Resumption of Specie Act
Gold Mine in Nevada
This act directed the Treasury Secretary to accumulate gold reserves sufficient to redeem all greenbacks (paper currency) tendered after January 1879. President Grant was a believer in hard money (i.e. that paper money should be backed by gold) and opposed the inflationary policies urged by supporters of soft money.
When the government ran out of gold or silver backed money to fund the Civil War, it issued paper currency or greenbacks. During the war the US government issued over $300 million in greenbacks. This had the effect of increasing the money supply. After the Civil War money supply became one of the most contentious political issues dividing people by regions as well as economic outlook. Conservatives thought the issuance of this sort of money was dangerous, it caused inflation and was immoral. The advocates of what became known as hard money considered it a moral crusade. When a hard money law was passed in one chamber of Congress a Senator stated “I think we shall all contemplate that the good triumphed over the bad”. By definition those supporting soft money were considered immoral. The supporters of hard money claimed that the Panic of 1873 would never have happened but for the soft money policies that were in place. Supporters of hard money tended to be people who lived in the Northeast while those who favored “soft money” came from the West and the South, places that needed investments and thus easy access to money at low interest rates. The supporters of soft money blamed the Panic of 1873 on the fact that their was a shortage of funds available.
The Democrats tended to be supporters of soft money while the Republican opposed it. In the Congressional elections of 1874 the democrats gained control of Congress, but before they could exercise that control the Republican passed in the lame duck section of Congress the Resumption of Specie Act. That act stated that the government had to buy back paper money on demand after January 1st 1879. The act was considered a compromise since it provided no mechanism for redeeming the greenbacks. The bank did allow the government to acquire gold reserves. Finally the bill allowed the government to issue new national bank notes which of course would be backed by gold. For every 100 new banknotes that were issued the government was forced to redeem 80 greenbacks. In the end the impact of the law was limited.