Splitting the Nation in two, the Civil War between 1861-1865 in the U.S. represents the most costly conflict in American history. While the war is often thought of as the battle over slavery, it is apropos in talking about the financing of the war to recognize the fact that the reasons for the war were as grounded as much in economics as anything to do with moral indignation over slavery. The slaveholding South hoped to protect its agricultural industry by invoking the Jefferson doctrine of States’ Rights in order to avoid protectionist tariffs that were favored by the industrial North. By 1861, the two sides agreed to disagree in the form of military conflict. When the war was over, 1,094,453 countrymen lay dead and the economic toll was staggering “A final official estimate in 1879 totaled $6,190,000,000. The Confederacy spent perhaps $2,099,808,707.
When it comes to financing, the much wealthier Union was able to mobilize its financial resources more readily than the Confederacy. However, Secretary of the Treasury Chase had dropped the economic ball in 1861, causing “suspension of specie payment and created considerable financial chaos”. The Civil War actually brought economic prosperity to the North, but the prosperous economy did not alleviate the difficulties of financing the war. The North collected taxes, borrowed money through the sale of war bonds, and printed more paper money in order to finance the war effort. Chase won Congressional approval for “the issuance of $450 million in paper notes known as Greenbacks”.
The creation of an artificial money supply promoted inflation “Wages did not keep up with inflation through much of the war, and factory workers struck for higher pay”. However, in the North inflation was alleviated more than in the South because of the greater reliance by the Union on taxes and bond sales to finance the war. The supply of Greenbacks issued was responsible for fi...