The Greenback Party (known successively as the Independent Party and the Greenback Labor Party) was an American political party with an anti-monopoly ideology which was active from 1874 to 1889. The party ran candidates in three presidential elections, in 1876, 1880 and 1884, before it dissolved.
The party's name referred to the non-gold backed paper money, commonly known as "greenbacks", that had been issued by the North during the American Civil War and shortly afterward. The party opposed the deflationary lowering of prices paid to producers that was entailed by a return to a bullion-based monetary system, the policy favored by the Republican and Democratic parties. Continued use of unbacked currency, it was believed, would better foster business and assist farmers by raising prices and making debts easier to pay.
Initially an agrarian organization associated with the policies of the Grange, the organization took the name Greenback Labor Party in 1878 and attempted to forge a farmer–labor alliance by adding industrial reforms to its agenda, such as support of the 8-hour day and opposition to the use of state or private force to suppress union strikes. The organization faded into obscurity in the second half of the 1880s, with its basic program reborn shortly under the aegis of the People's Party, commonly known as the "Populists". Later, during the early 20th century, parts of the agenda from both parties were accomplished by the Progressives.
Organizational history
Background
The American Civil War of 1861 to 1865 greatly affected the financial system of the United States of America, creating vast new war-related expenditures while disrupting the flow of tax revenue from the Southern United States, organized as the Confederate States of America. The act of Southern secession prompted a brief and severe business panic in the North and a crisis of public confidence in the Federal government.Paul Kleppner, "The Greenback and Prohibition Parties," in Arthur M. Schlesinger (ed.), History of U.S. Political Parties: Volume II, 1860-1910, The Gilded Age of Politics. New York: Chelsea House/R.R. Bowker Co., 1973; pg. 1552. The government's initial illusions of a quick military victory proved ephemeral and in the wake of Southern victories the federal government found it increasingly difficult to sell the government bonds necessary to finance the war effort.
Two 1861 bond sales of $50 million each conducted through private banks went without a hitch, but bankers found the market for the 7.3% securities soft for a third bond issue. A general fear arose that the country's gold supply was inadequate and that the nation would soon leave the gold standard. In December runs on deposits began in New York City, forcing banks there to disburse a substantial part of their hard metal reserves. On December 30, 1861, New York banks suspended the redemption of their banknotes with gold. This spontaneous action was followed shortly by banks in other states suspending payment on their own banknotes and the U.S. Treasury itself suspending redemption of its own Treasury notes. The gold standard was thus effectively suspended.
United States Secretary of the Treasury Salmon P. Chase had already anticipated the coming financial crisis, proposing to Congress the establishment of a system of national banks, each empowered to issue banknotes backed not with gold but with federal bonds. This December 1861 proposal was initially ignored by Congress, which in February 1862 decided instead to pass the First Legal Tender Act, authorizing the production of not more than $150 million of these legal tender United States Notes. Two additional issues were deemed necessary, approved in June 1862 and January 1863, so that by the end of the war some $450 million of this non-gold-backed currency was in circulation.
The new United States Notes were popularly known as "greenbacks" due to the vibrant green ink used on the reverse side of the bill. A dual currency system emerged in which this fiat money circulated side by side with ostensibly gold-backed currency and gold coin, with the value of the former bearing a discount in trade. The greatest differential in value of these currencies came in 1864, when the value of a gold dollar equaled $1.85 in greenback currency.Kleppner, "The Greenback and Prohibition Parties," pg. 1553.
Congress finally enacted Treasury Secretary Chase's National Bank plan in January 1863, creating another form of currency, also backed by government bonds rather than gold and redeemable in United States Notes.Kleppner, "The Greenback and Prohibition Parties," pp. 1552-1553. This non-gold-based currency became the functional equivalent of greenbacks in circulation, further expanding the money supply.
With the production of consumer goods impacted by the conversion of factories to wartime production and the expansion of the money supply, the United States of America experienced a period of protracted inflation during the Civil War. Between the years 1860 and 1865, the cost of living nearly doubled. As is the case in all inflationary periods, there were winners and losers created by the significant fall in currency value, with banks and creditors receiving less real value from the loans repaid by debtors. Pressure began to build in the financial industry for a rectification of the weak currency situation.
A change of heads at the Treasury Department in March 1865 proved the occasion for a change of course in American monetary policy. New Secretary of the Treasury Hugh McCulloch not only declared himself sympathetic to the banking industry's desire for restoration of a gold-based currency, but he declared the resumption of gold payments to be his primary aim. In December 1865, McCulloch formally sought approval from Congress to retire the greenback currency from circulation, a necessary first step towards restoration of the gold standard. In response, Congress passed the Contraction Act of 1866, calling for the withdrawal of $10 million in United States Notes within the first 6 months and an addition $4 million per month thereafter. Substantial contraction of the physical money supply followed.
About $44 million in greenback currency was successfully withdrawn from circulation before a recession in 1867 helped fuel opposition in Congress to the deflationary redemption program. In February 1868, Congress terminated the Redemption Act and a state of what is today known as gridlock emerged, during which Congress refused to either formally leave the gold standard or to redeem its non-gold currency in circulation. Secretary of the Treasury of the Grant administration George S. Boutwell formally abandoned the contraction policy and embraced the ongoing state of political inertia.
Currency policy emerged as a hot topic in national politics, with politically active farmers and representatives of the fledgling national trade union movement endorsing a weak greenback-type currency as conducive to the needs of these groups as debtors.Kleppner, "The Greenback and Prohibition Parties," pg. 1554. A looser currency supply was seen as a way of breaking the perceived stranglehold on the national economy held by banks and wealthy industrialists. Chief among these supporters of so-called "Greenbackism" was the National Labor Union (NLU), established in 1866. This and other groups began to turn to political action in 1870 in an effort to advance their political agenda, with an August 1870 convention calling for the establishment of the National Labor Reform Party.
Joining organized labor were the organized farmers in the form of the Patrons of Husbandry, commonly known as the Grange.Kleppner, "The Greenback and Prohibition Parties," pg. 1555. Established in 1867, the Grange concerned itself with the monopoly power exerted by railroads, which used various aggressive pricing mechanisms for its own benefit against the farmers who shipped commodities over its lines. When the Grangers turned to politics around the start of the 1870s, railroad price reform was chief on its agenda, with currency reform making it easier for debtors to repay their loans a distinctly lesser concern.
The Greenback Party would be an alliance of organized labor and reform-minded farmers intent on toppling the political hegemony of the industrial- and banking-oriented Republican Party which ruled the North during the Reconstruction period.
1873 economic crisis and response
The late 1860s and early 1870s were a time of frenetic railway construction and associated land speculation. Rather than a managed system of national railroad construction through public works or leaving the construction of lines strictly to market forces, Congress attempted to spur the growth of the industry through the grant of enormous tracts of public lands to privately owned railway companies. In May 1869, the First transcontinental railroad across the North American continent was completed, bringing many localities to within reach of a national market for the first time.
A frenzy to complete additional railway lines to open up new frontier areas for development followed, a situation in which the United States government and the great railroad companies of the day maintained a common interest. In an effort to speed such development, Congress granted cash loans and some 129 million acres (52.2 million hectares) of publicly owned land to subsidize construction.John D. Hicks, The Populist Revolt: A History of the Crusade for Farm Relief. Minneapolis, MN: University of Minnesota Press, 1931; pp. 3-4.
A great part of this massive stockpile of land needed to be converted into cash by the railways to finance their building activities, since railroad construction was a costly undertaking. New settlement had to be attracted to the virgin lands west of the Missouri River, which had been previously regarded by the public as worthless to the needs of agriculture due to insufficiencies of the soil as well as the arid climate.Hicks, The Populist Revolt, pg. 5. Millions of advertising dollars were spent by the railway companies promoting the agricultural development of the land which they had to sell.Hicks, The Populist Revolt, pg. 15. Populations skyrocketed and marginal lands were sold and settled.
In 1873, the economic bubble burst. The Panic began with a crisis in the overextended railroad industry, when the brokerage house Jay Cooke & Company found itself unable to sell enough Northern Pacific Railroad bonds to meet its financial obligations, leading to a default on loans and setting off a financial chain reaction. Runs began on banks, causing a series of bank failures, and manufacturers shuttered their production, laying off workers. Dozens of marginal railroads went bankrupt while unemployment skyrocketed.There were a total of 105 American railroad failures during the first year of the crisis. See: Kleppner, "The Greenback and Prohibition Parties," pg. 1556. A lengthy depression ensued, continuing through 1878.Kleppner, "The Greenback and Prohibition Parties," pp. 1555-1556.
Pressure was placed on Congress to alleviate the business crisis through reinflation of the currency, pitting railroad promoters and the iron industry against Eastern bankers and the merchant elite, who favored a stable, gold-based currency.Kleppner, "The Greenback and Prohibition Parties," pp. 1556. Although those favoring currency expansion won the day in Congress, which passed an Inflation Bill calling for a $46 million boost in output of National Bank notes that would raise the ceiling on unbacked currency back to $400 million, the legislation was vetoed by President Grant on April 22, 1874.