page_title: Economy of the Confederate States of America
section_title: Government revenues
hierarchical_section_title: Economy of the Confederate States of America / Finance / Government revenues
caption_attribution_description: English: “Red tape” used to bind bundles of redeemed Civil War-era Confederacy bond coupons. Part of an extensive collection (Smithsonian Institution) of fiscal documents seized by the Union Army from the Confederacy immediately after the assassination of President Lincoln.
context_page_description: The Confederate States of America started with an agrarian-based economy that relied heavily on slave-worked plantations for the production of cotton for export to Europe and to the northern US. If classed as an independent nation, the area of the Confederate States would have ranked as the fourth-richest country of the world in 1860. When the Union blockaded Confederate ports from summer 1861, exports of cotton fell 95 percent and the South had to restructure itself to emphasize the production of food and munitions for internal use. After losing control of its main rivers and ports, the Confederacy had to depend on a weak railroad system that, with few repairs being made, no new equipment, and destructive federal raids, crumbled away. The financial infrastructure collapsed during the war as inflation destroyed banks and forced a move toward a barter economy for civilians. The government seized needed supplies and livestock. By 1865 the Confederate economy was in ruins.
context_section_description: The effectiveness of the Union blockade and the peculiar industrial development of the Confederate States removed the possibility of an ample government revenue. Though import duties were levied, the proceeds amounted to almost nothing. A small 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. Moreover, since few manufactures existed to tax under an internal revenue system such as the US government adopted, the Confederacy was cut off from deriving any considerable revenue from indirect taxation. The first Confederate tax law levied a direct tax of twenty million dollars, apportioned among the states. These, with the exception of Texas, contributed their 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 of 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 issuing bonds. The initial $15 million loan was soon followed by an issue of one hundred million in bonds, which was, however, difficult to place. There followed 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.
  The South hoped to keep the currency within bounds by having holders of paper money exchange 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 Confederate law attempted to compel note-holders to fund their notes in bonds to reduce the redundancy of the currency and to 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 note-holders to fund their notes before a certain date, after which notes 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 a 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.
  During the entire war the notion that the CSA possessed a most efficient engine of war in its monopoly of cotton (the "King Cotton" idea) buoyed up the hopes of the Confederates. The government in Richmond strained every effort to induce the great powers of Europe to recognize the Confederacy as a nation (see Cotton diplomacy). It also - more successfully - secured individual foreigners' financial recognition of the Confederate States by effecting a foreign loan based on cotton. This favorite notion went into practice in the spring of 1863. The French banking house of Erlanger & Company undertook to float a loan of $3,000,000, redeemable after the war in cotton 
caption: Redeemed CSA bond coupons, bound together with "Red tape".
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