), and create an emergency tax (on top of the new rates) on incomes over $600. The USA did get money from excise taxes and tariffs and from the first-ever income tax, but that was not anywhere near to enough money. The Union also had much more industrial capacity, which meant they could produce more weapons and supplies. During the Civil War, the North and the South used a number of methods to fund the cost of fighting. The North emerged from the war in a relatively strong financial position. The northern inflation rate was tame compared to the 9,000 percent increase in prices the Confederacy suffered. A flat tax taxes everybody at the same tax rate. 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. It lacked a central bank to help manage the governments credit. The northern government had more money and stock in the National Bank . The suffering of Northern families, however, paled in comparison to that of Confederate households. https://www.encyclopedia.com/defense/energy-government-and-defense-magazines/financing-war, "Financing the War In the first several months of marketing (i.e. Taussig, F. W. The Tariff History of the United States, Part I. The north financed the war by three means: taxes, loans, and paper money. Income taxes provided the federal government $55 million in revenue during the course of the war, but a comprehensive series of excise taxes on certain goods and licenses proved much more important. Investors shunned bonds, and taxes could not provide an immediate infusion of revenue. Yet while the Unions finances seemed in danger of collapsing early in the war, Lincolns administration soon began constructing the machinery to effectively tap the strength of the American economy. 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). [3] In response, Congress authorized the sale of $250 million worth of bonds and the imposition of an income tax. [5] By October 1864, the price index was at 2800, which implies that a very large portion of the rise in prices occurred in the last six months of the war. 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. In the first half of 1861, when the support for secession and the military effort was running strong, the donation of coins and gold to the government accounted for about 35% of all sources of government funds. The gold premium also rose following the passage of the US Conscription/Finance Bill that increased the North's ability to finance the war and draft soldiers. March 16, 2008. 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. The income tax is charged, or levied, as a pe, FLAT TAX PROVISION (ISSUE) April 12, 1861 - April 26, 1865 Location: United States Participants: Confederate States of America United States Major Events: Battle of Antietam Fort Pillow Massacre Battle of Gettysburg Battle of the Monitor and Merrimack Battle of Monocacy . The economic structure, the way we know it today, was not present in the North. The era also pro-vides important lessons for monetarypolicymakers and researchers. Three years later, Alexander Chew, Phineas Prouty, Corydon Wheat, Thomas Hillhouse and Thomas Raines bought out the bank and made Chew President. How did the North finance the Civil War? and Marc D. Weidenmier. In the South, early bonds sold well but they declined in popularity due to rising rates of inflation (because people realised that their return would not be high). Estimates of the extent of inflation vary by source, method used, estimation technique, and definition of the aggregate price level. The Sequestration Act of 1861 provided for confiscation of all Union "lands, tenements, goods and chattels, right and credits" and the transfer of debt obligation on the part of Confederate citizens from Northern creditors directly to the Confederate government. reselling) the bonds, Erlanger was quite successful. The Confederate government managed to honor the Cotton Bonds throughout the war, and in fact their price rose steeply until the fall of Atlanta to Sherman. Unable to produce its own goodsor to sell its cotton, thanks to the Union blockadethe Confederate economy ground to a halt. , This article appeared in the Culture section of the print edition under the headline "Battle of the bonds", Discover stories from this section and more in the list of contents, Fernando Alonso and Lewis Hamilton could yet give Max Verstappen a run for his money, The novelist and prophet of peace is at his most urgent in a time of war, Like some other adventurous foods, they expand your sense of what eating can do to you, Published since September 1843 to take part in a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress.. A strong sense against accumulating debt characterized administrations from Thomas Jefferson to Franklin Pierce. The north financed the war by three means: taxes, loans, and paper money. The financial panic that gripped the nation later that year led to a sharp decline in revenue from tariffs and duties, and required the Treasury to issue large amounts of bonds and notes to cover the shortfall. 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. www.essentialcivilwarcurriculum.com is using a security service for protection against online attacks. The share of direct taxes in total revenue for the North was about 20%, while for the South the same share was only about 8%. The director was Samuel Verplanck, a former cashier at the Bank of Geneva. When James Buchanan became President in March 1857, the federal debt level was a modest $28 million. 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. [2] During the next few months, increased tariffs and another modest note sale added about $15 million to the Treasury. The Yankees did not whip us in the field, noted one Confederate soldier. All rights reserved. Schwab, John Christopher. Under the leadership of Treasury Secretary Salmon P. Chase, the national debt skyrocketed from $90.6 million in 1861 to almost $2.8 billion in 1866. Patterson, Robert T. Government Finance on the Eve of the Civil War, The Journal of Economic History, Vol. The federal government ("the North") and the Confederacy ("the South") took two very different paths when it came to funding the American Civil War. On February 25, 1862, the U.S. Congress passes the Legal Tender Act, authorizing the use of paper notes to pay the government's bills. Oct 25, 2019 #1 Financing the American Civil War, Contrasting North and South The start of the American Civil War forced both the Confederate and Union governments to rapidly develop strategies to fund their military efforts. We use cookies to distinguish you from other users and to provide you with a better experience on our websites. 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. First National Bank of Geneva was begun in 1863 by several men with Canandaigua banking connections. What role did the civilian population in the North and the South play in the Civil War effort. poll taxes, excise taxes, property taxes, business taxes, and import duties. On February 8, 1861, the Provisional Confederate Government accepted a loan of $500,000 from the State of Alabama. Doing so would also provide money for establishing the CSAs financial infrastructure and for paying the providers of war materials. [8], The two main types of loans issued by the South during the war were "Cotton Bonds", denominated in pounds sterling and sold in London, and high risk unbacked loans sold in the Netherlands. Treasury Secretary Salmon P. Chase started the first war bond program in American history to provide loans to the federal government. The northern states were not the scene of significant fighting. Phillips, Chester Arthur. 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. While the South also used taxation, it was not as lucrative as in the North, creating only 6 percent of the money needed. [1] Initial optimistic estimates of revenue to be collected through this tax ran as high as 20 million dollars, but in the end only $30,000 was collected. Athens: University of Georgia Press, 2009. However, revenue from the tariffs all but disappeared after the Union imposed its blockade of Southern coasts. 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. Thorndike, Joseph J. In the meantime, in May, the Confederate Congress had authorized another $50 million bond offering. Confederate Finance. When Abraham Lincoln took the presidential oath in March 1861, the federal debt stood at the unusually high level of almost $77 million. This extraordinarily high rate of inflation highlighted a central problem for the Confederacy: It was fighting a fundamentally modern war without the ability to pay for it. The south was only able to raise roughly 6% of war funds through taxation due to being less developed and being economically cash poor. 17, No. The economic consequences of the American Civil War (1861 - 1865) are largely due to Northern control of the federal government during and for several decades after the War. WAR CAN expose a societys weaknesses, or give expression to its latent potential. Why did some Southern states secede immediately after Lincolns election in 1860? 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. This lesson, apt today, applied. While the North was able to support themselves and pay for the war with only some debt, the South was struggling not only to take care of their troops, but to take care of the Union soldiers they had captured. Wars are expensive. Encyclopedia.com. First National Bank of Geneva stood on the south corner of Seneca and Exchange Streets. So they were able to maintain the productivity of their agricultural, industrial, and commercial enterprises. Paludan, Phillip Shaw. The Confederate Congress authorized them in several tranches. 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. 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. [3] The Secretary of the Treasury of the Confederate States, Christopher Memminger (in office 1861-1864), was keenly aware of the economic problems posed by inflation and loss of confidence. It recognized those people had large amounts of cotton, tobacco, or other provisions that they would be willing to loan the government. The Economic Cost of the American Civil War. [4] Initially the South was more successful in selling debt than the North,[2] partially because New Orleans was a major financial center. 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. 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 American Civil War cost the federal government $3.2 billion and for the Confederacy, some $2 billion. Borrowing did not alleviate the financial hardships of warNortherners paid extraordinarily high taxes, and a general increase in prices resulted in declining real wages. new universities. New York: Charles Scribners Sons. ), Gold and Freedom: The Political Economy of Reconstruction, Yankee Leviathan: The Origins of Central State Authority in America, 18591877, New York City Banks and the Development of the National Banking System, 18601870, Sovereignty and an Empty Purse: Banks and Politics in the Civil War, The Greatest Nation of the Earth: Republican Economic Policies during the Civil War, Debtor Diplomacy: Finance and American Foreign Relations in the Civil War Era, 18371873, Like a Cord Through the Whole Country: Union Bonds and Financial Mobilization for Victory, Turning Points in the US Civil War: Views from the Grayback Market, Turning Points in the Civil War: Views from the Greenback Market, Find out more about saving to your Kindle, Book: The Cambridge History of the American Civil War, Chapter DOI: https://doi.org/10.1017/9781316650707.010. New York: The Macmillan Company, 1921. He sold government bonds both to financiers and ordinary people. President Abraham Lincoln, whose victory in the election of 1860 precipitated secession, was determined to preserve the Union. Over the course of the entire war, this source of revenue contributed only 0.2% of total wartime expenditure. As they approached the task of financially supporting even a short war, both men understood that nations had traditionally used three major sources to finance their wars: borrowing money, printing money, and raising money through taxation. Weapons and munitions need to be purchased in large.
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