The American Civil War: Economics--Fiscal Policies


Figure 1.--

A growing economy during peace time was able to pay off the debts incurred during the 19th century wars, even the enormous debt resulting from the Civil War. The Civil War proved to be one of the new American Republic's greatest fiscal tests. The Federal Government under the stewardship of Treasurer Salmon P. Chase, was careful to maintain a sound fiscal footing and pursued prudent fiscal and tax policies. The Confederacy with far fewer options and resources pursued recklass fiscal policies. President Lincoln commented as the War began to wind down that the Civil War "has produced a national debt and taxation unprecedented, at least in this country. (1864) The war effort increased the public debt 15 times (1861-65). This was balanced by tax increases. A Federal income tax was introduced. The rates were low, but it ws a major innivation in Federal policy which had primarily been financing itself through import duties. The rate was percent on income above $800 and 5 percent on those living outside the country (1861). Congress revived the rates the following years, 3 percent tax on income beyond $600 and 5 percent on earnings over $10,000. The income tax covered about 25 percent of the cost of the War. [Hormats] All kinds of other taxes were introduced such as excise taxes on photographs. Chase, oversaw the creation of both the first federal currency--the greenback (1862) and a national banking system (1863). A standardized currency enabled the United States to issue some $500 million in war bonds. The banks provided a market for these bonds. The Confederacy in sharp contrast pursued a ruinous fiscal policy. The Confederate Treasurer was not an easy assignment. There were two men who filled the position: Christopher G. Memminger (1861-64) and George A. Trenholm (1864-65). Both men faced the same problem of other Confederate cabinet officers, but in especially strong terms because money was involved. The Southern states suceeded from the Federal Union under the banner of states rights. They feared the Federal Government would force major changes, of course on slavery. They thus were not anxious to accept controls by the new Confederate central Goverment. The member states did not want to give up revenue authority. T hus the Confederacy attempted to finance the War by printing money. One author writes, "The single-minded condemnation of the Yankeess probably kept President Davis and the Confederate Congressfrom becoming targets of widespread dicontent among white Virginians .... The frequently acerbic Kean thought the Confederate government deserved at least some of the blame, however. In January 1865, he chatised [the Confederate] Congress for lacking the courage to face the full extent of the Confederacy's fiscal crisis. 'As the real condition of the treasury comes to be known, he wrote, 'the hopeless bankruptcy in which it is plunged , the arrears of $320 million, and the proposition to tax 16% ad valorem as a means of meeting it--the Congress can get more and more weak in the knees.'"

The Northern Federal Government

The Federal Government under the stewardship of Treasurer Salmon P. Chase, was careful to maintain a sound fiscal footing and pursued prudent fiscal and tax policies. The Confederacy with far fewer options and resources pursued recklass fiscal policies. President Lincoln commented as the War began to wind down that the Civil War "has produced a national debt and taxation unprecedented, at least in this country. (1864) The war effort increased the public debt 15 times (1861-65). This was balanced by tax increases. A Federal income tax was introduced. The rates were low, but it ws a major innivation in Federal policy which had primarily been financing itself through import duties. The rate was percent on income above $800 and 5 percent on those living outside the country (1861). Congress revived the rates the following years, 3 percent tax on income beyond $600 and 5 percent on earnings over $10,000. The income tax covered about 25 percent of the cost of the War. [Hormats] All kinds of other taxes were introduced such as excise taxes on photographs. Chase, oversaw the creation of both the first federal currency--the greenback (1862) and a national banking system (1863). A standardized currency enabled the United States to issue some $500 million in war bonds. The banks provided a market for these bonds.

The Southern Confederate Government

The Confederacy in sharp contrast pursued a ruinous fiscal policy. The Confederate Treasurer was not an easy assignment. There were two men who filled the position: Christopher G. Memminger (1861-64) and George A. Trenholm (1864-65). Both men faced the same problem of other Confederate cabinet officers, but in especially strong terms because money was involved. The Southern states suceeded from the Federal Union under the banner of states rights. They feared the Federal Government would force major changes, of course on slavery. They thus were not anxious to accept controls by the new Confederate central Goverment. The member states did not want to give up revenue authority. Thus the Confederacy attempted to finance the War by printing money. One Virginian wrote near the end if the War, "The single-minded condemnation of the Yankeess probably kept President Davis and the Confederate Congressfrom becoming targets of widespread dicontent among white Virginians .... The frequently acerbic Kean thought the Confederate government deserved at least some of the blame, however. In January 1865, he chatised [the Confederate] Congress for lacking the courage to face the full extent of the Confederacy's fiscal crisis. 'As the real condition of the treasury comes to be known, he wrote, 'the hopeless bankruptcy in which it is plunged , the arrears of $320 million, and the proposition to tax 16% ad valorem as a means of meeting it--the Congress can get more and more weak in the knees.'" [Brockenbrough]

Sources

Brockenbrough, McGuire. Diary of a Southern Refugee during the War.






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Created: March 13, 2003
Last updated: 8:16 AM 6/14/2004