Legal Tender Act Creates Paper Money

In 1862 the United States Congress passed the First Legal Tender Act authorizing the United States note into circulation, creating the first legal paper money in America.

Before 1862, the United States used gold and silver as money. Then the south seceded from the United States. The civil war started. Soon the northern government started to run out of gold or silver to fund the war. The south had already started using printed paper money as legal tender. In 1862, the north followed their example and Congress passed the First Legal Tender Act.

Some people worried that this act of creating paper money would destroy the economy. Instead, it helped the economy. Businesses had to accept the money at face value, allowing people to receive payment for services and the government to pay the bills. It became a success, that this form of legal tender continued long after the civil war.