Why Not Print More Greenbacks?
By Richard Carlson

Overview

This lesson is intended for use with the biography of Ulysses S. Grant, to help students understand the issues faced by government when there is a need for money to finance government debts.  The issuing of greenbacks to finance the Civil War, is one of many issues this lesson could address.  The lesson will point out how worthless money becomes when the government issues too much, as in the effort to finance Civil War debts.  The teacher will act as the government in issuing greenbacks to show how inflation and devaluation occur when something (candy) is purchased with regulated dollars and then how the price changes, for the same item, when more money is issued.  This lesson is most appropriate for students in grades 8 - 12.

Teacher's Background Information

As teachers, we often hear students ask, "Why doesn't the government just print more money to pay off the national debt or finance a war?"  This lesson is designed to answer such questions in a way that is easily understood by the students in as few as 15 minutes.  It will show that money becomes almost worthless as more of it is printed and put into circulation.  While the Civil War is used as the catalyst for this lesson, many other historical moments could be chosen as well.

The Grant administration was faced with two post-Civil War economic problems: the ability to finance (pay for) the Civil War, and the decreasing prices for goods following the war.  To solve both problems the Grant administration and Congress debated the "Ohio Plan," a plan sponsored by Democratic Senator George Pendleton of Ohio. The plan called for increasing the nation's money supply (putting more dollars into circulation) by paying the interest on a specific group of war bonds with paper money ("greenbacks").  Proponents of this plan argued that that in addition to lifting a large burden from taxpayer's backs, this would increase the demand for the greenbacks, and also increase the money supply, thus leading to inflated prices for goods and services.  Debtors would be relieved because they would be paying back dollars worth less than the dollars they had borrowed.  Also, the desired price increases would stimulate producers to make more products to be sold at these higher prices.  President Grant vetoed the congressional bill to put more money into circulation, believing that it would devalue the dollar, hurting creditors and destroying the confidence of investors.  He also believed that the war debt was a sacred trust that should be paid in gold.

How much paper money should the government place in circulation?  This question perplexed not only the Grant administration, but also many administrations since Grant's.  This lesson could also be used in discussions of Andrew Jackson, the Gold Standard, and the period leading up to the Depression of 1837; Grover Cleveland and William McKinley and the issues faced in the Election of 1896; and Woodrow Wilson and the establishment of the Federal Reserve.  When the government issues too much paper money prices will usually go up thus deflating the value of the existing and newly issued dollars.  This lesson is designed to show how inflation (a general rise in prices of goods and services) and devaluation (a decline in the purchasing power of the dollar) occur when more money is placed in circulation by the government.

Objectives

Students will:

  • Explain why the government cannot issue more money to finance wars or pay debts.
  • Define the terms "inflation" and "devaluation" and identify at least one of the causes of these events.
  • Write a paragraph comparing the effect of issuing greenbacks during the Civil War, with the presumed effect of issuing dollars to pay off the national debt today.

Time required

This lesson can take anywhere from 15 minutes to an entire class period.  The length of time will be determined by the teacher and students according to how much detail the class seeks.  If done according to the lesson plan, it should take no more than one class period.  The 15 minute version can be used when this question comes up and needs to be answered on the spot.

Materials

Initial Motivation

1.  As students come into the class, pass out the money using only the $1.00 and $10.00 bills.  The amounts to each student should not be equal.  Do not announce what you are doing until the class is seated and ready to begin.

2.  Use an overhead of a recent news article or newspaper headline on the national debt to get the students to understand how big the national debt is and how some people are very concerned about our ability to pay it off.  To help students understand the nature of the size of the debt (remember the government has over a $5 trillion debt today), use the following explanation of the difference between 1,000 and a trillion:

3.  Start each of the following statements with "If we were to be in class for the next . . . "

a.  1000 seconds we would be here 16 minutes.
b.  1,000,000 seconds we would be here 16 days.
c.  1 billion seconds we would be here 32 years.
d.  1 trillion seconds we would be here 32,000 years.

4. Write on the board "Quick-write: With a $5 Trillion debt, why can't the government just print more money to pay it off?" Give students 5 minutes to respond.

Procedures

1.  After the quick write briefly discuss student views making sure that students understand what inflation is (a general rise in prices) and some of its causes (increase in wages, costs of materials or when the government issues too much paper money).

2.  End the discussion by announcing that students need to decide why printing more paper money is not a viable solution to a national debt problem.  Say, "Okay, let's see just what issuing more paper money does."  To understand why the government just does not print more money you will start to hold an auction for a candy bar or M&M's.  Be clear about the auction rules; e. g. raising hands, using bid boards or cards, bidding procedure, etc.  Auction one candy each time and keep track of the amount paid for each.  Hold three to five auctions.

3.  Then pass out the $20.00 and $50.00 bills, again not giving the same amounts to each student.  (You can even leave some students out at this time - Poverty.)  Also the teacher can use larger bills when passing out the new money.  That makes the difference in prices even larger so the students readily see the change in value of the dollar but no change in what they purchase.

4.  Auction off the remaining candy, one piece at a time, keeping track of the prices.

5.  What should be observed is that higher prices were paid for the candy after the $20 and $50 bills were passed out but the product remained the same as before (a key indication of the futility of this practice).  Let the students bring this out in class discussion or written assignment by asking the following:

a.  What happened to the price of candy?b.  When higher prices were paid for the candy did they get more?
c.  How does printing more money and putting it in circulation affect the economy and the people?
d.  If a person had $100.00 in the bank of old money (prior to increasing the money supply), how many candies could he/she buy?  How many when the money supply is increased?  What happened to the value of the old money?

Assessment

Student performance should be based upon their ability to write a paragraph explaining what takes place when the government issues too much money.  Their discussion should include, but not be limited to, the following consequences: higher prices for goods and services, devaluing of the dollar, lack of purchasing goods and services by the population with a possible higher unemployment rate, people on fixed incomes lose out, savings accounts become less valuable.

Additional Resources

The following organizations provide education materials to help teachers understand the monetary policy and budgetary process of the federal government:

San Francisco Federal Reserve Bank: www.frbsf.org
Phone: 1-213-683-2300 (Southern California); 1-415-974-2163 (Northern California)Use the above site as a jumping off point to locate the Federal Reserve Bank in your district (12 across the country).

National Council on Economic Education: www.nationalcouncil.org
Phone: 1-212-730-7007 (Contact: Diane Rodriguez, extension 763)

Richard Carlson teaches government at Monte Vista High School in Spring Valley, California.