Seigniorage in the Civil War South
46 Pages Posted: 22 Mar 2018 Last revised: 7 Oct 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. We examine the political factors that influenced the adoption of these policies and how they affected the flow of seigniorage. We argue that 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 – contributed to the adoption of the reforms, which is confirmed by our empirical analysis. Using a model of inflationary finance, and treating the currency reforms as event studies, we find that the rate of monetary expansion in the South was below that which would have maximized the revenue from seigniorage, indicating that the South could have benefited financially from greater reliance upon the printing press.
Keywords: U.S. Civil War, Seigniorage, Confederacy, Inflationary Finance
JEL Classification: E31, E41, E65, N11, N41
Suggested Citation: Suggested Citation