the U.S. Treasury would resume redeeming greenbacks in gold. The government needed to accumulate a substantial gold reserve to prepare for this. The Act authorized the Secretary of the Treasury to redeem greenbacks for gold and, if necessary, to issue new bonds to bolster the gold reserve, ensuring the success of this monetary transition. National banks played a critical role in this transition, as they were required to hold reserves in gold, further supporting the stability of the monetary system and ensuring the successful implementation of the Act.
Implementation and Impact
The implementation of the Resumption Act involved meticulous planning and execution. The government took several steps to accumulate the necessary gold reserves, ensuring it could meet the demand for specie payments once they resumed. This transition from paper currency to specie payments marked a significant shift in the U.S. monetary policy. By January 1st,1879, the U.S. Treasury began redeeming greenbacks for gold, effectively restoring confidence in the national currency.
The Specie Payment Resumption Act had profound effects on the U.S. financial system. By restoring the convertibility of paper currency into gold, the Resumption Act of 1875 established a foundation for a more stable and reliable monetary policy. It underscored the importance of a gold-backed currency in maintaining economic confidence and stability.
While the Act had strong support from creditors and bankers who advocated for a gold standard, it faced opposition from those who feared deflation and adverse effects on farmers and debtors, who benefited from the inflationary impact of greenbacks. The lessons learned from the Resumption Act of 1875 continue to influence monetary policy and underscore the complexities of balancing economic growth with financial stability.
