Hyperinflation and the Confederacy: An Interdisciplinary Lesson in Economics and History

Article excerpt

Students can learn economic concepts in the context of historical events. For example, during the Civil War, the Confederacy printed tremendous volumes of paper money, which led to hyperinflation on an unprecedented scale. It was an economic disaster for the South. In this lesson, students are challenged to interpret primary documents and to manipulate economic data, thus weaving concepts of economics and history into a meaningful learning experience. In this article, I describe the lesson and provide a sample of the primary documents; the full set of documents and further background are available on the Internet as part of the Valley of the Shadow, a website sponsored by the University of Virginia. (1) This website includes a vast collection of documents from a Northern and a Southern community during the Civil War: Franklin County, Pennsylvania, and Augusta County, Virginia, respectively.

History teachers who enjoy adding an economic dimension to their teaching, or economics teachers who use historical examples to provide authenticity, will find this lesson useful. The lesson addresses the following social studies content standards: (II) TIME, CONTINUITY, AND CHANGE; (VI) POWER, AUTHORITY, AND GOVERNANCE; and (VII) PRODUCTION, DISTRIBUTION, AND CONSUMPTION. (2) At the end of the lesson, students should have a basic understanding of (a) the Confederacy's difficulty in trying to finance its war effort, (b) the consequences of a government that prints lots of money to pay its own debts, and (c) the responsibility of any government to act wisely in regulating the money supply.

The Price of Money

Inflation is an increase in the general level of prices. Hyperinflation is a very rapid and large increase in the level of prices. (3) Hyperinflation can be triggered when a government prints too much paper money. For example, government leaders can be tempted simply to print money and use it to pay off government debts. The problem with this scheme is that people begin to perceive paper money as having less and less value. They fear that it might even become worthless.

A major twentieth century example is the hyperinflation that Germany experienced in 1923, when German leaders were unable to meet reparation payments from World War I and resorted to printing tremendous amounts of money. The German mark devalued to ridiculously low levels, resulting in the population's loss of confidence in the government. During this chaotic time, an ambitious Adolf Hitler hoped to capitalize on people's desperation by staging a coup, which landed him in jail. There, Hitler refined his strategy and began to build the Nazi party. (4)

Paying for a War

In America in the 1860s, the different approaches taken by the North and South to deal with the problem of financing the Civil War reflected some of the political conflicts that led up to that war. The Confederacy's Secretary of the Treasury, Christopher Memminger, asked the states in rebellion to raise taxes to help pay for the Confederate Army, but he was unsuccessful. His appeal generated less than two percent of the Confederacy's Treasury. (5) States were reluctant to tax their own citizens, particularly in the name of a central government (the Confederacy).

Indeed, an aversion to such authority was one reason why the southern states had seceded from the federal government (the United States). Yet without the power to collect taxes, the leaders of the Confederacy were left with an impossible task: They had to supply an army at war, yet they had no effective way to finance the venture.

Reading a Primary Document

Provide your students two 1863 articles from a Virginia newspaper, The Staunton Spectator, entitled "Legislative Tinkering" and "Exhorbitant [sic] Prices" (see sidebar A; full text is available on the web). The author of one article argues against the policy of impressment (seizing private property for public use without compensation to the owner) and describes how people in various walks of life are affected differently by the inflation. …