The Panic of 1861 and the Advent of Greenbacks and National Banking (a)

Set in 1870, the case describes the situation of Supreme Court Chief Justice Salmon P. Chase, who must render an opinion in Hepburn v. Griswold, which challenges the constitutionality of the creation of a national fiat currency, so-called greenbacks. In 1862, Chase was Secretary of the Treasury in Abraham Lincoln's administration and reluctantly endorsed creating the greenbacks. Now, eight years later, he still harbors misgivings. The task for the student in this case is to recommend a decision. The larger consideration is to assess the massive pivot in US government financial policy that occurred in the 1860s. Excerpt UVA-F-1822 Rev. Oct. 23, 2019 The Panic of 1861 and the Advent of Greenbacks and National Banking (A) Introduction On December 10, 1869, Salmon P. Chase, chief justice of the US Supreme Court, and the other seven justices settled into their chairs to hear arguments in the case of Hepburn v. Griswold. Nominally, the case was about whether a creditor was legally bound to accept payment of the debt in paper currency called “greenbacks” (see Exhibit 1). The decision would hinge on the constitutionality of the federal government's authority to create fiat money. In 1860, Susan Hepburn of Louisville, Kentucky, borrowed $ 11,250 from Henry Griswold and promised to repay the debt by February 20, 1862. She was unable to fulfill her obligation on time. It happened that five days after Hepburn was due to repay the debt (February 25, 1862), the US Congress enacted legislation to issue $ 150million in greenbacks. The Legal Tender Act stated: “And such notes, and shall also be lawful money and a legal tender in payment of all debts, public and private, within the United States…” . . .