Seigniorage in the Civil War South
39 Pages Posted: 22 Mar 2018 Last revised: 15 Jul 2018
Date Written: March 15, 2018
During the U.S. Civil War, the Confederate Congress adopted three currency reforms that reduced the quantity of Treasury notes in circulation by inducing the money-holding public to exchange their notes for long-term bonds and by taxation and repudiation of the notes themselves. Treating these currency reforms as event studies, we evaluate their effect on Confederate seigniorage using a model of inflationary finance. We find that the that the reforms reduced seigniorage revenue, which suggest that the South failed to maximize the revenue from seigniorage. This finding suggests that the South may have prolonged the war with a different monetary policy. We argue that this failure was caused by the bifurcation of the Confederate Congress into two groups – those that represented the Confederacy’s interior and those that represented areas that were no longer under Confederate control, which is confirmed by our empirical analysis.
Keywords: U.S. Civil War, Seigniorage, Confederacy, Inflationary Finance
JEL Classification: E31, E41, E65, N11, N41
Suggested Citation: Suggested Citation