The Confederate Fiscal and Monetary Policy" an All-Encompassing Failure

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lurid

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After studying the Confederates economic strategy under Christopher Memminger It has me wondering why in the world the south engaged in the CW. The bottom line is that once the Union blockaded southern ports the south could not export cotton, which is how it accrued the majority of its revenue. Consequently, there was no way the Confederates could have funded the war within a an economically sound sphere. Christopher Memminger implemented some awful economic polices that worsened the Confederates economic position. However, can we blame Memminger or just the south didn't have the wherewithal to fund the war?

Revenue sources:

1). Tariffs: could not collect money because of the Union blockade on southern ports.

2). Taxation: collected only 8.2% taxes of its total revenue.

3). Loans: the Confederacy accepted a $15 million loan from the French banking house of Emile Erlanger that yielded much less than its face value (about $8.5 million).

4). Government securities: The South successfully sold some long-term government securities during the early stages of the war. Bond issues proved a limited source of war financing as Southern prospects diminished, however. Investors increasingly shied away from purchasing securities offered by a government with little or no tax base and a deteriorating military situation.

5). Exports: some 2.5 million bales of cotton were burned in the South to create a cotton shortage. Indeed, the number of southern cotton bales exported to Europe dropped from 3 million bales in 1860 to mere thousands. The South, however, had made a pivotal miscalculation. Southern states had exported bumper crops throughout the late 1850s and in 1860, and as a result, Great Britain had a surplus of cotton. Too, apprehension over a possible conflict in America had caused the British to accumulate an inventory of one million bales of cotton prior to the Civil War. Couldn't unload its primary crop.

6). Bonds: In 1861 the Confederacy sold bonds worth $150 million in the so-called Bankers Loan, which secured much-needed specie. The government also tapped agricultural staples through the Produce Loan, in which planters pledged their produce in exchange for government paper. Against the receipts of these loans, Memminger issued Treasury notes, circulating paper money with which the government paid its bills. In August, 1861 the Confederate Congress passed a War Tax on various kinds of property to increase government resources. Unfortunately Memminger's department was inefficient in collecting the produce subscribed to the Produce Loan, and he allowed taxes to be paid in inflated state currency.

7). Printing paper money: 1 billion in Confederate notes were printed, double the number of Greenbacks with north had a much higher population. This caused hyperinflation, at 9,000%. A Confederate dollar worth eighty-two cents in gold or silver in 1862 plummeted to $.017 in 1865. The hyperinflation was a inverse tax put on southerners.

8) Impressment: confiscating goods, property and all other commodities was the last resort of a desperate government trying to accrue revenue.


In conclusion, the Confederates created a $700 million national debt along with 9,000% hyperinflation, which are leading indicators that it should have never engaged in the Civil War because they could not afford to finance it. I just wonder why the south even bothered when the debacle was on the horizon and the writing was on the wall.








Ball, Douglas B. Financial Failure and Confederate Defeat. Urbana: University of Illinois Press, 1991.


Brown, William O. and Richard C. K. Burdekin. “Turning Points in the U.S. Civil War: A British Perspective.” Journal of Economic History 60, no. 1 (2000): 216-31.


Burdekin, Richard C. K. and Farokh K. Langdana. “War Finance in the Southern Confederacy.” Explorations in Economic History 30, no. 1 (1993): 352-376.


Burdekin, Richard C. K. and Marc D. Weidenmier. “Inflation is Always and Everywhere a Monetary Phenomenon; Richmond vs. Houston in 1864. American Economic Review 91, no. 5 (2001): 1621-1630.


Burdekin, Richard C. K. and Marc D. Weidenmier. “Legal Restrictions Theory and Interest-Bearing Money: Lessons from the Southern Confederacy.” Cato Journal, in press, 2002a.


Burdekin, Richard C. K. and Marc D. Weidenmier. “Suppressing Asset Price Inflation: The Confederate Experience, 1861-1865.” Economic Inquiry (forthcoming).
 

leftyhunter

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After studying the Confederates economic strategy under Christopher Memminger It has me wondering why in the world the south engaged in the CW. The bottom line is that once the Union blockaded southern ports the south could not export cotton, which is how it accrued the majority of its revenue. Consequently, there was no way the Confederates could have funded the war within a an economically sound sphere. Christopher Memminger implemented some awful economic polices that worsened the Confederates economic position. However, can we blame Memminger or just the south didn't have the wherewithal to fund the war?

Revenue sources:

1). Tariffs: could not collect money because of the Union blockade on southern ports.

2). Taxation: collected only 8.2% taxes of its total revenue.

3). Loans: the Confederacy accepted a $15 million loan from the French banking house of Emile Erlanger that yielded much less than its face value (about $8.5 million).

4). Government securities: The South successfully sold some long-term government securities during the early stages of the war. Bond issues proved a limited source of war financing as Southern prospects diminished, however. Investors increasingly shied away from purchasing securities offered by a government with little or no tax base and a deteriorating military situation.

5). Exports: some 2.5 million bales of cotton were burned in the South to create a cotton shortage. Indeed, the number of southern cotton bales exported to Europe dropped from 3 million bales in 1860 to mere thousands. The South, however, had made a pivotal miscalculation. Southern states had exported bumper crops throughout the late 1850s and in 1860, and as a result, Great Britain had a surplus of cotton. Too, apprehension over a possible conflict in America had caused the British to accumulate an inventory of one million bales of cotton prior to the Civil War. Couldn't unload its primary crop.

6). Bonds: In 1861 the Confederacy sold bonds worth $150 million in the so-called Bankers Loan, which secured much-needed specie. The government also tapped agricultural staples through the Produce Loan, in which planters pledged their produce in exchange for government paper. Against the receipts of these loans, Memminger issued Treasury notes, circulating paper money with which the government paid its bills. In August, 1861 the Confederate Congress passed a War Tax on various kinds of property to increase government resources. Unfortunately Memminger's department was inefficient in collecting the produce subscribed to the Produce Loan, and he allowed taxes to be paid in inflated state currency.

7). Printing paper money: 1 billion in Confederate notes were printed, double the number of Greenbacks with north had a much higher population. This caused hyperinflation, at 9,000%. A Confederate dollar worth eighty-two cents in gold or silver in 1862 plummeted to $.017 in 1865. The hyperinflation was a inverse tax put on southerners.

8) Impressment: confiscating goods, property and all other commodities was the last resort of a desperate government trying to accrue revenue.


In conclusion, the Confederates created a $700 million national debt along with 9,000% hyperinflation, which are leading indicators that it should have never engaged in the Civil War because they could not afford to finance it. I just wonder why the south even bothered when the debacle was on the horizon and the writing was on the wall.








Ball, Douglas B. Financial Failure and Confederate Defeat. Urbana: University of Illinois Press, 1991.


Brown, William O. and Richard C. K. Burdekin. “Turning Points in the U.S. Civil War: A British Perspective.” Journal of Economic History 60, no. 1 (2000): 216-31.


Burdekin, Richard C. K. and Farokh K. Langdana. “War Finance in the Southern Confederacy.” Explorations in Economic History 30, no. 1 (1993): 352-376.


Burdekin, Richard C. K. and Marc D. Weidenmier. “Inflation is Always and Everywhere a Monetary Phenomenon; Richmond vs. Houston in 1864. American Economic Review 91, no. 5 (2001): 1621-1630.


Burdekin, Richard C. K. and Marc D. Weidenmier. “Legal Restrictions Theory and Interest-Bearing Money: Lessons from the Southern Confederacy.” Cato Journal, in press, 2002a.


Burdekin, Richard C. K. and Marc D. Weidenmier. “Suppressing Asset Price Inflation: The Confederate Experience, 1861-1865.” Economic Inquiry (forthcoming).
Basically the Secessionists didn't think there would be a long war . One Southern US Senator just before the war said he would be able to drink all of the spilled blood in a thimble. Let's not forget the secessionists who said " one Johnny Reb can beat ten Billy Yanks".
The Secessionists were so overly optimistic that they had no plans and indeed no ability to build a large blue water Navy. A few British built raiders does not a navy make.
The secessionists also did not take into account that other sources of cotton could be found and where in Egypt and British India.
The secessionists also did not take into account that the Union can and did confiscate cotton growing land in South Carolina and Louisiana and did export cotton to Europe.
Yes there was a bumper crop of cotton in Western Europe but by 1862 there was "The Manchester cotton famine" which led to sever layoffs in the Greater Manchester area and also severe layoffs among cotton textile workers in France.
Leftyhunter
 

lurid

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Basically the Secessionists didn't think there would be a long war . One Southern US Senator just before the war said he would be able to drink all of the spilled blood in a thimble. Let's not forget the secessionists who said " one Johnny Reb can beat ten Billy Yanks".
The Secessionists were so overly optimistic that they had no plans and indeed no ability to build a large blue water Navy. A few British built raiders does not a navy make.
The secessionists also did not take into account that other sources of cotton could be found and where in Egypt and British India.
The secessionists also did not take into account that the Union can and did confiscate cotton growing land in South Carolina and Louisiana and did export cotton to Europe.
Yes there was a bumper crop of cotton in Western Europe but by 1862 there was "The Manchester cotton famine" which led to sever layoffs in the Greater Manchester area and also severe layoffs among cotton textile workers in France.
Leftyhunter
Then it was wanton hubris to the enth degree.
 
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leftyhunter

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After studying the Confederates economic strategy under Christopher Memminger It has me wondering why in the world the south engaged in the CW. The bottom line is that once the Union blockaded southern ports the south could not export cotton, which is how it accrued the majority of its revenue. Consequently, there was no way the Confederates could have funded the war within a an economically sound sphere. Christopher Memminger implemented some awful economic polices that worsened the Confederates economic position. However, can we blame Memminger or just the south didn't have the wherewithal to fund the war?

Revenue sources:

1). Tariffs: could not collect money because of the Union blockade on southern ports.

2). Taxation: collected only 8.2% taxes of its total revenue.

3). Loans: the Confederacy accepted a $15 million loan from the French banking house of Emile Erlanger that yielded much less than its face value (about $8.5 million).

4). Government securities: The South successfully sold some long-term government securities during the early stages of the war. Bond issues proved a limited source of war financing as Southern prospects diminished, however. Investors increasingly shied away from purchasing securities offered by a government with little or no tax base and a deteriorating military situation.

5). Exports: some 2.5 million bales of cotton were burned in the South to create a cotton shortage. Indeed, the number of southern cotton bales exported to Europe dropped from 3 million bales in 1860 to mere thousands. The South, however, had made a pivotal miscalculation. Southern states had exported bumper crops throughout the late 1850s and in 1860, and as a result, Great Britain had a surplus of cotton. Too, apprehension over a possible conflict in America had caused the British to accumulate an inventory of one million bales of cotton prior to the Civil War. Couldn't unload its primary crop.

6). Bonds: In 1861 the Confederacy sold bonds worth $150 million in the so-called Bankers Loan, which secured much-needed specie. The government also tapped agricultural staples through the Produce Loan, in which planters pledged their produce in exchange for government paper. Against the receipts of these loans, Memminger issued Treasury notes, circulating paper money with which the government paid its bills. In August, 1861 the Confederate Congress passed a War Tax on various kinds of property to increase government resources. Unfortunately Memminger's department was inefficient in collecting the produce subscribed to the Produce Loan, and he allowed taxes to be paid in inflated state currency.

7). Printing paper money: 1 billion in Confederate notes were printed, double the number of Greenbacks with north had a much higher population. This caused hyperinflation, at 9,000%. A Confederate dollar worth eighty-two cents in gold or silver in 1862 plummeted to $.017 in 1865. The hyperinflation was a inverse tax put on southerners.

8) Impressment: confiscating goods, property and all other commodities was the last resort of a desperate government trying to accrue revenue.


In conclusion, the Confederates created a $700 million national debt along with 9,000% hyperinflation, which are leading indicators that it should have never engaged in the Civil War because they could not afford to finance it. I just wonder why the south even bothered when the debacle was on the horizon and the writing was on the wall.








Ball, Douglas B. Financial Failure and Confederate Defeat. Urbana: University of Illinois Press, 1991.


Brown, William O. and Richard C. K. Burdekin. “Turning Points in the U.S. Civil War: A British Perspective.” Journal of Economic History 60, no. 1 (2000): 216-31.


Burdekin, Richard C. K. and Farokh K. Langdana. “War Finance in the Southern Confederacy.” Explorations in Economic History 30, no. 1 (1993): 352-376.


Burdekin, Richard C. K. and Marc D. Weidenmier. “Inflation is Always and Everywhere a Monetary Phenomenon; Richmond vs. Houston in 1864. American Economic Review 91, no. 5 (2001): 1621-1630.


Burdekin, Richard C. K. and Marc D. Weidenmier. “Legal Restrictions Theory and Interest-Bearing Money: Lessons from the Southern Confederacy.” Cato Journal, in press, 2002a.


Burdekin, Richard C. K. and Marc D. Weidenmier. “Suppressing Asset Price Inflation: The Confederate Experience, 1861-1865.” Economic Inquiry (forthcoming).
Also the secessionists didn't anticipate not only a long war but the Emancipation Proclamation. The secessionists forgot that during the American Revolutionary War the British did successfully recruit slaves by offering them freedom for themselves and their families and said slaves fought well. Ex slaves in the Union Army represent a double whammy for the Confederacy
A. Less labor
B. An extra soldier for the Union
Leftyhunter
 

WJC

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Hindsight is generally 20/20. The secessionists did not think far beyond the immediate objective of secession. Once that was done, they assumed (wrongly) that the Lincoln Administration would not oppose their actions. Of those who were realistic enough to believe that there might be armed conflict, few believed it would be long or that they would lose.
 

lurid

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Hindsight is generally 20/20. The secessionists did not think far beyond the immediate objective of secession. Once that was done, they assumed (wrongly) that the Lincoln Administration would not oppose their actions. Of those who were realistic enough to believe that there might be armed conflict, few believed it would be long or that they would lose.
How long did they think it was going to last once the found out Lincoln wasn't going to put up with their shenanigans? Once the Union blockaded their ports they started to lose money, so there had to have been some kind of shock.
 
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WJC

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How long did they think it was going to last once the found out Lincoln wasn't going to put up with their shenanigans? Once the Union blockaded their ports they started to lose money, so there had to have been some kind of shock.
Thanks for your response.
I'm sure it was, though few seem to admit it.
 

jgoodguy

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More like wishful thinking squared.
Leftyhunter
True of all wars.
Also the secessionists didn't anticipate not only a long war but the Emancipation Proclamation. The secessionists forgot that during the American Revolutionary War the British did successfully recruit slaves by offering them freedom for themselves and their families and said slaves fought well. Ex slaves in the Union Army represent a double whammy for the Confederacy
A. Less labor
B. An extra soldier for the Union
Leftyhunter
That or they figured it was different this time also a common human failing.
Hindsight is generally 20/20. The secessionists did not think far beyond the immediate objective of secession. Once that was done, they assumed (wrongly) that the Lincoln Administration would not oppose their actions. Of those who were realistic enough to believe that there might be armed conflict, few believed it would be long or that they would lose.
Think too much and nothing happens. They miscalculated, but the major miscalculation was underestimating a failed backwoods politician lawyer and Union resolve. Nothing in the historical record would have prepared them to evaluate that risk. It was one of the unknown unknowns that happen in wartime. They were overconfident on the value of cotton to the British and French, but everything considered was understandable. They were also overconfident on their military prowess, but in the East until Gettysburg, a neutral observer might agree.
 

leftyhunter

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True of all wars.

That or they figured it was different this time also a common human failing.

Think too much and nothing happens. They miscalculated, but the major miscalculation was underestimating a failed backwoods politician lawyer and Union resolve. Nothing in the historical record would have prepared them to evaluate that risk. It was one of the unknown unknowns that happen in wartime. They were overconfident on the value of cotton to the British and French, but everything considered was understandable. They were also overconfident on their military prowess, but in the East until Gettysburg, a neutral observer might agree.
I would have to take issue with your last point. No nation recognized the Confederacy despite the best efforts of Confederate diplomacy. Conventional warfare is always won on the offensive and the Confederacy was definitely not seizing and holding enemy territory.
The Confederacy lost it's most important port New Orleans by the spring of 1862. A neutral observer could tell that by July 1863 the Confederate cause was not going well.
Leftyhunter
 
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jgoodguy

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I would have to take issue with your last point. No nation recognized the Confederacy despite the best efforts of Confederate diplomacy. Conventional warfare is always won on the offensive and the Confederacy was definitely not seizing and holding enemy territory.
The Confederacy lost it's most important port New Orleans by the spring of 1862. A neutral observer could tell that by July 1863 the Confederate cause was not going well.
Leftyhunter
But not in 1861. The topic as I understood it was a miscalculation at the beginning while the rope was in hand, not watching the dot that was the knot at the end of the rope disappearing above.
 

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But not in 1861. The topic as I understood it was a miscalculation at the beginning while the rope was in hand, not watching the dot that was the knot at the end of the rope disappearing above.
Fair enough. In 1861 major world powers simply sold has much weapons as they could to both sides. On the other hand they certainly were able to resist the charms of Slidel and Mason in terms of recognition of the Confederacy.
Leftyhunter
 

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Fair enough. In 1861 major world powers simply sold has much weapons as they could to both sides. On the other hand they certainly were able to resist the charms of Slidel and Mason in terms of recognition of the Confederacy.
Leftyhunter
I seem to recall a diplomatic faux pas regarding Slidel and Mason where with no effort on their part other than an ocean cruise, a war between the US and Britain became a real possibility. Slidell was able to negotiate a loan of $15,000,000 from Emile Erlanger & Co. for the Confederate government which helped the CSA survive.
 
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leftyhunter

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I seem to recall a diplomatic faux pas regarding Slidel and Mason where with no effort on their part other than an ocean cruise, a war between the US and Britain became a real possibility. Slidell was able to negotiate a loan of $15,000,000 from Emile Erlanger & Co. for the Confederate government which helped the CSA survive.
Granted they did enjoy some limited success. However they didn't win the championship which was diplomatic recognition.
Leftyhunter
 
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I agree Mason and Slidell did the best they could with what they had to work with. Once New Orleans fell it was to difficult to argue that now was the time to recognize the Confederacy.
Leftyhunter
One could say they came closest to achieving their mission by being captured.
 
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lurid

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I think it's pertinent to note that the Confederate Graybacks held its value or were devalued following battle victories and losses, which indictive that there was some economic hope during the war.

The value of Confederate money depended on victory or at least on a negotiated peace settlement with the United States. Contemporaries of the Civil War noted that “financial matters fluctuated under the successes and reverses of the war like ebb and tide" (Richmond Examiner, July 9, 1863, p. 1, quoted in Weidenmier, 2002a).

Grayback prices depreciated following battle defeats at Antietam and Gettysburg/Vicksburg. 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. A final breakpoint occurred in late spring 1864 when the Confederate government repudiated one-third of the money supply with a currency reform act. The monetary legislation’s positive effect on currency prices was short-lived, however, as the Confederacy cranked up the printing press again in the fall of 1864. Graybacks renewed their depreciation and continued to actively trade until early February 1864. At this point, many Richmond bankers and gold traders packed their wagons and left the besieged capital (Weidenmier, 2002a).
 
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