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Grant was what we could today call a fiscal conservative. The major issue of the day financially was what the nation's currency should be based on. Grant was a "hard-money man" and he believed that the country's currency should be backed by gold. During the Civil War, the government had issued an excess of paper money, known as greenbacks, to finance its wartime spending. Greenbacks were essentially a written promise by the federal government to make good for the amount of the currency. They rose in value after the Union won the war.
This currency became an inflationary force and this contributed to destabilizing the economy. In 1869, two New York speculators, Jay Gould and James Fisk, devised a scheme to corner the gold market. If they could convince the Grant administration not to sell any of the government's gold, the gold that they owned would become more valuable. They plotted with Grant's brother-in-law Abel Corbin to convince Grant to withhold gold from the market. Gould and Fisk overestimated Corbin's influence with Grant. When Grant and his treasury secretary, George Boutwell, realized what was happening, they ordered the sale on Friday, September 24, 1869, of $4 million in gold to break the speculators. This action caused a crash in the price of gold and resulted in financial ruin for many investors. The event became known as Black Friday, and while it frustrated Gould and Fisk's plans, it also tarnished the administration's reputation.
Despite this, Grant was reelected in 1872. Early on in his second term Grant faced a new fiscal challenge known as the Panic of 1873, which became a nation-wide depression. The economic downturn had many causes, including an economic depression in Europe, rapid industrial and agricultural growth, and overexpansion of the railroads. The panic began when various Wall Street firms started going under. This led to failing banks, increased bankruptcies, rising unemployment, and lost farms. It was in the midst of this depression that President Grant vetoed what was known as the inflation bill, a bill which would have injected more greenbacks into the economy. Many banks had overextended their loans and went bankrupt as a result, causing a general panic throughout the nation. In an attempt to inject capital into an ailing economy, Secretary of Treasury William A. Richardson released $26 million in greenbacks.
Many people believed that expanding the money supply would improve the economic situation and help end the depression. In 1874, Congress debated the issue of what policy would help to stimulate the economy. It passed the Inflation Bill of 1874 that would release an additional $18 million in greenbacks up to the original $400,000,000 amount. Eastern bankers vigorously lobbied Grant to veto the bill because of their reliance on bonds and foreign investors who did business in gold. Grant's cabinet was bitterly divided over this issue. Secretary of State Hamilton Fish threatened to resign if Grant signed the bill. On April 22, 1874, after evaluating his own reasons for wanting to sign the bill, Grant surprised those guessing what he would do. He had initially said that he intended to sign the bill, but after further careful thought, Grant vetoed the bill, even though it went against the popular election strategy of the Republican Party. Grant said that he believed it would destroy the nation's credit
In 1875, Grant signed the Specie Resumption Act, which resulted in the government once again placing its currency on specie (gold) following Europe's example. Greenbacks were gradually removed from circulation. These two important actions by Grant resulted in the United States following a hard-currency course for the rest of the nineteenth century. They also established the Republican Party as the party of economic conservatism and fiscal restraint.
This issue would continue to concern the nation, and it would be the central issue in the election of 1896 between William McKinley and William Jennings Bryant.