how did the north finance the civil war

Headquartered in Washington, D.C., the agency is, Greenbacks were the paper money printed and issued by the U.S. government during the American Civil War (186165). In 1862, only 5% of total revenue came from direct taxes, and it was not until 1864 that the amount reached the still-low level of 10%. By the end of 1864, it had raised only about an additional $34 million from these Produce Loans. The Journal of Economic History, Vol. Todd, Richard Cecil. [3] Counterfeiting was a problem for the North as well, and the United States Secret Service was formed to deal with this problem. P Start your 48-hour free trial to get access to more than 30,000 additional guides and more than 350,000 Homework Help questions answered by our experts. BUDGET, FEDERAL. . The CSA debt/burden was larger than the Unions, and mostly held by southerners was not assumed by the North. By the end of 1861, however, Treasury Secretary Chase was coming to view the existence of so many notes issued by state-chartered banks, and with varying denominations and degrees of security, as being detrimental to his attempts to finance the war. https://www.encyclopedia.com/defense/energy-government-and-defense-magazines/financing-war, "Financing the War Budget, Federal 1 (Mar., 1892): 38-56. . ." In hindsight, it is hard to imagine that the triumph of Union forces could ever have been in doubt, given the Norths advantages in population and industry. The Yankees did not whip us in the field, noted one Confederate soldier. ", diplomatic recognition of the Confederacy, Secretary of the Treasury of the Confederate States, Economic history of the United States Civil War, Economy of the Confederate States of America, Dissertations in American economic history, The Ascent of Money: A Financial History of the World, Volume 12 of The International Library of Macroeconomic and Financial History, Money and Finance in the Confederate States of America, Bogus Money Matters: Sam Upham and His Confederate Counterfeiting Business, A Great Civil War: A Military and Political History, 1861-1865, https://en.wikipedia.org/w/index.php?title=Confederate_war_finance&oldid=1144677867. The income tax was not scheduled to be collected until mid-1862; and Secretary Chase was able to negotiate an agreement to sell only $150 million worth of bonds to a group of banks in New York, Boston, and Philadelphia. Treasury Secretary Salmon P. Chase started the first war bond program in American history to provide loans to the federal government. As war expenditures increased, so did the issuance of these notes. By the end of the war, approximately $450 million worth of this new national currency was circulating throughout the Union. [4] While the North doubled its money supply during the war, the money supply in the South increased twenty times over. Metal was in short supply for minting coins. Americans at War. Are Canadian cities better than America's? - The Economist 1996. Most online reference entries and articles do not have page numbers. Therefore, be sure to refer to those guidelines when editing your bibliography or works cited list. "useRatesEcommerce": true The circulation of the interest-bearing money 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. The government aimed this so-called Banker Loan at the regions commercial and banking interests, and asked those institutions to purchase the bonds with specie. The Internal Revenue Act of 1862, in the words of Republican politician James G. Blaine, was "one of the most searching, thorough, comprehensive systems of taxation ever devised by any government" (Hummel, p. 222). Wars are expensive. In April 1863, the acute funding shortage persuaded the Confederate Congress to pass a bill imposing a variety of new taxes on profits, agricultural products, businesses, and income. The North emerged from the war in a relatively strong financial position. The causes and stakes were deep and complex, but principles aside, the outcome of the Civil War boils down to dollars and cents. } When government demands threatened to overwhelm the state-chartered banks, the Republicans created a national banking network in 1863. Just so long as Government keeps printing greenbacks, in almost fabulous amounts, just so long will prices tend upward of everything that can be bought and sold. Federal Taxation in America, A Short History. 7, No. According to a classic study by Eugene Lerner in 1956, a standard price index of commodities rose from 100 at the beginning of the war to more than 9200 by the war's de facto end in April 1865. The tax was also levied on ownership of slaves. In the meantime, in May, the Confederate Congress had authorized another $50 million bond offering. Confederate inflation essentially operated as a highly regressive tax that fell most heavily on ordinary households, which had great difficulty surviving as the prices of food and clothing grew at a far higher rate than wages and income. [11] After much initial success in raising these funds, the declining military fortunes of the Confederate armies had a depressing effect on the CSAs ability to finance itself with these vehicles. Financial Failure and Confederate Defeat. These bond sales helped, but Chase also needed to tap the resources of banks, which had operated successfully for decades as state-chartered institutions that issued their own notes. Both banks and the Treasury had to resort to printing fractional currency so merchants could make change. As a result, the share of this source of revenue in government funding never exceeded 0.34% and ultimately contributed only 0.25% to the overall financial war effort. The South also had to print huge amounts of money while the North was able to raise at least a significant percentage of its war costs through taxation. On the homefront, the Union had . Our summaries and analyses are written by experts, and your questions are answered by real teachers. New York, NY: Oxford University Press, 1988. As the guns of civil war fell silent across a scarred American landscape, one Confederate leader supposedly quipped, the Yankees did not whip us on the field. The governments measures did not just make the financing of the war possible; they also knitted together an ever more powerful national economy. [3], In France vigorous fund raising yielded 3 million (about $14.5m in US dollars) from the 1862 bond sale to the Erlanger bank in Paris. [14], As early as May 1861, Secretary Memminger began suggesting the need to impose taxes on property, capital, merchandise, stock holdings, etc. This time, the authorizing legislation stated that the bonds could be purchased through the use of specie, military stores, or the anticipated proceeds from the sale of raw material or manufactured articles. He sold government bonds both to financiers and ordinary people. 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. Civil War, Economic Impact of (Issue) | Encyclopedia.com 17, No. Study now. In sum, the USA was able to use borrowed funds and monies raised from taxes to supply almost 90% of its financial needs. This lesson, apt today, applied in spades to the American civil war, as a new financial history of the conflict explains. The north financed the war by three means: taxes, loans, and paper money. A greenback representing one dollar is now worth only about 68 cents.Geneva Gazette, November 20, 1863. Counterfeiting was a major problem. Taussig, F. W. The Tariff History of the United States, Part I. Shortly after, First National constructed a building on the southeast corner of Seneca and Exchange Streets for doing business. [3] The United States also issued Interest Bearing Notes during the war that were legal tender for most financial transactions. As the fighting broke down the age-old bias against government intervention in the economy, a wave of transformational legislation was passedboosting investment in continent-spanning railways, providing free land to Americans willing to move to the countrys Western fringes, and laying the groundwork for a network of public universities that would provide practical higher education to the masses. The government would ultimately spend some 60 times that amount. Civil War Facts: 1861-1865. By contrast, the South had to rely heavily on printing money. FINANCING THE WAR The scale and scope of the Civil War created unprecedented financial demands on both the Union and the Confederacy, whose governments spent a combined total of more than $3.4 billion for the war effort. After all, most Southern banks came to regard them as proper payment for all debts. After its implementation, it accounted for about half of total revenue if it was converted into currency equivalent. Yankee Leviathan: The Origins of Central State Authority in America, 1859-1877. In many ways, describing these financing activities reveals a tale of two countries. (June 29, 2023). US condemns burning of Koran in Sweden | Reuters The 'official' date for the start of the Civil War is given as April 12, 1861, when Fort Sumter in South Carolina was bombarded by the Confederates, but it obviously began at a much earlier date. Jaremski, Matthew. The federal government ("the North") and the Confederacy ("the South") took two very different paths when it came to funding the American Civil War. New York: Cambridge University Press. President Buchanan also had to rely on borrowed funds to pay for his initiatives involving Cuba and the Mormon territory, as well as the expansions of the Navy and the postal service. It was not repeated. reselling) the bonds, Erlanger was quite successful. 1 (Winter, 1952): 35-44. Resort must be had to taxes, direct or indirect, or both, to place the government upon a basis of credit which will enable it to command the required means [to fight the war].Geneva Gazette, January 24, 1862. Southerners wary of national political and economic dominance by the central state were not interested in the issuance of a national currency. In the North, for example, the government used taxation to raise 21 percent of the. A Confederate Success in Europe: The Erlanger Loan, The Journal of Southern History, Vol. 2 (June, 1975): 299-326. In total, by the end of the war, the CSA had used more than fourteen bond issues to fund a bit more than one-third of its expenditures. History Chapter 14-Civil War Test Flashcards | Quizlet Issuing paper money in the form of Treasury notes achieved several purposes, the most practical of which involved the provision of a freely circulating medium of exchange. The paper money in circulation before the Civil War was issued by individual banks, usually regulated by the states. Myers, Margaret G. A Financial History of the United States. As a result, it had to get about 75% of the cost of the war from either borrowing money or simply printing more. [1] In February and March 1861, with secession already in process, the prospects of civil war growing, and the Treasury's cash position at a very low level, Congress passed two separate bills authorizing the issuance of $35 million worth of government bonds. The Society maintains four historic 19th century properties, an archive and library, a museum and runs programs and events related to the history of Geneva and the Finger Lakes area. Britain needed Northern grain more urgently than Southern cotton, for it had large stocks of cotton when the war began. With America split, how did the North and South finance the civil war? All rights reserved. Much of the reason that tax revenue did not play as large a role for the Confederacy 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. We were whipped in the Treasury Department. But the fight was a clash of values and outlooks as much as a contest of arms or bond issues. Congress instituted a small export duty on cotton, and earmarked the proceeds of that tax to pay both interest (8%) and principal (in ten years) on that loan. Phillips, Chester Arthur. To maintain these reserves, the new federal currency could not be exchanged for specie. There are three ways to do this: increasing taxes, borrowing funds, or printing money. The bloody and costly war that raged for four tumultuous years affected the lives of all people in the North and South. Cotton, which many Confederates had regarded as a great potential source of revenue and collateral, provided little help as the South found itself increasingly isolated from foreign markets. The economic history of the American Civil War concerns the financing of the Union and Confederate war efforts from 1861 to 1865, and the economic impact of the war. Bensel, Richard Franklin. "You've essentially stopped a civil war, you acted . But the total revenue raised in this way during the entire war was only about $3.4 million. First National Bank of Geneva stood on the south corner of Seneca and Exchange Streets. Giroux, Gary. On April 1, 1864, the Currency Reform Act of 1864 went into effect. Historic Geneva is a history museum in the Finger Lakes region of New York State which focuses on the history of Geneva, NY, historic architecture, genealogy, and the area's industry and agriculture. please confirm that you agree to abide by our usage policies. 2 (June, 1966): 206-22. France's Involvement in the U.S. Civil War - The Classroom However, the initial costs of expanding the Federal Army and Navy to meet the overt belligerence of the CSA totaled more than $24 million. of your Kindle email address below. So they were able to maintain the productivity of their agricultural, industrial, and commercial enterprises. Facts - The Civil War (U.S. National Park Service) The Financial Sources of the Union in the American Civil War The changes brought about by the crisis of war were the beginnings of the banking system we have today. Prior to 1861, the USA relied on tariffs and custom duties for most of its revenue. "Financing the War First National Bank of Geneva was begun in 1863 by several men with Canandaigua banking connections. Eugene Lerner, "Money, Prices and Wages in the Confederacy, 1861-1865", This page was last edited on 15 March 2023, at 00:19. Yet, both the central government and the states were quite willing to print some forms of currency in the form of both interest-bearing and non-interest-bearing notes. Encyclopedia.com. In August 1861, the government authorized its first income tax, which was eventually expanded to all incomes over $600. The federal government had traditionally relied on tariffs for the bulk of its revenue, but tariff revenues, despite sizeable increases in rates, could not keep pace with wartime demands. Log in here. By Bridget Bowman and Ben Kamisar. Other voices joined him in doubting the power of a legal tender declaration to restrain the high rate of inflation and large amount of counterfeiting that continued to plague the Southern economy throughout the duration of the war. Three years later, Alexander Chew, Phineas Prouty, Corydon Wheat, Thomas Hillhouse and Thomas Raines bought out the bank and made Chew President. This came from a combination of income tax and taxes levied on other products and services, like legal documents, liquor and advertising. Total loading time: 0 How did the North finance the war? State Banks and the National Banking Acts: A Tale of Creative Destruction. November 2010. The Antebellum Period in American history is generally considered to be the period before the Civil War and after the War of 1812, although some historians expand it to all the years from the adoption of the Constitution in 1789 to the beginning of the Civil War. The end of the Civil War hardly resolved the nation's financial problems. Grossman, Hershel I. and Taejoon Han. The Rothschilds & The Civil War - The Mad Truther The most controversial action was the 1862 passage of the Legal Tender Act, which allowed the government to print paper money (greenbacks) to pay its bills. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Over a century before anyone had even coined the term, "fake news," our own government put a spin on the real cause of the . Accessed 1 July 2023. Who are the experts?Our certified Educators are real professors, teachers, and scholars who use their academic expertise to tackle your toughest questions. Tennessee, Mississippi, Alabama, Georgia, Florida, South Carolina, North Carolina and Virginia. @free.kindle.com emails are free but can only be saved to your device when it is connected to wi-fi. These expenditures dwarfed those of the antebellum period: The federal government never spent more than $75 million per year in the 1850s. 2019Encyclopedia.com | All rights reserved. {\displaystyle MV=PY}, where M is the money supply, V is the velocity of money (related to people's demand for money), P is the price level and Y is real output. Despite its, Governments need money so they can provide important services to their citizens. The postwar South, on the other hand, found itself with a worthless currency of Confederate dollars, a paucity of banks, and an enormous debt. 11 October 2019. By the end of the war, Northern citizens paid higher taxes per capita than citizens of any other nation. Hill, Joseph A. In 1863 Congress enacted Chases plan for a national banking system, in which federally chartered and supervised banks issued Treasury notes and held federal bonds. Throughout the war years, despite numerous political, institutional and infrastructure-related obstacles, the CSA collected more than $200 million from duties and taxes, a bit more than 9% of its total revenue. [3] In response, Congress authorized the sale of $250 million worth of bonds and the imposition of an income tax. With the wars costs steadily mounting, and the governments ability to sell bonds still somewhat constrained, Congress approved the sale of an additional $150 million worth of greenbacks in early 1863. PDF Monetary Policy in the Confederacy - Richmond Fed Historical sources differ a bit on the exact percentages of their wartime expenses those territories raised from various sources. While this provision yielded large amounts of foodstuffs for the Confederate armies, it did not help increase the funds in the Treasury Departments coffers. Homefront Finance. The Confederate Congress authorized them in several tranches. 2 (Jan., 1925): 282-97. In fact, this funded about 60 percent of the cost of war, though printing so much money caused a huge increase in inflation. In August, the Confederate Congress extended and expanded this Produce Loan to $100 million; in April 1862, it extended it further to $250 million. 36, No. Arguably the two most famous military personalities to emerge from the American Civil War were Ohio born Ulysses S. Grant, and Virginia born Robert E. Lee. poll taxes, excise taxes, property taxes, business taxes, and import duties. However, the date of retrieval is often important. Patterson, Robert T. Government Finance on the Eve of the Civil War, The Journal of Economic History, Vol. Military setbacks in the field also played a role by causing loss of confidence and by fueling inflationary expectations. New York: The Macmillan Company, 1921. How Abraham Lincoln financed the civil war This system of independent issuers of money had its flaws, but it had been capable of handling the countrys financial needs. Confederate war finance involved the various means, fiscal and monetary, through which the Confederate States of America financed its war effort during the American Civil War of 1861-1865. Athens: University of Georgia Press, 2009. The Confederacy chose wrong, and lost. Find out more about the Kindle Personal Document Service. how did the north finance the civil war? Each had three basic options: extracting resources through taxes, tariffs, or outright confiscation; borrowing money by issuing bonds, interest-bearing notes, and other financial instruments; and inflating the money supply with fiat currency. Again, the Union blockade severely restricted exports of that and many other products. Issued loans accounted for roughly 21% of the finance of Confederate war expenditure. By Roger Lowenstein. Carriage House Visitor Center and Gift Shop, Genevas Diverse Communities Online Resources, Diversity, Equity, and Inclusion Statement, US Banking History, Civil War to World War II., State Banks and the National Banking Acts: A Tale of Creative Destruction., A History of the Greenbacks with Special Reference to the Economic Consequences of Their Issue 186265. Then, copy and paste the text into your bibliography or works cited list. As a consequence, by the summer of 1862, the share of government revenue coming from these donations fell to less than 1%. 40 Region Focus Fall 2005 repercussions long after the warended. The South also raised the necessary funds by printing paper money. Though far less severe than in the Confederacy (80% compared to 9000%), complaints about the Unions actions appeared in the press: Rise in Prices.Almost every article of domestic consumption has doubled in price within the past two years, and in some instances has trebled; and upon those who depend upon fixed wages, for the support of themselves and family, have fallen heavily. However, because of Union control of the Mississippi River, until January 1865 the law was effective only east of the Mississippi.[3]. The Civil War and the National Banking System - CoinWeek Wagner And the goal of the North and Abraham Lincoln was to end the status of secession and bring the South back into the Union. A People's Contest: The Union and the Civil War, 18611865, 2d edition. Therefore, that information is unavailable for most Encyclopedia.com content. We were whipped in the Treasury Department." He was partly right. Historically the states had invested little money in infrastructure or public goods. Emerging Civil War Between 1862 and 1865, more than 60% of total revenue was created in this way. Surdam, David. please confirm that you agree to abide by our usage policies. Copy. His spectacular success in selling these obligations prompted Congress to authorize another $830 million bond issue in early 1865; Cookes firm sold them all by the summer of that year. 55, No. Financing the American Civil War, Contrasting North and South The north financed the war by three means: taxes, loans, and paper money. Thorndike, Joseph J. The new currency became quite acceptable as fiat money by merchants and consumers alike. Copyright The Economist Newspaper Limited 2023. Furthermore, what exactly constituted "Northern property" proved hard to define in practice. [4] The end of 1861 found the Lincoln Administration reassessing the federal governments need for funds to prosecute what officials now believed would be a long and expensive conflict. The total amount of notes outstanding rose to more than $300 million by the summer of 1861 and to more than $1.5 billion by the end of 1864.[13]. But the Confederacy did not need to win the war outright; it had only to struggle on until the people of the North grew tired enough of fighting to seek a peace. The bank was located in the newly constructed Bank of Geneva building at the northeast corner of Seneca and Exchange Streets, directly across from its rival. Outbreak of the Civil War (1861) The Civil War in Virginia (1862) After the Emancipation Proclamation (1863-4) Toward a Union Victory (1864-65) The Civil War in the United . G. Northern Naval Superiority and the Economics of the American Civil War. Trescott, Paul B. By November 1861 the proportion of government revenue coming from custom duties had dropped to one-half of one percent. Both funding mechanisms proved inadequate. Two powerful accounts of Hong Kongs protest movements, How Abraham Lincoln financed the civil war, Emily St John Mandels new novel is her most ambitious yet, Atlanta matches method with message to sensational effect, California: Do Not Sell My Personal Information, Formula Ones oldest drivers are showing the youngsters how to do it, Used and abused by Russian rulers, Tolstoy has always resisted, The curious, anaesthetising charm of Sichuan peppers. French Neutrality The French government took its lead from the British and declared its neutrality during the Civil War, refusing to intervene without the backing of Britain. The Union had a population of 22 million, while the Confederacy only had 9 million. These were plentiful because Southern "Greybacks" were fairly crude and easy to copy, as the Confederacy lacked modern printing equipment. Treasury Secretary Memminger officially acknowledged the circulation of about $20 million worth of all these state/city/business notes; but historians have never been able to determine the true amount outstanding of these collective forms of money. The Union found itself in precisely such a situation in the winter of 186162, when a series of military reverses and the possibility of war with Britain threatened the solvency of both the nation's banking system and the treasury department.

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