Daily Archives: 22 January 2013

The Civil War united our… money?

Yes… united our money.  From Barrons’ website – How the Civil War United Our Money:

The Civil War changed the country more than any other event in U.S. history, and its echoes are very much with us yet in many aspects of American life. Even the paper money we use every day is a consequence of the war.

The Civil War affected all areas of American finance. It turned Wall Street into the second-biggest financial market in the world. It brought the first income tax into being (and with it, the forerunner of the IRS). The national debt rose from a trivial $65 million in 1860 to $2.7 billion in 1866. But perhaps the most significant, and positive, financial change wrought by the Civil War was in the banking and monetary systems.

The demise of Bank of the United States lead to a decentralized system which, by the eve of the Civil War, included over two-thousand banks.  Each bank issued its own notes.  Beyond just being confusing and cumbersome, the system hindered the war effort and strained the economy.  The war situation favored the passage of legislation to support a stronger, centralized banking system:

So, 150 years ago this year, the national banking system was born. The National Banking Act established the Office of the Comptroller of the Currency and allowed the widespread chartering of national banks. These banks were closely regulated. They had to keep one-third of their paid-in capital in federal bonds and deposit these bonds with the Treasury, converting millions in bank capital into cash to finance the war.

The bonds also served as security for a new national currency. National banks were allowed to issue bank notes in proportion to their capital. But the bank notes, except for the name of the bank and the signatures of its officers, were all identical in design. The thousands of bank-note issues from state banks continued to circulate, but, in 1865, these notes were subjected to 10% federal excise tax, quickly driving them out of the marketplace.

For the first time, the United States had a uniform paper currency circulating throughout the country. Because these notes were backed by federal bonds held at the Treasury, they circulated at par.

So I guess another sesquicentennial observance is in order.  If my dates are correct, we should all gather at the banks on February 25th.  Maybe exchange rolls of pennies for dollar bills?