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Government Finance

The effectiveness of the Federal blockade and the peculiar industrial development of the South removed the possibility of an ample government revenue. Though import duties were levied, the proceeds amounted to almost nothing. A smiU export duty on cotton was expected to produce a large revenue sufficient to base a loan upon, but the small amount of cotton exports reduced this source of revenue to an insignificant figure. There being, moreover, no manufactures to tax under an internal revenue system such as the North adopted, the Confederacy was cut off from deriving any considerable revenue from indirect taxation.

The first Confederate tax law levied a direct tu of twenty million dollars, which was apportioned among the states. These, with the exception of Texas, contributed liar apportioned share to the central government by issuing bonds or notes, so that the tax was in reality but a disguised form of loan. Real taxation was postponed until the spring of 1863. when a stringent measure was adopted taxing property and earnings. It was slowly and with difficulty put into effect, and was re-enacted in February 1864. In the states and cities there was a strong tendency to relax or postpone taxation in view « the other demands upon the people.

With no revenue from taxation, and with the disastrous effects of the wholesale issue of paper money before it, the Confederate government made every effort to borrow money by the issue of bonds. The initial $15-million loan was soon followed by an issue of one hundred millions in bonds, which it was, however, difficult to place. This was followed by even larger loans. The bonds rapidly fell in value, and were quoted during the war at approximately the value of the paper money, in which medium they were paid for by subscribers. To avoid this circumstance a system of produce loans was devised by which the bonds were subscribed for in cotton, tobacco and food products. This policy was subsequently enlarged, and enabled the government to secure at least a part of the armies' food supplies. But the bulk of the subscriptions for these bonds was made in cotton, for which the planters were thus enabled to find a market.

It was hoped to keep the currency within bounds by holders of paper money exchanging it for bonds, which the law allowed and encouraged, but as notes and bonds fell in value simultaneously, there was no inducement for holders to make that exchange. On the contrary, a note-holder had an advantage over a bond-holder, in that he could use his currency for speculation or for purchases in general. In the autumn of 1862 the Confederate law attempted to compel note-holders to fund their notes in bonds, in order thereby to reduce the redundancy of the currency and lower prices.

Disappointed in the result of this legislation, the Congress, in February 1864, went much farther in the same direction by passing a law requiring noteholders to fund their notes before a certain date, after which cotes would be taxed a third or more of their face value. This drastic measure was accepted as meaning a partial repudiation of the Confederate debt, and though it for the time reduced the currency outstanding and lowered prices, it wrecked the government's credit, and made it impossible for the Treasury to float any more loans. During the last months of the war the Treasury led a most precarious existence, and its actual operations can only be surmised.