 Hi everyone, it's it's really great to be here. I appreciate the Mises Institute inviting me here to to give this short talk and especially to my sponsors Scott and Kathy Ulary whose Donations have allowed this to to happen and allow me to talk about one of my favorite things I love teaching my American Economic History class at Wofford. I've taught that for 23 years now, I think and one of my favorite pieces of American history to talk about is The War Between States There's a lot of students. I find increasingly are coming in with less and less kind of background knowledge of American history, especially the economic side of it and I find that in fact there's a lot of myths about American history that I have to then take care of My favorite of course would be the New Deal. They all think that the you know Roosevelt saved the country With with massive government borrowing and spending and whatever Roosevelt didn't take care of World War two took care of and so that I Get to that in a couple of weeks in my class. I'm gonna have fun with that, but I really do enjoy Teaching about the economic history of the war between the states and You're all now in the south, right? Welcome to Dixie. This is the original Dixie This is a Banknote a $10 banknote issued in the 1860s In fact, I think this may it may have been an unissued note because it does not have a specific date It's got one eight six and somebody was supposed to fill in the year but it's it's issued by or was to be issued by the citizens Bank of Louisiana which was a prominent bank in the New Orleans area and of course the French language Was widely used in that area in the French word for ten is dice Which of course we corrupt that to Dix and so that note became a Dixie and the area over which this note Circulated a very large area Began to be known eventually as Dixie land So it was a bank note that gave this region its its nickname The banking system prior to the war between the states is commonly known as the free banking era During this time regulation on banking was relatively light not of course non-existent and until 1863 State banking commissions Chartered all public banks in the United States There was no national paper money Individual chartered banks issued banknotes that would generally circulate in a small regional area In order to obtain a state charter the state that the banks owners had to show that they had sufficient Species and reserve gold and silver in reserve to back the notes that they wanted to issue This did not have to be 100% Unfortunately and was generally far less Sometimes a run on a bank would occur if people began to doubt that the bank had enough in reserves to pay out depositors in a timely manner and Banks would sometimes suspend Species payments This meant that sometimes in a panic People would try to get specie out of other banks and then that panic or crisis could spread This afternoon, I'm going to talk a little bit about the panic of 1837 Which was an example of that kind of thing? If the bank failed then the notes became worthless and the state government could revoke the bank's charter But this regulation was not really effective some states even allowed Flogging of the banks directors, which might have been a little more effective So bank owners at least to save their hide literally Would want to avoid over issue of bank notes and want to make sure that they had enough in specie To back up those notes. It wasn't just banks by the way that were issuing these notes. Sometimes it would be large firms We saw for example, this is a railroad bank note Issued by the Baltimore and Ohio Railroad, which is well known to players of Monopoly as the B&O and It's 12 and a half cents, which was used to be worth something Many people did complain about so-called wildcat banks that issued more bank notes than their gold or silver reserves Warranted but some of these bank currencies and these large corporations that issued notes Would be quite successful and gain a lot of circulation as the Dixie did which I mentioned earlier There were hundreds or even thousands of different Currencies in circulation in the United States at this time Of course in any one area you might only have a few but over the entire country you had had many bearer bonds would circulate as well and so this is one of those Railroad notes. Here's another one from South Carolina from 1862 the Southwestern Railroad Bank Branching of chartered banks was limited particularly in the north Branch banking was present in the south and tended to strengthen the banking system there So that that relatively light regulation was even lighter where you could have multiple branches of a Bank and that tended to strengthen the system, especially during a crisis. So in the panic of 1857 for example, there were Virtually no bank failures or suspensions of payment of species in the south Whereas the north did have some of those because the north did not have or did not allow for branch banking So you have literally one location for many banks and there would not even be a bank in a neighboring county So that left banks vulnerable that regulation that limited branch banking left banks vulnerable to a Local economic crisis. So if you have a local drought or you have a major employer that shuts down Then that that can lead to a local bank failure In his Article on frontier bank robberies, which is a very entertaining article in enlightening Larry Schweikart says that overall the combination of state charters and free banks Led to one of the most stable and prosperous periods known in American financial history Contrary to the predictions of some when money was taken out of the hands of the Government and subjected to a private market. It produced a stable free market money supply Well, of course war tends to bring about a lot of Term oil not only Military destruction and so forth but also financially it also brings about a degradation of the monetary system very often and When the war between the states came along in 1861 both the north and the south had significant monetary crises Of course most of the money from for the war was raised at least in the north from Borrowing about 70% was bond issues one innovation there was to raise money by selling bonds to individuals and small denominations the ancestors of the War bonds of later and then the savings bonds that we still have around today the first income tax in the United States was levied During that war the north needed more money than it could reasonably borrow and so The revenue act of august 5th 1861 included an income tax with incomes over $600 being taxed at a rate of 3% That was opposed by many people in the north including this gentleman here Clement Ballantyne who? was vociferous in his opposition to the Lincoln administration he was complained about the income tax. He said it was wicked and cruel and so The Lincoln administration didn't take very kindly to that and they arrested him and charged him before a military court in Ohio Not a war zone. There were Civilian courts open, but of course that that mattered not so It was decided that he would then be forcibly exiled to the south He was not from the south did not want to go there, so he managed to escape to Canada The Union went deeply into debt to pay for the war and When the demand for bonds dropped off as the popularity of the war began to diminish especially in 1863 There were draft riots. There was anti-war sentiment that was growing in the north And so the government needed to drum up some demand for their bonds And so they implemented another part of Henry Clay's American system Clay had died a few years before but his ideas were being carried forward with Abraham Lincoln and So centralized banking was another part of Clay's grand scheme for the economy of the United States So we got the National Banking and Currency Acts of 1863 and 64 which created nationally chartered banks which would then create this demand for For Government bonds these banks would issue greenbacks which would be provided by the government of course in great quantity and As a backing these banks would hold not gold or silver But US Treasury bonds and of course that that gives the government a major Customer for these bonds that they were increasingly having trouble selling to ordinary citizens At the same time the state banks would be crippled by a high 10% Tax on the face value of their bank notes and so that would begin in 1866 But the state banks could see the writing on the wall So in order to survive those state banks began accepting greenbacks as deposits State banks declined a number from almost 1500 that were in existence in 1863 to only 349 by 1865 but by 1865 there were over 1600 Nationally chartered banks. This is why we have a dual charter system where some banks today are chartered by states and Others are chartered by the federal government This is a greenback. This is a $1 Greenback, you can see the green ink on the on the averse side of the of the note greenbacks were Resisted by the by a couple of states, especially California and Oregon. I'll mention that again in a minute But this was the result of a legal tender act in 1862 which provided for $150 million worth of these greenbacks 50 of 50 million of which replaced old Treasury notes another Greenback act followed very closely Again in 1862 allowed for another hundred fifty million dollars in these notes 35 million of which would be in small denominations again trying to go after the small Lower classes lower middle classes to try to get them to accept these these notes so Greenbacks as I said were were resisted by a couple of states. They said this is not Compatible with our state constitutions. They refused to accept the payment of taxes And they did suffer a decline in value over the course of the of the war The low point came in July of 1864 When it took two dollars and sixty four cents in greenbacks to buy one dollar worth of gold The money creation was constantly mocked in the in the in the press Lincoln here. I mean there's all kinds of it. We can spend 30 minutes just examining the the humor in this but Lincoln is depicted in this particular. He's in the center upper part of that. He's He's depicted here as being somewhat out of touch He's saying something like all this reminds me of a most capital joke And well that's nice, but you can see the printing press kind of churning away over there on the on the left Greenbacks continued to be used after the war. This is one from 1880 Generally, they did rise in value and they even became redeemable in gold by 1879 This is one from 1928 One dollar US note. That was the that was the official name of those of those greenbacks. This is a 1968 note a one hundred dollar United States note and These these of course were not in common circulation by that point. We were using of course federal reserve notes so Turning to the Confederacy the Confederacy of course based even greater financial problems during the war than the north did The Confederacy was trying to raise money from tariffs Tariffs were the major source of federal revenue If you had an argument about or a debate about federal finance Prior to the war and even for many years after it was basically a debate about tariffs The north generally wanted higher protective tariffs. That was another part of Henry Clay's American system They finally got the the big tariff they were they were wanting once the southern states seceded in 1860 and 1861 and the moral tariff Which had it was a 50% tariff on a lot of a lot of imports Finally got those northern manufacturers what they were what they were aiming at the south had a fairly low tariff But they had trouble even collecting that The Union began blockading southern ports that blockade became increasingly effective as the war went on So attempts at raising money through tariffs really was difficult and if if it weren't for the Union blockade the Confederate government managed to contribute to their own problems by trying to essentially nationalize a lot of the traffic with Europe and began imposing confiscatory taxes on anyone bringing in cargo from the from from Europe the Government did try to borrow but they unlike the north did not get the majority of their money from borrowing only about 35 percent a Lot of the Confederate Money raising came from money creation The Confederate Treasury issued something like a million dollars of notes in 1861 But by 1863 that was pocket change. They had issued $700 million worth of notes and produced a rapid inflation They did try an income tax that didn't work very well. They also tried to tax other goods They tried to tax crops. They tried to confiscate well They did confiscate northern property But all of this was still leaving the Confederate government with a great deal of financial strain These are all 72 of the official Confederate government notes. You can see there were quite a quite a few of these Some of these are in large denominations. This is a $50 note Here's one from North Carolina in 1863 that was $50 Here is one that's $500. This would probably buy you a pair of shoes Buy a cheap pair of shoes by the end of the of the war This was an 1864 date on this note, which kind of tells you where things were were headed Here's an 1864 $50 note from Alabama and Here's a $4 note. I'm not sure what the date is on this one, but this was from South Carolina The Confederate government ran large deficits, especially early on but their credit rating kind of Suffered as the war dragged on and they began losing battles and it was hard to entice people to lend to a government that The lenders weren't quite sure what's going to be in existence very much longer And so you can see that the growth rate of the deficit did not increase much after about 1862 But you can see here that the debt service began to be a very large part of the Confederate government's budget by the end of the war Occupying even more than war expenditures per se. So this was An indicator of how much financial trouble the Confederate government was in by the by the end of the war You can see here. I don't want to spend a lot of time on this But you can see here that the non-interest bearing notes. That's the bottom line of that table peaked in 1861 late 1861 early 1862 Continue to be important in 1862 and in terms of real value They began to drop off not because they were not issuing these things But because inflation was beginning to set in and you can see where the the impact of the military Side of the war was becoming more and more Disadvantages for the Confederate financial situation where the more battles were lost the more Problems they began to have with inflation that did try a currency reform in a in February of 1864 Which did manage to moderate some of the inflation you can fact you can see here that the inflation rate went from about 700 percent down to only about 53 percent in a matter of a couple of months due to this currency reform But That that did not last and of course as it became evident that the confederacy was going to lose the war and anyone holding Confederate dollars was going to find them worthless The inflation rate skyrocketed up to a peak of about fifty seven hundred percent in fact it became so bad that the That some Confederate troops were paid with greenbacks Because the Confederate dollars were not enough to entice them to continue I'm almost out of time, but I will say this this is one of those currency destruction Problems that we see somewhat on the Union side much more aggravated on the Confederate side and and it illustrates the basic idea that governments can raise funds in one of three ways or Any combination of three ways taxing borrowing or inflating and if governments run into problems with taxation Too much political blowback from trying to raise taxes or if their credit rating suffers and they can't borrow very well anymore They will resort to the printing press and if the interest rate on those Bonds rises and governments find themselves oppressed with a great deal of debt. Well self-opressed I guess you could say then that is going to result in even more Temptation to run the printing press. Thank you very much