"Prices are very high, but money is plentiful and becoming more so . . . ."

from Journal of a Secesh Lady: The Diary of Catherine Ann Devereaux Edmondston, 1860-1866
(Raleigh: North Carolina Division of Archives and History, 1979.)

No scholarly treatment of the American Civil War can ignore the impact that the Confederacy's monetary structure had on the South's war effort and on the daily lives of its people. While their fathers, brothers, and sons suffered and died in battle, Southerners on the homefront also endured increasing hardships as supplies dwindled and public confidence in the value of Confederate currencies steadily declined. Citizens struggled to cope with a confusing array of paper moneys issued by the South's national, state, and local authorities. The Confederate treasury alone issued at least seventy different types of notes to finance its fight against the North. In face value these national notes amounted to more than one-and-a-half billion dollars, a sum so immense that it was truly incomprehensible for most citizens of that day. Adding to this glut of national notes in circulation were many currencies produced by state and county governments, banks, insurance companies, textile mills, and other businesses.

As the South's economy became more saturated with paper money and news of the Confederacy's military position worsened, prices for even the most basic goods rose sharply. Between late 1862 and early 1865, North Carolinians struggled with an appalling rate of inflation. The price of wheat rose nearly 1,700%; bacon soared 2,500%; and flour almost 2,800%. By the final stages of the war civilians in New Hanover County recorded that a pair of shoes cost at least $600 and that $1,500 was needed to purchase a simple wool overcoat. This rampant inflation undermined many of the successful economic initiatives covered in the Business and Economic Affairs section of the Southern Homefront.

Given that the ever-increasing demands of war required massive expenditures, the volume of currency in circulation is somewhat understandable, as is the inflationary spiral that resulted. Yet, why were so many different types of paper money issued or even necessary? There were legal reasons as well as philosophical and psychological reasons. Like its federal counterpart, the Constitution of the Confederate States of America tried but failed to reserve the production and control of national currencies to the central government. The Confederate Constitution, under Article I, Section 10, provided that "No State shall . . . coin money [and] make anything but gold and silver coin a tender in payment of debts . . . ."

In assessing the southern states' adherence to this provision, it is important to remember that while the states were generally loyal to the southern cause and united in their defiance of the North, each closely guarded its own independence, especially in economic affairs. By the letter of the law, if not by its intent, the constituent states did abide by the Confederate Constitution's provision. After all, the paper currencies produced by the state governments and by southern businesses were obviously not coin and not "hard currency." The restriction on coining money was in any event a moot point, for neither the central government nor any of the state authorities had adequate gold and silver reserves to mint coins. Paper currencies were therefore, in the view of many people, a necessary evil.

In addition, none of the notes issued in the South were classified as "legal tender," a status that would have made it mandatory for citizens to accept the paper currencies as payment for all debts and for use in all monetary transactions for goods and services. Instead, these currencies were structured to be promissory notes or interest-bearing notes that relied solely on the good faith and confidence of the people, not on the dictate of a central government. Such faith, though, was rooted not as much in free will as it was in submission to the realities of the South's fiscal limitations and the necessities of war.

Inscriptions on the money of the period make this apparent. On nearly all currencies is printed the promise by the issuing authority to "pay to the bearer" of any note its face value in dollars. In theory, notes held by a citizen could, before a specified date, be exchanged "on demand" at a nearby bank or state treasury for either gold and silver coinage or bullion. In reality, the South's wholesale lack of precious-metal reserves made it impossible for authorities to honor this promise. Paper dollars were repaid or redeemed with still more paper. Despite this, the South's economy had to employ and accept some forms of money, irrespective of their questionable values and obvious instabilities in order to function. Actually, when considering that the Confederacy and its independently minded constituent states had to manage newly established financial institutions and monetary systems under severe war-time conditions, it is remarkable that the South's various paper currencies held their values as well as they did.