Christopher Memminger, a South Carolina politician of German parentage, was tapped by Jefferson Davis to head the Confederate Treasury at the start of the war. Despite his own personal opposition, the South resorted to printing money to meet its war costs, a main driver of hyperinflation.
Raised by adoptive parents, Memminger studied at South Carolina College and was elected to the state legislature in 1836, at which point he was already a successful lawyer. He soon developed a reputation as a finance expert. Despite his early opposition to nullification, he was firmly in the secessionist camp by the start of the Civil War and helped draft the Confederate Constitution before Jefferson Davis appointed him Treasury secretary.
Memminger faced the near-impossible task of financing a war without the tools that the North had. Tax collection was difficult, as the economy was primarily agricultural and the population rural, while wealth was concentrated in land and commodities rather than liquid assets. The South attempted to impose “taxes in kind,” often through the seizure of goods and food, but that prompted most Southerners to simply produce only enough for their own consumption. Memminger also oversaw the enactment of an excise tax on cotton exports, but with trade thwarted by the Union blockade, that, too, failed to make much of a dent. Over time, the South garnered only about 8 percent to 11 percent of its wartime revenue from taxes, in contrast to 20 percent in the North.
Raising money by borrowing proved just as difficult. The South’s banking system was state-based and poorly coordinated, with no lender of last resort and very little in gold reserves. At the outset, the South issued $50 million in bonds but found subsequent bond sales much more difficult. It secured only one overseas loan, worth $15 million, during the entire war. Against Memminger’s wishes, the Confederacy began printing money, and inflation quickly accelerated to 10 percent a month. Predictably, Southerners began spending their cash even more quickly, further fueling inflation, and many resorted to paying in cotton, leather, or, in border areas, Union greenbacks. By the end of 1864, prices had risen by a factor of ninety-two.
In one of his final acts in office, Memminger helped push through the Currency Reform Act of spring 1864, which took out a third of the currency in circulation, in part by converting large bills into Treasury bonds. Memminger then resigned in June. The money supply briefly stabilized by the summer – only to see another bout of money printing in August, when the Confederate Congress needed more cash. Along with being short-lived, the Act had no effect on money supply in the western Confederacy, which had been cut off from the East after the Union victory at Vicksburg in 1863.
After the war, Memminger was pardoned and settled in Charleston, where he resumed his law practice. He spent much of final years focused on improving public education, an effort he had begun before the war.
Written by the Federal Reserve Bank of Richmond. See disclaimer.