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Historical Error #3: Abraham Lincoln Promoted Debt-Free Paper Money (the Greenbacks).

Gary North
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The myth of "Lincoln money" is perhaps the most deceptive historical error of the Greenbackers. It ignores what Lincoln said and did.

Here is Ellen Brown's story of Lincoln money.

Popularly called "Greenbacks," these federal dollars were first issued by President Lincoln when he was faced with usurious interest rates in the 1860s. Lincoln had foiled the bankers by funding the government with U.S. Notes that did not accrue interest and did not have to be paid back to the banks. [Web of Debt, p. 15]

http://www.webofdebt.com/excerpts/chapter-1.php

For decades, this story has appeared in books written by Greenbackers. It is entirely mythical.

Lincoln had begun his political life in 1832, the year of the great political war over the Second Bank of the United States, the nation's privately owned central bank. The main politician in favor of the central bank was Senator Henry Clay, who had been the Bank's senior legal counsel in 1822. Opposed was President Andrew Jackson. Clay had recently formed the National Republican Party, which was anti-Jackson. The fight over a premature re-charteting of the Bank -- its charter allowed it to operate until 1836 -- was the fundamental national issue in the 1832 election. Clay made re-chartering the #1 issue. He lost both the re-chartering battle and the election later that year.

Lincoln ran for the Illinois state legislature in 1832. He was a Clay man. He stated his politics clearly. He supported a national bank. "My politics are short and sweet, like the old woman's dance. I am in favor of a national bank . . . in favor of the internal improvements system and a high protective tariff."

Lincoln was elected to the legislature in 1834 as a Whig, Clay's replacement party for the short-lived National Republican Party. He served in Congress in 1846 for one term as a Whig. He carried his Whig principles into the newly formed Republican Party in 1856, where he was a candidate for Vice President, placing second.

The day after Lincoln was inaugurated as President in 1861, he appointed his rival, Salmon P. Chase, as Secretary of the Treasury. Chase had run against him for the Republican nomination.

Chase was a close friend of Jay Cooke. Cooke lobbied for Chase's appointment. As soon as Chase got the appointment, Cooke set up an investment banking company, Jay Cooke & Co. Cooke then got Chase to grant his firm a monopoly over the sale of U. S. government bonds. Cooke created the first sales force in American history for selling bonds door to door. He became extremely rich. This story appears in Murray Rothbard's book, A History of Money and Banking in the United States, pp. 133-34. You can download it here:

http://mises.org/books/historyofmoney.pdf

Lincoln did not object to any of this.

What about the Greenbacks? Lincoln did not promote them. The proposed law came from Congress. Congress passed the first legal tender law in 1862: the issue of fiat money paper bills. It did it again in 1863. This forced creditors to accept fiat depreciating paper money in payment for debts. The Union issued a total of $450 million on these bills. Prices rose by 75%.

Lincoln hated this fiat money. He accepted the third and final issue of these fiat bills, but he sent a letter to Congress in which he expressed his "sincere regret that it has been found necessary to authorize an additional issue of United States notes." He called on Congress to pass his solution, the National Bank Act, which Congress did a month later. This is recorded in the definitive historical book on the Greenbacks, Wesley C. Mitchell's A History of the Greenbacks (1903), page 109. You can download it for free here.

Lincoln promoted the National Bank Acts of 1863 and 1864. Here is a description of this system. It is provided by a specialist organization, Tax Analysts.

Federal taxes were also instrumental in instituting a system of national banking during the war. The National Banking Acts of 1863 and 1864 imposed a system of "free banking" -- banks established by general incorporation as opposed to specific charters -- on a national level. State banks were granted national charters and allowed to issue national bank notes (these notes were separate from Greenbacks). One third of a national bank's capital had to consist of federal bonds, since the new national notes were to be backed by federal bonds. The National Banking Acts thus served as another means to induce bankers to purchase bonds. In an attempt to avoid increased regulation, however, many state banks declined to seek national charters. To remedy this problem, the 1864 act imposed a 10 percent tax on state bank notes to drive them out of existence. As a result of this tax, the number of national banks tripled by the war's end, while their purchase of U.S. bonds nearly quadrupled.

http://www.taxanalysts.com/museum/1861-1865.htm

Lincoln did not "foil" the bankers. He made the big ones even richer by creating a more centralized banking system. And why not? He had been a rich lawyer for the Illinois Central Railroad. The Illinois Central funded its operations through the sale of bonds. The entire industry did. Anything that threatened the bankers threatened Lincoln's post-Presidential career.

As economic historian Thomas DiLorenzo points out,

By 1860 Lincoln was the most prominent attorney/lobbyist the railroad industry had. He was so prominent that the New York financier Erastus Corning offered him the job of general counsel of the New York Central Railroad at a salary of $10,000 a year, an incredible sum at the time. Lincoln turned down the offer after agonizing over it.

As soon as he was elected President, he pressured Congress to pass a law for the government to subsidize the westward expansion of the railroads. He specified that the eastern terminus for the Union Pacific Railroad be Council Bluffs, Iowa. Lincoln had bought land in Council Bluffs several years earlier.

http://www.lewrockwell.com/dilorenzo/dilorenzo53.htm

To describe the Greenbacks as "Lincoln money" is deceptive, yet Brown and her predecessors -- especially Gertrude Coogan -- have never ceased promoting this myth. (You can read my critique of Coogan here.)

She now calls Lincoln a "reluctant Greenbacker." She still refuses to mention his support of the National Bank Act of 1863. Read my critique of her disingenuous response to this article:

http://www.garynorth.com/public/7117.cfm

For a detailed critique of Ellen Brown's economics, go here:

http://www.garynorth.com/public/department141.cfm


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