After the spring of 1863, Union finances improved. News from the military front was more reassuring; loan operations became more successful; and revenue collections under the vigorous tax measures passed by Congress increased, bolstering the credit of the government. Though mistakes were made, they were fewer and less serious than those of the earlier period.
Depreciation of the Greenbacks . Greenbacks began to depreciate in terms of specie almost immediately after they were first issued in the spring of 1862. Speculators and those who needed specie in their business transactions bought it at a premium with greenbacks in the New York gold market, while its possessors tended to hoard it. Consequently, its price in paper money increased until in time $1 in gold was worth $2.85 in paper or, conversely, $1 in paper was worth only 35 cents in gold. At the same time greenbacks (and other paper currency) depreciated in terms of goods; that is, prices of commodities, which were all being purchased in paper money (inasmuch as gold was being hoarded), rose steadily. Price inflation hit the laboring classes most severely, for they were paid in paper money and their wages lagged far behind prices. The government also suffered from rising prices, for it was the largest purchaser of goods and collected only a portion of its total receipts in specie.
The basic causes of the depreciation of paper money were the great increase in demand induced by the government's war spending and the consequent expansion of currency, credit, and income. But in addition, the price of gold was affected by the news from the military front, the ebb and flow of imports payable in gold, and the government's gold payments of interest on its bonds. Bad news caused gold to be hoarded and its price in terms of paper to rise, while good news caused gold to be thrown on the market and its price to drop.1
Some writers have ascribed the price inflation almost entirely to the issuance of greenbacks, but this is a mistaken view.2 Even if greenbacks____________________