Ivory marked by the Royal African Company. International Slavery Museum, Liverpool. Wikimedia Commons.
The Union printed paper dollars that counted as legal money but could not be swapped at the Treasury for gold.
A poor household paid higher shop prices as wartime paper multiplied, and wages often lagged.
A salaried household or a small shop learned that a paper dollar was not the same as a gold dollar.
Bankers and anyone owed a fixed sum fought being paid in cheaper paper, and speculators traded the gap between paper and gold.
The Legal Tender Act of February 25, 1862, authorized 150 million dollars in United States Notes, called greenbacks, and later acts raised the authorized total to 450 million.
The notes were legal tender for most debts and were not redeemable in gold.
Customs duties and interest on the government’s bonds still had to be paid in coin, so a paper price and a gold price ran side by side.
Legal Tender Act, 12 Stat. 345 (1862); Wesley Clair Mitchell, A History of the Greenbacks (1903)