Money War: democracy, taxes and inflation in the U.S. Civil War.

The article examines the divergent fiscal and monetary policies of the Union and the Confederacy during the U.S. Civil War, focusing on how differences in taxation capacity influenced the value and stability of their respective fiat currencies—the Union's "greenback" and the Confederate "greyback." It argues that the Union's moderate inflation and monetary success were underpinned by a robust tax system supported by democratic institutions that provided political legitimacy and administrative competence, enabling effective implementation of taxation and sustaining currency value through a "fiat loop." In contrast, the Confederacy's hyperinflation resulted from its failure to establish a credible and effective tax regime, rooted in its less democratic, slaveholding society that resisted internal taxation, undermining the fiscal foundation necessary to support its currency. The study highlights the importance of long-term institutional development and democratic governance in shaping state capacity to manage wartime finance and contributes to credit theories of money by emphasizing political determinants of fiscal policy effectiveness.