Lincoln took office on March 4, 1861. Among his first acts was to nominate Senator
Salmon P. Chase of Ohio to be
Secretary of the Treasury. Chase resigned his Senate seat on March 7, and after two weeks of indecisive balloting, the
Ohio Legislature elected Sherman to the vacant seat. He took his seat on March 23, 1861, as the Senate had been called into
special session to deal with the secession crisis. The Senate that convened at the start of the
37th Congress had a Republican majority for the first time, a majority that grew as more Southern members resigned or were expelled. In April, Sherman's brother William visited Washington to rejoin the army, and the brothers went together to the White House to meet Lincoln. Lincoln soon called for 75,000 men to enlist for three months to put down the rebellion, which William Sherman thought too few and too short a duration. William's thoughts on the war greatly influenced his brother, and John Sherman returned home to Ohio to encourage enlistment, briefly serving as an unpaid
colonel of Ohio Volunteers.
Financing the Civil War (top) and a
United States Note (bottom) The
Civil War expenditures quickly strained the government's already fragile financial situation and Sherman, assigned to the
Senate Finance Committee, was involved in the process of increasing the revenue. In July 1861, Congress authorized the government to issue
Demand Notes, the first form of paper money issued directly by the United States government. The notes were redeemable in specie (
i.e., gold or silver coin) but, as Sherman would note in his memoirs, they did not solve the revenue problem, as the government did not have the coin to redeem the notes should they all be presented for payment. To solve this problem, Chase asked for and Congress authorized the issuance of $150 million in
bonds, which (as banks purchased them with gold) replenished the treasury. Congress also sought to increase revenue when they passed the
Revenue Act of 1861, which imposed the first federal
income tax in American history. Sherman endorsed the measure, and even spoke in favor of a steeper tax than the one imposed by the Act (3% on income above $800), preferring to raise revenue by taxation than by borrowing. In August, the special session closed and Sherman returned home to Mansfield to promote military recruitment again. When Congress returned to Washington in December 1861, Sherman and the Finance Committee continued their attempts to fix the deepening financial crisis caused by the war. The financial situation had continued to worsen, resulting that month in banks suspending specie payments—that is, they refused to redeem their
banknotes for gold. Gold began to disappear from circulation. With the 500,000 soldiers in the field, the government was spending the then-unheard-of sum of $2 million per day. Sherman understood that "a radical change in existing laws relating to our currency must be made, or ... the destruction of the Union would be unavoidable ..." Secretary Chase agreed and proposed that the
Treasury Department issue
United States Notes that were redeemable not in specie but in 6% government bonds. The bills would be "lawful money and a legal tender in the payment of all debts". Nothing but gold and silver coin had ever been legal tender in the United States, but Congress yielded to the wartime necessities, and the resulting
First Legal Tender Act passed both the House and the Senate. The Act limited the notes (later known as "greenbacks") to $150 million, but two subsequent Legal Tender Acts that year expanded the limit to $450 million. The idea of making paper money legal tender was controversial, and
William Pitt Fessenden of Maine, chairman of the Senate Finance Committee, was among many who opposed the proposal. Sherman disagreed and spoke in favor of the idea. He defended his position as necessary in his memoirs, saying "from the passage of the legal tender act, by which means were provided for utilizing the wealth of the country in the suppression of the rebellion, the tide of war turned in our favor". Reform of the nation's financial system continued in 1863 with the passage of the
National Banking Act of 1863. This Act, first proposed by Chase in 1861 and introduced by Sherman two years later, established a series of nationally chartered private banks that would issue
banknotes in coordination with the Treasury, replacing (though not completely) the
system of state-chartered banks then in existence. Although the immediate purpose was to fund the war, the National Bank Act was intended to be permanent, and remained the law until 1913. A 10% tax on state banknotes passed in 1865 to encourage the shift to a national bank system. Sherman agreed with Chase wholeheartedly and hoped that state banking would be eliminated. Sherman believed the state-by-state system of regulation was disorderly and unable to facilitate the level of borrowing a modern nation might require. He also believed the state banks were unconstitutional. Not all Republicans shared Sherman's views, and when the Act eventually passed the Senate, it was by a narrow 23–21 vote. Lincoln signed the bill into law on February 25, 1863.
Slavery and Reconstruction Besides his role in financial matters, Sherman also participated in debate over the conduct of the war and goals for the post-war nation. Sherman voted for the
Confiscation Act of 1861, which allowed the government to confiscate any property being used to support the
Confederate war effort (including slaves) and for the act
abolishing slavery in the District of Columbia. He also voted for the
Confiscation Act of 1862, which clarified that slaves "
confiscated" under the 1861 Act were freed. In 1864, Sherman voted for the
Thirteenth Amendment to the United States Constitution, abolishing slavery. After some effort, it passed Congress and was ratified by the states the next year. When the session ended, Sherman campaigned in Indiana and Ohio for
Lincoln's reelection. In 1865, he attended
Lincoln's second inauguration, then traveled to Savannah, Georgia to meet with his brother William, who had arrived there after his army's
march to the sea. Sherman returned home to Mansfield in April, where he learned of
Lincoln's assassination just days after the
Confederate surrender. He was again in Washington for the
Grand Review of the Armies and then returned home until December, when the
39th Congress assembled. There had been no special session that summer, and President
Andrew Johnson, Lincoln's successor, had taken the lead on
Reconstruction of the conquered South, to the consternation of many in Congress. Sherman and Johnson had been friendly, and some observers hoped that Sherman could serve as a liaison between Johnson and the party's "Radical" wing. By February 1866, however, Johnson was publicly attacking these
Radical Republicans, who demanded harsh punishment of the rebels and federal action to assist the freedmen. The following month Johnson vetoed the proposed
Civil Rights Act of 1866, which had passed Congress with overwhelming numbers. Sherman joined in overturning Johnson's veto. That same year, Sherman voted for the
Fourteenth Amendment, which guaranteed equal protection of the laws to the freedmen. It became law in 1868. By then, Johnson had made himself the enemy of most Republicans in Congress, including Sherman. Sherman, a moderate, took the side of the Radicals in voting for the
Tenure of Office Act, which passed over Johnson's veto in 1867—but in debating the
First Reconstruction Act, he argued against disenfranchising Southern men who had participated in the rebellion. The latter bill, amended to remove that provision, also passed over Johnson's veto. The continued conflict between Johnson and Congress culminated in
Johnson's impeachment by the House in 1868. After a trial in the Senate, Sherman voted to convict, but the total vote was one short of the required two-thirds majority, and Johnson continued in office. Writing later, Sherman said that although he "liked the President personally and harbored against him none of the prejudice and animosity of some others," he believed Johnson had violated the Tenure of Office Act and accordingly voted to remove him from office. With
Ulysses S. Grant elected to the presidency
in 1868, Congress had a more willing partner in Reconstruction. The
40th Congress's lame duck session passed the
Fifteenth Amendment, which guaranteed that the right to vote could not be restricted because of race; Sherman joined the two-thirds majority that voted for its passage. The
41st Congress passed the
Enforcement Act of 1870 to enforce its civil rights Amendments among a hostile Southern population. That Act, written by
John Bingham of Ohio to mirror the Fourteenth Amendment, created penalties for violating another person's constitutional rights. The next year, Congress passed the
Ku Klux Klan Act, which strengthened the Enforcement Act by allowing federal trials and federal troops to be used. Sherman voted in favor of both Acts, which had Grant's support.
Post-war finances With the financial crisis abated, many in Congress wanted the greenbacks to be withdrawn from circulation. The public had never seen greenbacks as equivalent to specie, and by 1866 they circulated at a considerable discount, although their value had risen since the end of the war.
Hugh McCulloch, the Treasury Secretary under Lincoln and Johnson, believed the notes were an emergency measure only and thought they should be gradually withdrawn. McCulloch proposed a bill, the
Contraction Act, to convert some of the greenbacks from notes redeemable in bonds to interest-bearing notes redeemable in coin. Most Senate Finance Committee members had no objection, and Sherman found himself alone in opposition to it, believing that withdrawing greenbacks from circulation would contract the money supply and harm the economy. Sherman instead favored leaving the existing notes in circulation and letting the growth in population catch up to the growth in money supply. He suggested an amendment that would instead just allow the Treasury to redeem the notes for lower-interest bonds, now that the government's borrowing costs had decreased. Sherman's amendment was voted down, and the
Contraction Act passed; greenbacks would be gradually withdrawn, but those still circulating would be redeemable for the high-interest bonds as before. In his memoirs, Sherman called this law "the most injurious and expensive financial measure ever enacted by Congress," as the continued high-interest payments it required "added fully $300,000,000 of interest" to the
national debt. The Ohio legislature reelected Sherman to another six-year term that year, and when (after a three-month vacation in Europe) he resumed his seat he again turned to the greenback question. Public support for greenbacks had grown, especially among businesspeople who thought withdrawal would lead to lower prices. When a bill passed the House suspending the authority to retire greenbacks under the
Contraction Act, Sherman supported it in the Senate. It passed the Senate 33–4, and became law in 1868. In
the next Congress, among the first bills to pass the house was the
Public Credit Act of 1869, which would require the government to pay bondholders in gold, not greenbacks. The 1868 election campaign had seen the Democrats proposing to repay the bondholders (mostly supporters of the Union war effort) in paper; Republicans favored gold, as the bonds had been purchased with gold. Sherman agreed with his fellow Republicans and voted with them to pass the bill 42–13. Sherman continued to favor wider circulation of the greenback when he voted for the
Currency Act of 1870, which authorized an additional $54 million in United States Notes. Sherman was also involved in debate over the
Funding Act of 1870. The Funding Act, which Sherman called "[t]he most important financial measure of that Congress," refunded the national debt. The bill as Sherman wrote it authorized $1.2 billion of low-interest rate bonds to be used to purchase the high-rate bonds issued during the war, to take advantage of the lower borrowing costs brought about by the peace and security that followed the Union victory. The Act was the subject of considerable debate over the exact rates and amounts, but once the differences were ironed out, it passed by large majorities in both houses. While Sherman was unhappy with the compromises (especially the extension of the bonds' term to 30 years, which he believed too long), he saw the bill as an improvement over the existing conditions and urged its passage.
Coinage Act of 1873 of the type Sherman said he never saw in circulation The Ohio Legislature elected Sherman to a third term in 1872 after then-governor
Rutherford B. Hayes declined the invitation of several legislators to run against Sherman. Sherman returned to his leadership of the Finance Committee, and the issues of greenbacks, gold, and silver continued into the next several congresses. Since the early days of the republic, the United States had minted both gold and silver coins, and for decades the ratio of value between them had been set by law at 16:1. Both metals were subject to "free coinage"; that is, anyone could bring any amount of silver or gold to the
United States Mint and have it converted to coinage. The ratio was bound to be imperfect, as the amount of gold and silver mined and the demand for it around the world fluctuated from year to year; as a metal's market price exceeded its legal price, coins of that metal would disappear from circulation (a phenomenon known as
Gresham's law). Before the Civil War, gold circulated freely and silver disappeared, and while silver dollars were legal tender, Sherman wrote that "[a]lthough I was quite active in business ... I do not remember at that time to have ever seen a silver dollar". The issuance of greenbacks had pushed debate over gold-silver ratios to the background as coins of both metals disappeared from the nation's commerce in favor of the new paper notes, but as the dollar became stronger in peacetime and the national debt payments were guaranteed to be paid in specie, Congress saw the need to update the coinage laws. Grant's Treasury Secretary,
George S. Boutwell, sent Sherman (who was by now Senate Finance Committee Chairman) a draft of what would become the
Coinage Act of 1873. The list of legal coins duplicated that of the previous coinage act, leaving off only the silver dollar and two smaller coins. The rationale given in the Treasury report accompanying the draft bill was that to mint a gold dollar and a silver dollar with different intrinsic values was problematic; as the silver dollar did not circulate and the gold did, it made sense to drop the unused coin. Opponents of the bill would later call this omission the "Crime of '73," and would mean it quite literally, circulating tales of widespread bribery of Congressmen by foreign agents. Sherman emphasized in his memoirs that the bill was openly debated for several years and passed both Houses with overwhelming support and that, given the continued circulation of smaller silver coins at the same 16:1 ratio, nothing had been "demonetized," as his opponents claimed. Silver was still legal tender, but only for sums up to five dollars. On the other hand, later scholars have suggested that Sherman and others wished to demonetize silver for years and move the country onto a
gold-only standard of currency—not for some corrupt gain, but because they believed it was the path to a strong, secure currency. In switching to what was essentially a gold standard, the United States joined a host of nations around the world that based their currencies on gold alone. But in doing so, these nations exacerbated the demand for gold as opposed to silver which, combined with more silver being mined, drove the cost of gold up and silver down. The result was not apparent immediately after the Coinage Act's passage, but by 1879 the ratio between the price of gold and that of silver had risen from 16.4:1 to 18.4:1; by 1896 it was 30:1. The ultimate effect was more expensive gold, which meant lower prices and deflation for other goods. The deflation made the effects of the
Panic of 1873 worse, making it more expensive for debtors to pay debts they had contracted when currency was less valuable. Farmers and laborers, especially, clamored for the return of coinage in both metals, believing the increased money supply would restore wages and property values, and the divide between pro- and anti-silver forces grew in the decades to come. Writing in 1895, Sherman defended the bill, saying that, barring some international agreement to switch the entire world to a
bimetallic standard, the United States dollar should remain a gold-backed currency.
Resumption of specie payments '' anticipates the
resumption of government payments in precious-metal coins. At the same time as he sought to reform the coinage, Sherman worked for "resumption"—the policy of resuming specie payment on all bank notes, including the greenbacks. The idea of withdrawing the greenbacks from circulation altogether had been tried and quickly rejected in 1866; the notes were, as Sherman said, "a great favorite of the people". The economic turmoil of the Panic of 1873 made it even more clear that shrinking the money supply would be harmful to the average American. Still, Sherman (and others) desired an eventual return to a single circulating medium: gold. As he said in an 1874 speech, "a specie standard is the best and the only true standard of all values, recognized as such by all civilized nations of our generation". If greenbacks were not to be withdrawn from circulation, therefore, they must be made equal to the gold dollar. While Sherman stood against printing additional greenbacks, as late as 1872 he remained a proponent of keeping existing greenbacks backed by bonds in circulation. Over the next two years, Sherman worked to develop what became the
Specie Payment Resumption Act. The Act was a compromise. It required gradual reduction of the maximum value of greenbacks allowed to circulate to $300 million (~$ in ) and, while earlier drafts had allowed the Treasury the choice between paying in bonds or coin, the final version of the Act required payment in specie, starting in 1879. The bill passed on a party-line vote in the lame duck session of the
43rd Congress, and President Grant signed it into law on January 14, 1875.
Election of 1876 After the close of the session, Sherman returned to Ohio to campaign for the Republican nominee for governor there, former governor Rutherford B. Hayes. The issue of specie payments was debated in the campaign, with Hayes endorsing Sherman's position and his Democratic opponent, incumbent governor
William Allen, in favor of increased circulation of greenbacks redeemable in bonds. Hayes won a narrow victory and was soon mentioned as a possible presidential candidate in 1876. The controversy over resumption carried into the presidential election. The Democratic platform that year demanded repeal of the Resumption Act, while the Republicans nominated Hayes, whose position in favor of a gold standard was well known. The
election of 1876 was very close, and the electoral votes of several states were
ardently disputed until mere days before the new president was to be inaugurated. Louisiana was one of the states in which both parties claimed victory, and Grant asked Sherman and a few other men to go to
New Orleans and ensure the party's interests were represented. Sherman, by this time thoroughly displeased with Grant and his administration, nonetheless took up the call in the name of party loyalty, joining
James A. Garfield,
Stanley Matthews, and other Republican politicians in Louisiana a few days later. The Democrats likewise sent their politicos, and the two sides met to observe the elections return board arrive at its decision that Hayes should be awarded their state's electoral votes. This ended Sherman's direct role in the matter, and he returned to Washington, but the dispute carried over until a bipartisan election commission was convened in the capital. A few days before Grant's term would end, the commission narrowly decided in Hayes's favor, and he became the 19th President of the United States. == Secretary of the Treasury ==