Monday, October 3, 2022

Ways and Means

The US Civil War was a big deal. The violence, the effect on families, and the eventual emancipation of the slaves are the oft-discussed themes. But the financing of the war played an underrated role in determining not only the winner but the trajectory of the country following the surrender. In Ways and Means, author Roger Lowenstein describes the money situation for both sides during the war, and does so without making it boring!

Centralized governments in these parts had few powers of taxation, and so they had to introduce many new taxes to pay for the war. But there was a lot of resistance to taxation. Hadn't this same populace rebelled against centralized power less than a century prior? So governments printed whatever cash they needed to pay their bills. If you think inflation is bad now, try to fathom what it must have been like then.

The North did not have the same inflation as the South because they were able to borrow, both from their own citizens as well as from abroad. Northerners were richer thanks to a more industrialized economy, and they were the more attractive investment for European investors because the South was reliant on cotton exports which were now blockaded.

Cash currency used to be issued by banks, with each bank having its own currency that fluctuated in value based on the credit strength of the individual institution. But it was during this war that the government felt the need to put a stop to this system. Rather than compete with private currencies, the government basically taxed them out of existence.

It's incredible how much the country's finances changed in a relatively short period of just four years, mainly because of the war but also because of the values (e.g. giving everyone a fair chance, necessitating scores of investment in infrastructure) of Lincoln and his party.

I highly recommend the book if you find this topic interesting.

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