11/03/2019
Soldier’s wages during the Civil War – Part 1
Introduction
Many people are familiar with how the Civil War’s outbreak in April 1861 sparked a previously unheard of demand for things like fi****ms, clothing and all manner of equipment. But it is easy to overlook the massive infusions of cash required by the Union and Confederate governments to maintain the “sinews of war.” This is the first part of an article regarding how the challenge of paying the troops in particular evolved.
More than you want to know about American money prior to the Civil War
While gold and silver coinage (“specie”) were the economic benchmarks in the British colonies, and afterward in the newly independent United States, there was never enough hard cash to go around. Relatively few coins were minted in the Thirteen Colonies, so foreign coins like the Spanish dollar were used to take up the slack.
Even though paper money (“currency”) was suspect in many peoples’ eyes, its metallic cousin’s scarcity and burgeoning economic requirements necessitated having it. At times colonial governments printed currency to undergird large undertakings: from 1751 to 1773 the British Parliament passed a trio of Currency Acts that regulated paper money in the colonies. To finance the Revolutionary War, individual colonies and the Continental Congress alike produced a bumper crop of currencies. Problem was, both varieties of “folding money” quickly depreciated, to the point that they were practically worthless by war’s end.
Two Banks of the United States (1791-1811; 1816-1836) functioned as agents of the U.S. Treasury. As unpopular as the idea of a centralized national bank was to many Americans, these institutions served to ensure that the plethora of state, or private banks in existence redeemed the banknotes they printed at full value. The props were knocked from under this arrangement when President Andrew Jackson, hostile to the idea of a national bank, failed to renew the second Bank of the United States’ charter in 1836.
The banking system goes to war
The banking free fall that resulted from this action lasted until the midpoint of the Civil War. Early on the Lincoln Administration sought to finance its war effort via loans taken out from major banks. The ruinous interest rates they charged forced Honest Abe to seek a different solution.
Thus, in July 1861, Congress authorized printing of $50M in Demand Notes. These bore no interest but could be redeemed for specie “on demand.” Printed on both sides—unlike state and private banknotes—the practice of using green ink on the reverse led to Demand Notes being nicknamed “greenbacks.” Initially they were discounted relative to gold but soon the government suspended this form of redemption. When the treasury authorized paying interest on Demand Notes, their value stabilized. From March 1862 to mid-1863 they were declared legal tender, but only to pay customs duties.
In the final analysis, Demand Notes turned out to be just another inadequate means of paying for the increasingly costly conflict. Early in 1862 the idea was floated of issuing paper money whose value wasn’t backed by precious metals. In February of that year, Congress passed the first Legal Tender Act. But it wasn’t until passage of the National Bank Act of 1863 that the United States financial system was finally stabilized.
The act stipulated the circulation of a uniform national currency, secured by federal bonds. It also clarified many issues that strengthened the system. Under the 1863 act state banks could continue to issue their own currency, but when Congress levied a 10 percent tax on them, they disappeared rapidly.
“Away down South in Dixie”
I was surprised to learn that the Confederate States had issued its dollar prior to the bombardment of Fort Sumter. This currency was backed by a promise to pay the bearer after the C.S.A.’s victory, rather than by hard assets, something that is illustrative of the fragility of the South’s finances, from the get-go.
The initial issuance of Confederate paper money, in March of 1861, was a relatively modest event. It bore interest and had a total circulation of just $1M. As Confederate fortunes on the battlefield began to decline, so confidence in the currency diminished. As a result the government inflated the currency by printing more and more unbacked banknotes. By the end of 1863, the Confederate "grayback" (as opposed to the Yankee “greenback”) was worth just six cents in gold.
At first, Confederate currency was accepted throughout the South as a medium of exchange with genuine purchasing power. As the Confederacy faltered, however, the redemption dates of all that paper money were extended ever further into the future. Inflation became rampant. For example, news of the Army of Northern Virginia’s defeat at Gettysburg caused Confederate currency to depreciate by 20 percent, virtually overnight.
Stay tuned for Part 2 of this exploration of the role that money played in fighting the American Civil War!
