Changes

Next government corruption occurred in the Credit Mobilier scandal, which consisted of bribery with a construction company that had been created by the powerful Union Pacific Railroad in the period of 1865-69.  This scandal, first uncovered in 1872 by Congress, symbolized the government corruption of the Grant Administration.  Specifically, owners of the Union Pacific Railroad formed a new company, the Credit Mobilier of America, in order to award it with profitable contracts to build a railroad out West.  Then stock in this construction company was given to influential congressmen, who next approved spending taxpayer money to pay for the railroad construction.  The result was huge profits for the owners of the railroad and the congressmen, at the expense of taxpayers.  A New York newspaper publicized the scandal just before the 1872 elections, and the Speaker of the House (the Republican James Blaine of Maine) set up congressional hearings to uncover the scandal.  The hearings lasted into 1873 and discredited the government.<ref>http://cprr.org/Museum/Credit_Mobilier.html</ref>  

Next government corruption occurred in the Credit Mobilier scandal, which consisted of bribery with a construction company that had been created by the powerful Union Pacific Railroad in the period of 1865-69.  This scandal, first uncovered in 1872 by Congress, symbolized the government corruption of the Grant Administration.  Specifically, owners of the Union Pacific Railroad formed a new company, the Credit Mobilier of America, in order to award it with profitable contracts to build a railroad out West.  Then stock in this construction company was given to influential congressmen, who next approved spending taxpayer money to pay for the railroad construction.  The result was huge profits for the owners of the railroad and the congressmen, at the expense of taxpayers.  A New York newspaper publicized the scandal just before the 1872 elections, and the Speaker of the House (the Republican James Blaine of Maine) set up congressional hearings to uncover the scandal.  The hearings lasted into 1873 and discredited the government.<ref>http://cprr.org/Museum/Credit_Mobilier.html</ref>  

Another scandal, the Whiskey Ring, was even worse.  It consisted of many government agents in the Grant Administration in a conspiracy or scheme to steal whiskey taxes for themselves.  To help pay for the Civil War, federal liquor taxes were increased to very high amounts.  But many distillers bribed officials in the Department of the Treasury to reduce the cost of their tax stamps.  An investigation resulted in the conviction of more than 100 officials in the Grant Administration, and even Grant's private secretary, Orville Babcock, was accused (but he was never convicted).<ref>http://www.u-s-history.com/pages/h234.html</ref>  As a result of these scandals, there was growing public pressure to end the "spoils system" first established by President Andrew Jackson.

Another scandal, the Whiskey Ring, was even worse.  It consisted of many government agents in the Grant Administration participating in a conspiracy or scheme to steal whiskey taxes for themselves.  To help pay for the Civil War, federal liquor taxes were increased to very high amounts.  But many distillers bribed officials in the Department of the Treasury to reduce the cost of their tax stamps.  An investigation resulted in the conviction of more than 100 officials in the Grant Administration, and even Grant's private secretary, Orville Babcock, was accused (but he was never convicted).<ref>http://www.u-s-history.com/pages/h234.html</ref>  As a result of these scandals, there was growing public pressure to end the "spoils system" first established by President Andrew Jackson.

In 1873, the Republican-controlled Congress doubled the salary of the president to $50,000 a year (a great deal of money in those days), and increased the salary of many other officials in government.  The public was outraged, and their outcry caused a partial repeal.

In 1873, the Republican-controlled Congress doubled the salary of the president to $50,000 a year (a great deal of money in those days), and increased the salary of many other officials in government.  The public was outraged, and their outcry caused a partial repeal.

Grant had to deal with a big problem caused by the Civil War:  inflation.  Wars are expensive.  Remember the French and Indian War and how Britain taxed the colonies afterward?  Somebody has to pay all the bills from a war, the hospitals, the weapons, the food, the transportation, and the meager wages for soldiers.  

Grant had to deal with a big problem caused by the Civil War:  inflation.  Wars are expensive.  Remember the French and Indian War and how Britain taxed the colonies afterward?  Somebody has to pay all the bills from a war: the hospitals, the weapons, the food, the transportation, and the meager wages for soldiers.  

The revenue from tariffs was not enough to pay for the Civil War.  Lincoln started an income tax for the first time (expired in 1872).  He suspended the payment by the government to citizens in gold and silver, to protect its reserves.  He taxed manufacturers and the public through sales taxes.  But most of all, Lincoln financed the Civil War by issuing "greenbacks", similar to our green dollar bills today.  This was a change from monetary practices under Alexander Hamilton, when all currency was backed by gold or silver.  Lincoln’s greenbacks were not backed by anything at all.  The government simply printed and distributed them.

The revenue from tariffs was not enough to pay for the Civil War.  Lincoln started an income tax for the first time (it expired in 1872).  He suspended the payment by the government to citizens in gold and silver, to protect its reserves.  He taxed manufacturers and the public through sales taxes.  But most of all, Lincoln financed the Civil War by issuing "greenbacks", similar to our green dollar bills today.  This was a change from monetary practices under Alexander Hamilton, when all currency was backed by gold or silver.  Lincoln's greenbacks were not backed by anything at all.  The government simply printed and distributed them.

When the government increases the amount of money out there, it causes inflation.  Everyone starts to realize that the money is not worth as much anymore because the government is printing more of it.  So inflation increased during the Civil War.  What cost $100 when the War started in 1861 cost about $170 after it was over.  That's 70% inflation in just a few years, which is terrible if you have money in the bank.  Your savings are then worth only a little more than half what it was before the war.  Guess how much that $100 cost in 1861 would be today.  (About $2,282!).  You can compare inflation between any two years with this website: http://www.westegg.com/inflation/

When the government increases the amount of money out there, it causes inflation.  Everyone starts to realize that the money is not worth as much anymore because the government is printing more of it.  So inflation increased during the Civil War.  What cost $100 when the War started in 1861 cost about $170 after it was over.  That's 70% inflation in just a few years, which is terrible if you have money in the bank.  Your savings are then worth only a little more than half what it was before the war.  Guess how much that $100 cost in 1861 would be worth today.  (About $2,282!).  You can compare inflation between any two years with this website: http://www.westegg.com/inflation/

Now, recall our ongoing struggle between debtors (farmers) and creditors (bankers).  Which side likes inflation?  (The farmers.)  Their income increases because eggs, meat, milk, etc., are all increasing in prices.  Meanwhile, the money the farmers owe the bank does not increase; it is still the same loan as when they initially borrowed the money from the bank to set up their farm.  So farmers love inflation, and bankers dislike it.

 

Now, recall our ongoing struggle between debtors (farmers) and creditors (bankers).  Which side likes inflation?  (The farmers.)  Their income increases because eggs, meat, milk, etc., are all increasing in prices when there is inflation.  Meanwhile, the money the farmers owe the bank does not increase; it is still the same loan as when they initially borrowed the money from the bank to set up their farm.  So farmers love inflation, and bankers dislike it.

Whether to have more inflation, or less inflation, became the single biggest issue between the Civil War and 1900.  This conflict manifested itself in many different ways.

Whether to have more inflation, or less inflation, became the single biggest issue between the Civil War and 1900.  This conflict manifested itself in many different ways.

The first issue arose just after the War:  what should the government do about all the greenbacks?  The farmers loved them, but the bankers did not.  The bankers, who were powerful within the Republican Party (and, before that, the Whig Party), demanded that the government stop issuing money unless it is backed by gold.  Many people still feel the same way today, but for a different reason:  preventing the government from printing more money helps limit government power.  The less the government can print and spend, the less power it has.

The first issue arose just after the Civil War:  what should the government do about all the greenbacks?  The farmers loved them, but the bankers did not.  The bankers, who were powerful within the Republican Party (and, before that, in the Whig Party), demanded that the government stop issuing money unless it is backed by gold.  Many people still feel the same way today, but for a different reason:  preventing the government from printing more money helps limit government power.  The less the government can print and spend, the less power it has.

Then the financial Panic of 1873 hit.  Like the Panic of 1837, this financial panic caused many railroads to shut down.  Unemployment increased.  Just as political party goes in cycles, the economy goes in cycles also.  Prosperity alternates with recessions or depressions.  Good times alternate with bad times.  Republicans blamed the financial panic on too much speculation in railroads, and passed a law limiting the availability of money for everyone, including speculators.  Republicans did this by making gold (and not silver) the only monetary standard of United States currency, which opponents called the "Crime of 1873" (a new coinage law that halted the mining of silver and made gold the sole standard for currency).  This ended Alexander Hamilton’s policy of “bimetallism”, which set both gold and silver as standards of currency in a 15:1 ratio of silver to gold.

Then the financial Panic of 1873 hit.  Like the Panic of 1837, this financial panic caused many railroads to shut down.  Unemployment increased.  Just as the power of a political party goes in cycles, the economy goes in cycles also.  Prosperity alternates with recessions or depressions.  Good times alternate with bad times.  Republicans blamed the financial panic on too much speculation in railroads, and passed a law limiting the availability of money for everyone, including speculators.  Republicans did this by making gold (and not silver) the only monetary standard of United States currency, which opponents called the "Crime of 1873" (a new coinage law that halted the mining of silver and made gold the sole standard for currency).  This ended Alexander Hamilton's policy of "bimetallism", which set both gold and silver as standards of currency in a 15:1 ratio of silver to gold.

Recall that President Jackson had issued the “Specie Circular” in 1836 in response to inflation and land speculation resultant from the increase in paper money at that time.  Jackson’s Specie Circular provided that only gold and silver (and sometimes Virginia land scrip) would be accepted by the government for payment for public lands.  After the Panic of 1837, Jackson’s Specie Circular was repealed in 1838.

Recall that President Jackson had issued the "Specie Circular" in 1836 in response to inflation and land speculation resultant from the increase in paper money at that time.  Jackson's Specie Circular provided that only gold and silver (and sometimes Virginia land scrip) would be accepted by the government for payment for public lands.  After the Panic of 1837, Jackson's Specie Circular was repealed in 1838.

Money then became scarcer, and inflation ended.  Farmers were outraged, calling this the “Crime of 1873”.  What cost $100 in 1872 only cost $77.82 by 1880.  Deflation is devastating to farmers.  Their prices on their goods fall but they still have to pay back their original loan.

Money then became scarcer, and inflation ended.  Farmers were outraged, calling this the “Crime of 1873”.  What cost $100 in 1872 only cost $77.82 by 1880.  Deflation is devastating to farmers.  Their prices on their goods fall but they still have to pay back their original loan.