In the past year, an ounce of gold has crossed the $1,500 threshold and has hit new records, approaching $2,000 at one point. Believe it or not, in terms of gold equivalency, the US dollar is now worth less than the value of $1 Confederate on the eve of General Lee’s surrender in the Civil War. Ben Bernanke may not be worried about inflation, but the South experienced a nasty bout of hyperinflation with lingering effects due to its loose monetary policy. The same could be in store of the U.S, but first a little history.
The Confederate States of America began in early 1861 with much fanfare and a great deal of hope of independence. On March 9th the Confederate Congress authorized funding the government with bonds and the creation of paper money, starting with large denomination, interest bearing notes. $1,000,000 was authorized which resulted in 607 $1,000 and $500 notes and 1,606 $100 and $50 notes being issued. At their issue, these notes were almost at parity with their equivalent in gold. With war breaking out on April 12, 1861, the Confederate government was forced to issue much larger quantities of fiat paper money to facilitate internal commerce while it collected all available gold and silver and issued bonds to facilitate international trade. By 1864, the last series of Confederate paper, the well known red notes with blue backs were being printed by the millions. By March 1865, more than $500 million Confederate was in circulation, a staggering sum of money in the 1860s. This massive increase in the Confederate money supply, not backed by anything but faith in the government along with failure on the battlefield drove Confederate paper money to $70 for $1 in gold (slightly less than 1/20 ounce) by April 1, 1865.
On the night of April 2, 1865, General Robert E. Lee's Army of Northern Virginia abandoned the capital of the Confederate States of America, Richmond Virginia. With Union General Grant's Army of the Potomac pressing across the front with far superior numbers and equipment, Lee sought refuge in the hills to the west of Richmond. And with General Sherman's army in North Carolina pressuring the much smaller Confederate army facing him, the end was near for the Confederate States of America. Indeed, within a week, General Lee would surrender on April 9, 1865 and on April 26, 1865, General Johnston surrendered in North Carolina. The Confederate dollar fell from $70 Confederate to buy $1 gold on April 1 to $100 on April 10 with the last recorded value at $1,200 Confederate dollars to $1 gold on May 1, 1865. The last Confederate land forces were surrendered by Native American Brigadier General Stand Watie on June 23, 1865.
The decision by the Confederate leaders to print money to fund their war efforts resulted in higher prices for all goods. The price of coffee soared (due also in part to the Union blockade) and people took to making their own brews consisting of tiny bits of coffee grounds combined with cornmeal or roasted beets. A cookbook published in the South in 1863 had a recipe for apple pie without apples. Transactions normally funded through currency broke down as inflation spread and for many, especially those outside of the cities, bartering became the only means to exchange goods. Counterfeiting was rampant and put further stress on the currency. In order to fund the war effort and provide sustenance to its soldiers, the Southern government authorized “impressments” of farm goods, paying below market for staples in exchange for Confederate currency or IOUs. By January 1865, factory workers in Richmond were earning $10 a day, but a barrel of flour cost $1,000.
There are vast differences between the situations facing the Confederacy in April 1865 and the United States of today. The Confederacy was in terminal decline and the US economy today remains the world’s largest with a GDP of $14 trillion. However, many economists are warning that our easy monetary policy puts us in the cross hairs for uncontrollable inflation. Although the 14th Amendment voided the debts of the Confederate government, per capita income in the South plummeted during the War and did not recover until well into the 20th century.
As of April 2, 1865, one ounce of gold could be bought with about $1,450, Confederate.
As of April 21, 2012, one ounce of gold could be bought with about $1,650, USA.