Tuesday, August 25, 2009

The Confederate Economy: Inflation

The Confederate treasury could probably have raised more gold and silver from the population if it had embarked on a vigorous policy of taxation rather than trying to finance the war through the issuance of bonds. The Confederate treasury indulged, ultimately, in the perilous device of issuing unsupported paper money. In 1861 the treasury issued $100 million in paper Confederate notes and $100 million in 8 percent Confederate bonds. By 1863 the treasury was pumping out $50 million in notes a month. The Confederate public sensed that there was too much money being issued and that it was becoming progressively more worthless. Wits were soon saying, "An oak leaf will be worth just as much as the promise of the Confederate treasury to pay one dollar."

To increase its hard cash reserves, before loosing the flood of paper money on the country, the Confederate Congress made U.S. silver coins legal tender up to $10, and gave full standing, with fixed values stipulated, to English sovereigns, French Napoleons and Spanish and Mexican doubloons. This helped somewhat, and a small treasury shipment in 1862, for example, was made up of the following coins: 28 Spanish dollars, 24 Spanish quarter dollars, 8 Spanish half dollars, 8 English sovereigns, 3 Napoleons, 385 U.S. half dollars and 988 U.S. quarter dollars.

No halfway measures, however, could make up for the mismatch between revenue and the issuance of currency. Many people hoarded their hard money. Less than a month before the final collapse of the government, the Confederate Congress, seeming to believe that there was an abundance of hard money in private hands, passed a law trying to raise $30 million in gold and silver. Other estimates indicate that there may have been $20 million in U.S. coins remaining in the pockets of Confederate civilians. These coins were hoarded and did not come out except in rare instances. A Richmond editor in 1864 wondered why more copper and nickel coins did not make their appearance, "There must be any quantity of them stored away", he observed.

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