Inflation is a giant rip off, a stealth tax stealing purchasing power. Money is not neutral. The first receivers of new money benefit. Savers and those on fixed incomes struggle. From 1857 until the war was a period of “free banking” where the fed had nothing to do with the banks and the states had little control over them. High economic growth and prosperity prevailed.
The money the banks issued was backed by one-third gold and the rest backed by short term securities. Thus, the banknotes were pretty secure, as in Louisiana, and widely circulated outside of New Orleans. The ten dollar note was a “Dixie”. Dixieland was born.
Payment for war was done by taxation, borrowing, printing, or direct confiscation. All four venues were used and all four have negative consequences on the economy.
Lecture 6 of 8 from Mark Thornton's The Economics of the Civil War, presented to the Auburn University Academy for Lifelong Learners.
Mark Thornton is a Senior Fellow at the Mises Institute and the book review editor of the Quarterly Journal of Austrian Economics. He has authored seven books and is a frequent guest on national radio shows.