RE: Greenbacks and Confederate currency
Two complicated issues, but let's look at some sources, rather than our own impressions gathered from movies or wherever:
(quotes and text from Stephen Zarlenga, "The Lost Science of Money, (The Mythology of Money-The Story of Power), American Monetary Institute, 2002, pp464-466)
While the Greenbacks lost substantial value for a period, the nation was engaged in the bloodiest war in its history, in which 13% of the population served in the armed forces and 625,000 died. Aside from the Revolution, the Civil War was the only war fought on our own soil. Is it reasonable to expect that any government in those circumstances could completely protect its citizens from financial and other hardships?
Unger has noted that:
"It is clear that inflation would have occurred even without the Greenback issue." Irwin Unger, "The Greenback Era," (Princeton U Press, 1964)
And comparing a wartime inflation under a government run money system (the Civil War) to wartime inflation under a private banker run system (WW1), Civil War historian Randall wrote: "The threat of inflation was more effectively curbed during the Civil War than during the First World War. Indeed, as John Kenneth Galbraith has observed: 'it is remarkable that without rationing, price controls, or central banking, Chase could have managed the federal economy so well during the Civil War.'" J.G. Randall, "The Civil War and Reconstruction," edit D. David, (Boston Heath & Co, 1937, 2nd edition 1961)p 354
The fact that the Greenbacks were not accepted for import duties may also have been an important negative factor against the currency: "Hence it has been argued that the Greenback circulation issued in 1862 might have kept at par with gold if it, too, had been made receivable for all payment to the Government," David Rich Dewey, "Financial History of the United States," (New York: Longmans Green, 1903), p283
Also, if interest payments on government bonds had been paid in Greenbacks instead of gold, a large part of the demand for gold would have disappeared.
"Some writers have ascribed the price inflation almost entirely to the issuance of greenbacks, but this is a mistaken view. Even if the greenbacks had not been issued and bonds had been sold at whatever price they would bring in thee market, inflation would have taken place. It would merely have taken another form—that of the monetization of debt through the issue of bank currency or the creation of bank credit." Studenski & H.E. Kroos, "Financial History of the U.S.," (New York: McGraw Hill, 1952) p148
The Confederacy also issued paper money, but made [4] major monetary errors in the way they did it. Even less enthusiastic than the North, the Confederacy's Treasury Secretary, Christopher Memminger, was afraid of paper money, which he called: "The most dangerous of all methods of raising money." Randall, cited above, p.260
[first error] The South never made the Confederate money a legal tender, a monetary/military error of great magnitude.
Even worse, [second error] the Confederate paper money was not money in itself but was merely a promise to pay money later. Typically, the face of Confederate notes have this phrase:
"Two years after the ratification of a treaty of peace between the Confederate States and the United States of America, the Confederate States of America will pay to the bearer on demand 'X' dollars." 'X' being 5, 10, 500, or whatever the note's denomination was.
[third error] In February 1864 the Confederate Congress forced the conversion of the currency into a 20-year bond paying 4%. Confederate currency not tendered for this conversion was devalued one-third after one and a half months and two-thirds after about a year.
[fourth error] Unlike the North, the South placed no limit on its issue of paper notes, thereby violating another primary monetary principle--limitation of issue.
[by the way, neither the Continental Congress nor the Congress of the Civil War era made this mistake.]
Some way is always found to reject "fiat" currency, but those rejections are almost never founded on the historic record and the facts of the case. The Greenback was well handled by any reasonable measure and was a satisfactory currency. The Confederate currency was mismanaged from the start and doomed to failure. But both are lumped together for one specious reason or another because certain economic theses are in ascendent that consistently reject the actual history of money and the facts on the ground.
Have "fiat" currencies failed? Yes, undoubtedly. Have they all failed: No way. There are other examples of success, but I'll leave that to another day.
Our currency, a privately managed one--another of the classic errors--is on the verge of failure. These nuggets from history for some readers are akin to eating Grapenuts out of the box, but some of us will be glad if what's left of our currency affords us even that.
By the way, Zarlenga's is an excellent read and I highly recommend it. |
