Inflation during the war

[gary]

I'm still reading McPheeters' I Acted From Principle and on page 183 that per Richmond's order, the old Confederate currency could not be used except at a 33% discount. That's a substantial loss in purchasing power and there is no mention of opportunity to exchange it for new currency before the discount took effect.

That smacks of India's recent attempt to go cashless and for people to surrender their 100 and 500 rupee notes (about 80% of the currency) within two weeks and after the surrender date, the notes would no longer be honored. A backward country, the Indian Government had already did a biometric scan of its entire population. People were supposed to turn their money in at the bank and then be credited by the bank for it. Once at the bank they were met by a tax collector who seized any funds he thought were from fraudulent activity. Equally damaging was the unpreparedness of the merchants for cashless transactions and everything went belly up. After about six months, new rupee notes were issued.

Back to the Civil War. On page 183 McPheeters reports tha gold is $290 in NYC and on page 184 $325 in St. Louis. I think McPheeters is misinformed about the price of gold in the Union and the devaluation of the greenback didn't take place until after the war. On page 200 McPheeters mentions he paid $1.50 for what used to be a nickel worth of paper matches. That's thirty times what it used to be. There's quite a few times when McPheeters uses a combination of gold, Confederate money and greenbacks to buy something.

Has anyone done a study about inflation in the Confedearcy?

 

[Don Dixon]

I don't mean to be sarcastic, but on what data would anyone base calculations of inflation in the South? The Confederacy's economy did not function in the real world. Common consumer goods run through the blockade achieved astronomical prices. Foreign exchange rates give some ideas regarding inflation, particularly in the North.

Exchange rates for Federal and Confederate currency varied with the momentary military successes of each side in the conflict, with most foreign suppliers demanding payment in gold. The New York market price for one ounce of fine gold averaged $20.67 in 1860. It remained stable in 1861, but increased to $23.42 in 1862, $30.02 in 1863, $42.03 in 1864, and decreased to $32.52 in 1865; giving an indication of the depreciation of Federal currency during the war. It did not return to $20.67 until 1879. By 1863 the only international support for Confederate currency was the spot price per pound of cotton run through the blockade and the sales of Confederate bonds in Europe which were supported by the Confederacy's promise to redeem the bonds in cotton. Meanwhile, the average London market price for gold remained stable at £4.24 per ounce for the entire period, illustrating the stability and strength of the British pound vice the Federal and Confederate dollar. (U.S. Geological Survey data cited at measuring worth. com)

Regards,
Don Dixon

 

[leftyhunter]

I'm still reading McPheeters' I Acted From Principle and on page 183 that per Richmond's order, the old Confederate currency could not be used except at a 33% discount. That's a substantial loss in purchasing power and there is no mention of opportunity to exchange it for new currency before the discount took effect.

That smacks of India's recent attempt to go cashless and for people to surrender their 100 and 500 rupee notes (about 80% of the currency) within two weeks and after the surrender date, the notes would no longer be honored. A backward country, the Indian Government had already did a biometric scan of its entire population. People were supposed to turn their money in at the bank and then be credited by the bank for it. Once at the bank they were met by a tax collector who seized any funds he thought were from fraudulent activity. Equally damaging was the unpreparedness of the merchants for cashless transactions and everything went belly up. After about six months, new rupee notes were issued.

Back to the Civil War. On page 183 McPheeters reports tha gold is $290 in NYC and on page 184 $325 in St. Louis. I think McPheeters is misinformed about the price of gold in the Union and the devaluation of the greenback didn't take place until after the war. On page 200 McPheeters mentions he paid $1.50 for what used to be a nickel worth of paper matches. That's thirty times what it used to be. There's quite a few times when McPheeters uses a combination of gold, Confederate money and greenbacks to buy something.

Has anyone done a study about inflation in

Former Confederate General Alexander Porter discussed that is due in his biography but I am not at home right now.
Porter did mention a Confederate dollar was initially worth on greenback but not for to long.
I once asked Professor Laffer back in 1981 a,question about inflation and Laffer said " how much was the South Vietnamese Piaster worth when the North Vietnamese invaded Saigon in 1975? The answer is nothing.
Currency is worth only what people think it is worth.Once the general population thinks the Confederacy is going to loose then Confederate currency looses value.
Leftyhunter

 

[gary]

From Burton's Siege of Charleston:

"In the Spring of 1863, corn was selling for $225 a bushel and bacon was $1.00 a pound. By next spring bacon hd gone up to $5.00 a pound; butter was $6.00 a pound; sugar, $8.00 a pound; fresh shad, $10.00 each; tea, when obtainable, $15 to $25 a pound, according to quality. Along with increased cost of food and merchandise, men's wages had risen, although they probably did not keep abreast of the inflation. Wages in early 1864 were $10 per day for common labor and $15 for skilled labor, but by this time a pair of boots was bringing $90; later they reached the fantastic price of $250. In spite of the inflation, people managed somehow to find the money to make purchases whenever there was anything to buy."

pages 263-4.

 

[DaveBrt]

From Burton's Siege of Charleston:

"In the Spring of 1863, corn was selling for $225 a bushel and bacon was $1.00 a pound. By next spring bacon hd gone up to $5.00 a pound; butter was $6.00 a pound; sugar, $8.00 a pound; fresh shad, $10.00 each; tea, when obtainable, $15 to $25 a pound, according to quality. Along with increased cost of food and merchandise, men's wages had risen, although they probably did not keep abreast of the inflation. Wages in early 1864 were $10 per day for common labor and $15 for skilled labor, but by this time a pair of boots was bringing $90; later they reached the fantastic price of $250. In spite of the inflation, people managed somehow to find the money to make purchases whenever there was anything to buy."

pages 263-4.

Yesterday I read a part of a letter to the Confederate Quartermaster General, written in January 1864. The author was the owner of a factory that made thread near Charleston. He said that it was difficult to find anyone to buy his output for cash, but easy to find other manufacturers who would trade their products for his. Of course this barter economy made life difficult, since the man who owned the item that you wanted to buy may have had no use for the product you produced, requiring three-way and four-way barters to get what you needed.

The barter economy would make it very difficult to determine the true inflation, though such an economy would only exist if there was inflation beyond what the cash system could handle. The Confederacy was always short of cash, so railroads and manufacturers were often forced to accept bonds in payment from the Government. These, of course, would be too large to use in paying wages and general purchases.

 

[James N.]

... Has anyone done a study about inflation in the Confedearcy?

If you mean academically the answer is a definite yes - most general histories of the war also touch on the problem since it had a profound effect on civilian support for the war, and a corresponding effect on the army's desertion rate.

 

[leftyhunter]

Actually I asked Arther Laffer (The economist who popularised the "Laffer Curve" theory" ) in 1981 essentially the same question but regarding South Vietnam. Once confidence in the South Vietnamese government dwindled and then collapsed the Piaster lost value.
Same in the American Civil War.
Leftyhunter

 

[leftyhunter]

Yesterday I read a part of a letter to the Confederate Quartermaster General, written in January 1864. The author was the owner of a factory that made thread near Charleston. He said that it was difficult to find anyone to buy his output for cash, but easy to find other manufacturers who would trade their products for his. Of course this barter economy made life difficult, since the man who owned the item that you wanted to buy may have had no use for the product you produced, requiring three-way and four-way barters to get what you needed.

The barter economy would make it very difficult to determine the true inflation, though such an economy would only exist if there was inflation beyond what the cash system could handle. The Confederacy was always short of cash, so railroads and manufacturers were often forced to accept bonds in payment from the Government. These, of course, would be too large to use in paying wages and general purchases.

T.J.Stiles quoted a Baseball commissioner who recalled that in post Civil War era Missouri there simply was no cash and the medium of exchange was apple butter. In post Civil War era Missouri one had best like Apple butter.
Leftyhunter

 

[kevikens]

It has been my experience that if an otherwise goof writer is going to get something wrong about the Civil War, it's going to be with its currency and financing. First of all the use of the term nickel for a five cent piece is post Civil War. The five cent piece of the Civil war was a silver half dime. Whoever is using that term, nickel for the price of something before or during the war has not made much of a study of that era's money.

Secondly, the price of gold. The figure often quoted, that on such and such a date gold sold for X dollars does NOT mean that is the price per ounce, That figure is the creation of a consortium of bankers and investors (and speculators) on the ratio of gold in dollars to dollars in paper Greenbacks. When it was posted by those speculators in Gold Room in NYC (it changed every day) that gold was selling at 150 it did not mean it was selling at $150 per ounce but that it took $150 in Greenbacks to buy $100 in gold. Corporal Dixon (see above) has the correct price of what gold sold for during the war. In addition the market place in the Confederacy had an unofficial rate of exchange between Confederate Bluebacks and Union Greenbacks. For the first year and a half of the war Confederate notes traded pretty closely to Northern notes in value. But the Confederacy printed an endless cascade of paper backed by nothing but hope while the US had the California goldfields and Colorado silver mines, which, while not directly linked to US paper, looked pretty good compared to one based on hope and little else. Southern state notes and local shinplasters went for whatever the market would accept. One exception to this is Virginia Treasury Notes which kept a good deal of their value. Virginia did not over issue them and allowed them to be used for tax payments and did not throw all of them back into circulation but gradually withdrew them from circulation, keeping up their value (and making them scarcer for today's collectors).

For both North and South there were two sources of inflation, one being the decline in the value of their currencies which the market compensated for by raising the prices of their goods and services. Relative to gold dollars this kind of inflation was modest, if one could pay in gold. (By the way, to attract investors to buy US bonds , the US Government would accept payment, at face value in depreciated greenbacks but would guarantee that interest payments in those bonds were payable in gold). The other cause, again for inflation in both the North and the South, was the scarcity of consumer goods and here the South fared very badly indeed. As many readers know much of what the South consumed in the Ante Bellum period was manufactured in the North, items not like just locomotives, shovels and tombstones , but those Lucifer matches mentioned by the OP. What industry the South had, went for war materiale so that something as simple as a sewing needle rose in price rapidly in the South as we can see from adds in Southern newspapers (before they too disappeared as too expensive to print). In those newspapers readers were offering to buy them at a very high price. The North was less adversely affected by this kind of inflation. Northern farms and factories could keep Northern consumers, and the Union Army, in guns AND butter (and, presumably pins and needles). The North suffered an inflationary increase in prices that varied from annoying to downright crippling but the South's inflation went from downright crippling to catastrophic collapse for Southern consumers and the Southern war effort.

If there is one area of the American Civil War that needs more study and more accurate analysis, it is the area of finance and money.