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The Contraction Act of 1866 was an act passed by
Congress of the United States The United States Congress is the legislature of the federal government of the United States. It is Bicameralism, bicameral, composed of a lower body, the United States House of Representatives, House of Representatives, and an upper body, ...
on April 12, 1866. It was intended to lower the price level so they could reinstate the
gold standard A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the la ...
.


History

In 1862,
Abraham Lincoln Abraham Lincoln ( ; February 12, 1809 – April 15, 1865) was an American lawyer, politician, and statesman who served as the 16th president of the United States from 1861 until his assassination in 1865. Lincoln led the nation thro ...
created the Greenbacks, a currency of free money issued by the
United States of America The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territo ...
between 1861 and 1865. The currency was not based in gold and was not created by private banks. Greenbacks were paper currency (printed in
green Green is the color between cyan and yellow on the visible spectrum. It is evoked by light which has a dominant wavelength of roughly 495570 Nanometre, nm. In subtractive color systems, used in painting and color printing, it is created by ...
on the
back The human back, also called the dorsum, is the large posterior area of the human body, rising from the top of the buttocks to the back of the neck. It is the surface of the body opposite from the chest and the abdomen. The vertebral column run ...
) issued by the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
during the
American Civil War The American Civil War (April 12, 1861 – May 26, 1865; also known by other names) was a civil war in the United States. It was fought between the Union ("the North") and the Confederacy ("the South"), the latter formed by states th ...
. They took two forms:
Demand Note A Demand Note is a type of United States paper money that was issued between August 1861 and April 1862 during the American Civil War in denominations of 5, 10, and 20 . Demand Notes were the first issue of paper money by the United States ...
s, issued in July 1861 (Congress authorized $50,000,000 in Demand Notes) and
United States Note A United States Note, also known as a Legal Tender Note, is a type of paper money that was issued from 1862 to 1971 in the U.S. Having been current for 109 years, they were issued for longer than any other form of U.S. paper money. They were k ...
s issued between 1862 and 1865.Friedberg, Arthur L. and Ira S., 2006, ''Paper Money of the United States, 18th Edition'', Clifton, NJ, The Coin & Currency Institute, Inc. Eleven months after the
assassination of Abraham Lincoln On April 14, 1865, Abraham Lincoln, the 16th president of the United States, was assassinated by well-known stage actor John Wilkes Booth, while attending the play ''Our American Cousin'' at Ford's Theatre in Washington, D.C. Shot in the hea ...
- which took place on April 14, 1865 - Congress passed the Contraction Act to lower the price level so they could instate a gold standard.


See also

*
Greenback (1860s money) Greenbacks were emergency paper currency issued by the United States during the American Civil War that were printed in green on the back. They were in two forms: Demand Notes, issued in 1861–1862, and United States Notes, issued in 1862–18 ...
*
Coinage Act of 1873 The Coinage Act of 1873 or Mint Act of 1873, was a general revision of laws relating to the Mint of the United States. By ending the right of holders of silver bullion to have it coined into standard silver dollars, while allowing holders of go ...
*
Demand Note A Demand Note is a type of United States paper money that was issued between August 1861 and April 1862 during the American Civil War in denominations of 5, 10, and 20 . Demand Notes were the first issue of paper money by the United States ...
*
United States Note A United States Note, also known as a Legal Tender Note, is a type of paper money that was issued from 1862 to 1971 in the U.S. Having been current for 109 years, they were issued for longer than any other form of U.S. paper money. They were k ...
*
Public Credit Act of 1869 The Public Credit Act of 1869 in the USA states that bondholders who purchased bonds to help finance the Civil War (1861 – 1865) would be paid back in gold. The act was signed on March 18, 1869, and was mainly supported by the Republican Part ...
*
John Sherman John Sherman (May 10, 1823October 22, 1900) was an American politician from Ohio throughout the Civil War and into the late nineteenth century. A member of the Republican Party, he served in both houses of the U.S. Congress. He also served as ...
, who was the biggest proponent of this act, and was the Secretary of Treasury when this was passed *
Gold Standard A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the la ...
*
Salmon P. Chase Salmon Portland Chase (January 13, 1808May 7, 1873) was an American politician and jurist who served as the sixth chief justice of the United States. He also served as the 23rd governor of Ohio, represented Ohio in the United States Senate, a ...
*
Resumption Act The Specie Payment Resumption Act of January 14, 1875 was a law in the United States that restored the nation to the gold standard through the redemption of previously-unbacked United States Notes and reversed inflationary government policies promot ...


References

{{Federal Reserve System 1865 in American law United States federal currency legislation