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NOTE 21. The Civil War

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The Civil War

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The Civil War exerted an even more fateful impact on the American monetary and banking

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system than had the War of 1812.

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It set the United States, for the first time except for 1814 to 1817, on an irredeemable

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fiat currency that lasted for two decades and led to reckless inflation of prices.

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This quote greenback currency set a momentous precedent for the post-1933 United States,

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and even more particularly for the post-1971 experiment in fiat money.

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Perhaps an even more important consequence of the Civil War was the permanent change

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wrought in the American banking system.

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The federal government in effect outlawed the issue of state banknotes and created a

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new quasi-centralized fractional reserve national banking system, which paved the way for the

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return of outright central banking in the Federal Reserve system.

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The Civil War, in short, ended the separation of the federal government from banking and

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brought the two institutions together in an increasingly close and permanent symbiosis.

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In that way, the Republican Party, which inherited the Whig admiration for paper money and governmental

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control and sponsorship of inflationary banking, was able to implant the soft money tradition

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and Permanently in the American System.