When the Civil War started in 1861, the United States was in horrible financial shape. The country was $100 million in debt, its main source of income — duties on imported goods — was significantly reduced with the departure of southern states, its banking system differed from state to state, and the paper currency was a mishmash of private “banknotes” with wildly varying values.
But within the first few years of the war, Thaddeus Stevens and the Lincoln administration were able to right the financial ship helping to achieve Union victory. Meanwhile, Confederate officials ran their economy into the ground.
As chairman of the Ways and Means Committee of the House of Representatives, Stevens lead the effort to adopt federal paper currency. The first obstacle was the Constitution, which only specifies the coining of money. And while this worked for the young republic, it was unworkable during the Civil War when the Union needed billions of dollars.
Stevens argued that even though the Constitution did not include the power to print money, it did imply the ability. “If nothing could be done by Congress except what is enumerated in the Constitution, the government could not live a week,” Stevens said during the debate about paper money.
Of course, the great danger of paper money is runaway inflation. This was partially solved by making the money “legal tender.” This is not just some slogan that we now take for granted on our money. It was an innovative legal requirement that everybody had to accept this paper money for payment. In the era of private bank notes, people could pick and choose what they accepted.
The Confederacy was also forced to print money, but it did not make them legal tender, and hyperinflation soon set in.
Stevens also spearheaded another important change by pushing through the National Banking Act that created federal charters for banks, which continue to this day. This turned private banks into depositories and receivers for federal funds, which helped to hold down inflation.
Perhaps the most controversial of Stevens’s financial changes was the creation of the first income tax. By today’s standards, the income tax was rather quaint. It required a 3 percent tax on incomes from $600 to $10,000, 5 percent for over $10,000, and 7.5 percent for those few who made more than $50,000.
The income tax was eventually declared unconstitutional by the Supreme Court in 1895, but it was revived in 1913 with the ratification of the sixteenth amendment to the Constitution.
All these financial innovations that Stevens helped to push through were absolutely necessary to pay for the soldiers, the food, and the weapons that crushed the slave power.
Ross Hetrick is president of the Thaddeus Stevens Society, which is dedicated to promoting Stevens’s important legacy. More information about the Great Commoner can be found at the society’s website: https://www.thaddeusstevenssociety.com/
Ross Hetrick is president and founder of the Thaddeus Stevens Society, which is dedicated to promoting Stevens's important legacy. Hetrick was a business reporter for 18 years in Baltimore and owned Ross's Coffeehouse & Eatery in Gettysburg from 1996 to 2004.