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Confederate war finance 1

Confederate war finance
Confederate war finance refers to the
various means, fiscal and monetary, through
which the Confederate States of America
financed their war effort during the
American Civil War. As the war lasted for
virtually the entire existence of the nation, it
dominated national finance.

Early on in the war, the Confederacy relied
mostly on tariffs on imports and taxes on
exports. However, with the imposition of a
voluntary self-embargo in 1861 (intended to
"starve" Europe of cotton and force
diplomatic recognition of the Confederacy),
as well as the blockade of Southern ports
enforced by the Union Navy, the revenue
from taxes on international trade became
smaller and smaller. Likewise, the financing
Front of Confederate notes (back was unprinted)
obtained through early voluntary donations
of coins and bullion from private individuals
in support of the Confederate cause, which early on were quite substantial, dried up by the end of 1861. As a result,
the Confederate government was forced to resort to other means of financing its military operations. A "war-tax" was
enacted but proved difficult to collect. Likewise, the appropriation of Union property in the South and the forced
repudiation of debts owned by Southerners to Northerners failed to raise substantial revenue. The subsequent
issuance of government debt and substantial printing of the Confederate dollars contributed to high inflation which
plagued the Confederacy until the end of the war, although the military setbacks in the field also played a role by
causing loss of confidence and fueling inflationary expectations.[1]

At the beginning of the war, the Confederate dollar cost 90¢ worth of gold (Union) dollars. By the war's end, its
price had dropped to only .017¢.[2] Overall, the price level in the south increased by 9000% during the war.[3] The
Secretary of the Treasury of the Confederate States, Christopher Memminger, was keenly aware of the economic
problems posed by inflation and loss of confidence. However, political considerations limited internal taxation
ability, and as long as the voluntary embargo and the Union blockade were in place, it was impossible to find
adequate alternative sources of finance.[1]

prices also increased in response to 1956. was mostly successful as after its implementation it accounted for about half of total revenue. Between 1862 and 1865. the tax proved very difficult to collect—in 1862. the corresponding increase in "velocity of money" (see next paragraph) and the resulting rapid increase in the price level has been attributed the loss of confidence in Southern military victory or the success of the South's bid for independence.[4] While the North doubled its money supply during the war. A major part of the reason for why tax revenue did not play as large a role for the Confederacy as it did for the Union was the individual states' opposition to a strong central government and the belief in states' rights which precluded giving too much taxing power to the government in Richmond. more than 60% of total revenue was created in this way. 1861 and covered property of more than $500 (Confederate) in value and several luxury items.[1] Monetary finance and inflation The financing of war expenditures by the means of currency issues (printing money) was by far the major avenue resorted to by the Confederate government. despite the fact that it also ran into some collection problems. the Confederate Congress passed a "Tax in Kind" in April 1863. The law itself Confederate States of America was passed on August 15.Confederate war finance 2 Tax finance The South financed a much lower proportion of its expenditures through direct taxes than the North. eventually Christopher Memminger (1803–1888).[3] . Estimates of the extent of inflation vary by the war rose from 100 in January 1861 to over source. The tax was also levied on ownership of slaves. According to a classic study by Eugene Lerner in circulation. a standard price index of commodities rose from 100 at the negative news from the battlefield. only 5% of total revenue came from these direct taxes. The share of direct taxes in total revenue for the North was about 20%. This tax was directly tied to the provisioning of the Confederate Army and. and it was not until 1864 that this amount reached the still-low level of 10%. method used. which implies that a very large portion of the rise in prices occurred in the last six months of the war. present in both the North and the South.[5] The extensive reliance on the money-printing press to finance the war contributed significantly to the high inflation the South experienced over the course of the war. that the war would be of limited duration. although fiscal matters and negative war Monthly price index in the Confederacy during news also played a role.[5] By October 1864. and definition of the 9200 in April 1865. In addition to being fueled by dramatic increases in amount of money in aggregate price level. which was to amount to one tenth of all agricultural product by state. and hence there was no compelling reason to increase the tax burden. while for the South the same share was only about 8%. beginning of the war to more than 9200 by the war's de facto end in April 1865. the money supply in the South increased twenty times over. and the drop in revenues from other sources.[1] Taking account of difficulty of collection. the necessity of paying interest on existing debt.[3] This drop in the demand for money. forced both the central Confederate government and the individual states to the first Secretary of Treasury of the agree to an imposition of a "War Tax" by the middle of 1861. estimation technique. the realities of the prolonged war. Another factor for not extending the tax system more broadly was the belief. if converted into currency equivalent.[1][4] However. the price index was at 2800. However.

By one calculation Upham's notes made up between 1 and 2. 1864. where M is the money supply. . On April 1.6). evaded capture by Southern agents. This decreased the Southern money supply by one-third. Interest-paying money was one of the unique aspects of Confederate public finance. These were plentiful because Southern "Greybacks" were fairly crude and easy to copy because the Confederacy lacked modern printing equipment.[3] The circulation of the interest-bearing money interest paid. in 1863 the Confederate Congress decided to adopt the gold standard. Note the stamp which indicates money. though the "Yankee Scoundrel". Upham from Philadelphia. If it is assumed that real incomes remained constant in the South during the war (Lerner actually concluded that they fell by about 40%[3]) then the equation implies that for the price level to increase 92 times in the presence of a 20 times increase in money supply. placed a $10. reflecting Inflation is calculated as log growth rate of Lerner's price index.000 bounty on Upham. until January 1865 the law was effective only east of the Mississippi. Jefferson Davis. being supplanted by the Coinage Act of 1873[2] and the end of the Confederacy). although actual convertibility was not to come into effect until 1879 (hence the law never went into effect. and the change in real output of the Southern economy. P is the price level and Y is real output. However because of Union control of the Mississippi River. V is the velocity of money (related to people's demand for money). [1] a very significant drop in the demand for money.5 percent of all of the Confederate money supply between June 1862 and August 1863.[3] A fairly peculiar economic phenomenon occurred during the war in that the Confederate government issued both regular money notes and interest-bearing The Confederate "Greyback". the velocity of Quarterly inflation in the Confederacy during the war. changes in the velocity of money. .[3] Counterfeiting was a problem for the North as well.[7] The President of the Confederacy. and the convertibility of one kind of money into the other was enforced by fiat and Southern banks were threatened with a return to the gold standard if they did not cooperate. to ease currency convertibility. According to the equation of exchange.[5][6] The problems of money-caused inflation were acerbated by the influx of counterfeit bills from the North.Confederate war finance 3 Lerner used the quantity theory of money to decompose the inflation in the Confederacy during the war into that resulting from increases in money supply. money must have increased 4. One of the largest and most famous of the Northern counterfeiters was Samuel C. as he was known in the South.6 times over (92/20=4. the Currency Reform Act of 1864 went into effect.[3] Because of the amount of Southern debt held by foreigners. and the United States Secret Service was formed to deal with this problem.

with a caveat. in addition to the difficulties associated with the blockade.4 million. was supposedly one of their purchasers.[9] . reflecting the increase in the underlying cotton prices and perhaps the possibility that George B. the majority of finance for the Southern government came via duties on international trade. McClellan might get elected as US President on a peace platform.[8] The two main types of loans issued by the South during the war were "Cotton Bonds". who at the time was the Chancellor of the Exchequer. The negative values after recognize the Confederacy.[9] Between February 17 and May 1 of 1861. revenue from the tariffs all but disappeared after the Union imposed its blockade of Southern coasts. In fact. and the South selectively defaulted on servicing these obligations. March 9. and in fact their price rose steeply until the fall of Atlanta to Sherman. 65% of all government revenue was raised from the import tariff. was set at 12. In contrast. whose financiers bought up two-fifths of a 15 million dollar loan in early 1861.5% and it roughly matched in coverage the previously existing Federal tariff. the total revenue raised in this way during the entire war was only about $3. enacted in May 1861.[3] The Cotton Bonds were also convertible directly into bales of cotton. The import tariff.[3] Revenue from international trade In the beginning of the war. the Tariff of 1857. the price of the Dutch-issued high risk loans fell throughout the war. 1862. as [3] [1] (mostly New Orleans).[1][9] A similar source of funds was to be the tax on exports of cotton.[1] Secretary of USS Monitor in action with CSS Virginia. However. and high risk unbacked loans sold in the Netherlands. in high demand among the British. William Ewart Gladstone. denominated in pounds sterling and sold in London. but in the end only $30 thousand was collected.Confederate war finance 4 Debt finance Issued loans accounted for roughly 21% of the finance of Confederate war expenditure. The Confederate government managed to honor the Cotton Bonds throughout the war. However. Quarterly growth rate of the Confederate primary included as a means of political pressure on European countries to deficit in real terms.[4] In fact. that any such shipments needed to be third quarter 1862 reflect mostly the inability to picked up by the bondholder in one of the blockaded Southern ports find willing purchasers for Confederate debt.[2] partially because New Orleans was a major financial center. tariffs. Cotton Bonds initially were very popular and the military situation of the South deteriorated. the self-imposed embargo on cotton meant that for all practical purposes the tax was completely ineffective as a fund raiser. By November 1861 the proportion of government revenue coming from custom duties had dropped to one-half of one percent. initially the South was more successful in selling debt than the North. The Union blockade seriously hampered the Treasure Memminger had expected that the tariff would bring in Confederacy's ability to raise revenue through import about 25 million dollars in revenue in the first year alone.[1] Initial optimistic estimates of revenue to be collected through this tax ran as high as 20 million dollars.

unsurprisingly. Over the course of the entire war this source of revenue contributed only one fifth of 1% (. war expenditure was 95% of the budget. military spending constituted the largest part of the national government's budget over the course of the war. over time the payment of interest and principal on acquired debt grew as a share of the Confederate government's expenditure. in early 1861. p.0025) to the overall financial war effort.[1] Expenditures While. right and credits" and the transfer of debt obligation on the part of Confederate citizens from Northern creditors directly to the Confederate government. xxiii [3] Weidenmier [4] Godfrey.[1] Shares of expenditures by category. However. Journal of Political Economy [7] Weidenmier. 1861 to 1864. 14 [5] Tregarthen. and the debts owed by individuals in a parallel manner. Civilian expenditures and spending on the Navy (recorded separately from general war expenditures in Confederate records) never exceeded 10% of the budget. the donation of coins and gold to the government accounted for about 35% of all sources of government funds. with the majority of the rest (56% overall) being accounted for by debt service. 352–362 [2] Neal. dried up over time as individuals and institutions in the South both ran down their personal holdings of bullion and became more Confederate half dollar coin unwilling to make donations as war weariness set in. Notes [1] Burdekin and Langdana.[1] Another potential source of finance could be found in the property and physical capital owned by Northerners in the South.Confederate war finance 5 Other sources of revenue The Confederate government also tried to raise revenue through unorthodox means. As a consequence.003) and contributed only one-fourth of one percent (. 69 . when the support for the separation from the Union and the military effort was running strong. the share of government revenue coming from these donations fell to less than 1% (.01). Early on (in the first half of 1861). by the summer of 1862. Furthermore. what exactly constituted "Northern property" proved hard to define in practice. pp. p. p.002) of total wartime expenditure. 240 [6] Lerner. As a result the share of this source of revenue in government funding never exceeded one-third of one percent (. tenements. many Southerners proved unwilling to transfer their debt obligations. goods and chattels. Business and Economic History [8] Weigley. This source. however. by October 1864 that share fell to 40%. While initially. The Sequestration Act of 1861 provided for confiscation of all Union "lands. p. Rittenberg.

Vol 30. (http://eh.google. (http://books. (http://www. p. Journal of Political Economy. "Confederate Finance". Volume 12 of The International library of macroeconomic and financial history. com/books?id=TL1tmtt_XJ0C&pg=PA240&lpg=PA240&dq=price+level+in+the+confederacy& source=bl&ots=439piPXOMT&sig=V4cPjgPxW77JPN8q0FmnBMtXuGk&hl=en& ei=u3ecS4zVF5_kNNGzqOYN&sa=X&oi=book_result&ct=result&resnum=8& ved=0CCIQ6AEwBw#v=onepage&q=price level in the confederacy&f=false) • Marc Weidenmier. EH. 1861-1865". Tregarthen. No 3. Explorations in Economic History. .google. 63. net/encyclopedia/article/weidenmier. 240.org/~business/bhcweb/publications/ BEHprint/v028n2/p0313-p0324. "War Finance in the Southern Confederacy. Libby Rittenberg." Business and Economic History 28 no. • Larry Neal. "The ascent of money: a financial history of the world". 2009.confederacy.com/books?id=xeVC6lsxw_YC&pg=PR23& dq=confederate+war+finance&cd=2#v=onepage&q=confederate war finance&f=false) • Richard Cecil Todd.com/books?id=xIRGwgW3OYUC&pg=RA1-PA13& dq=confederate+war+finance&cd=1#v=onepage&q=confederate war finance&f=false) • Niall Ferguson. Ayer Publishing. (http://books. • Russell Frank Weigley. Indiana University Press.us) • Marc Weidenmier.h-net. • Timothy D. 2008. "War finance. July 1993. 1861-1865". "A great Civil War: a military and political history.com/books?id=JA_IYJ0P4ZkC&pg=PA97&dq=greyback+money&cd=2#v=onepage&q=greyback & f=false). "Monetary expansion in the Confederacy".com/books?id=YbydkbjlvgUC&pg=PA67&dq=confederate+war+finance+ Weigley&cd=1#v=onepage&q=financiers&f=false). • Eugene Lerner.Net Encyclopedia. Volume 1". (http://books. p. (http://books. Edward Elgar Publishing. Macmillan. 1999. Prices and Wages in the Confederacy. (http://books. University of Georgia Press.com/ books?id=MVc1DTf4zsEC&pg=PA123&dq=confederate+war+finance+tariff&cd=1#v=onepage& q=confederate war finance tariff&f=false). 1861-1865". "Money. • John Munro Godfrey. 2000. "Money and Finance in the Confederate States of America". 1994. Penguin Group. "Macroeconomics".google. 1978. 2 (1999b): 313-324. "Bogus Money Matters: Sam Upham and His Confederate Counterfeiting Business. (http://books.pdf). Dissertations in American economic history.google.Confederate war finance 6 [9] Todd. google. 1955.google.finance. 123 References • Richard Burdekin and Farrokh Langdana.

Joyson Prabhu.wikipedia.wikipedia.org/w/index. Piledhigheranddeeper. Neutrality.JPG  License: Public Domain  Contributors: Radeksz File:Confederate inflation2.jpg  License: Public Domain  Contributors: Confederate States of America.php?title=File:Confederate_prices.jpg  License: Public Domain  Contributors: Louis Prang & Co.org/w/index.wikipedia. Ground Zero.jpg  Source: http://en. Cesium 133.Article Sources and Contributors 7 Article Sources and Contributors Confederate war finance  Source: http://en.org/w/index.JPG  License: Public Domain  Contributors: Radeksz File:The Monitor and Merrimac.org/w/index.wikipedia. Eastlaw. Wild Wolf.JPG  License: Public Domain  Contributors: Radeksz License Creative Commons Attribution-Share Alike 3. Klemen Kocjancic. Chris the speller.org/w/index. Charles Edward..wikipedia.JPG  Source: http://en.org/w/index.jpg  Source: http://en.php?title=File:Confederate_inflation2. 1 anonymous edits Image Sources.jpg  Source: http://en. using a Fuji FinePix S5000 digital camera.wikipedia. Anotherclown. Image:CGM.php?title=File:Confederate_100_back.JPG  License: Public Domain  Contributors: Radeksz File:Confederate 100 back.wikipedia.php?title=File:Confederate_deficit.jpg  Source: http://en.php?title=File:Confederate_5_and_100_Dollars.JPG  Source: http://en.jpg  License: GNU Free Documentation License  Contributors: Photo taken by Peter Clericuzio.php?oldid=509994965  Contributors: AnonMoos. 22 June 2005.jpg  License: Public Domain  Contributors: Author died more than 70 years ago File:Confederate prices.org/w/index.jpg  License: Public Domain  Contributors: Confederate States of America. Morgan Riley.php?title=File:The_Monitor_and_Merrimac.JPG  Source: http://en.0 Unported //creativecommons. TCO.org/w/index.org/w/index.php?title=File:1861_Confederate_Half.wikipedia File:Confederate expenditures. Licenses and Contributors Image:Confederate 5 and 100 Dollars. SE7.JPG  Source: http://en. Original uploader was Absecon 59 at en. Volunteer Marek.0/ .org/w/index. Pyrotec.wikipedia. File:Confederate deficit.jpg  Source: http://en. lithograph signed "Jo Davidson" File:1861 Confederate Half.php?title=File:Confederate_expenditures.wikipedia.org/licenses/by-sa/3.wikipedia. AustralianRupert.php?title=File:CGM.