20 August 1866: The American Civil War officially ends

Over a year after Confederate general Robert E Lee surrendered, US president Andrew Johnson could finally declare the American Civil War over, on this day in 1866.

In April 1865, the highest-ranking Confederate general, Robert E Lee, surrendered to his opposing number, Ulysses S Grant. The Confederate capital in Richmond, Virginia, had been taken, and the Confederate president, Jefferson Davis, was on the run. The American Civil War was won – but it was far from over.

The war came at a terrible human cost. The marvels of the industrial revolution – the railroads, the telegraph and the assembly lines – all contributed to making it the bloodiest war in terms of American lives lost to date.

But the war also came at a high financial price, and arguably changed American economic policy forever. By the middle of 1861, the year fighting began, the government's spending (the one in Washington, that is) was $1.5m a day, notes economic historian John Steele Gordon in Barron's. By the end of the war, spending had risen to $3.5m a day.

Or, to put that another way, government debt grew from $64.8m in 1860 to $2.6bn five years later – an increase of more than 40 times. The US government puts the bill for the war at $5.2bn, when it became the first country to spend $1bn in a single year.

Clearly, the government didn't have that much gold in its reserves. So in 1862, the Legal Tender Act was passed, allowing the printing presses to roll out the first greenbacks – $450m of them. In addition, Philadelphia financier Jay Cooke sold $500m in war bonds.

And of course, both sides raised taxes. But the poorer South couldn't raise as much as the North and had to meet the shortfall by printing its own money even faster. By the end of the war, inflation had reached 180% compared to pre-war prices in the north. In the south, inflation hit 9,000%.

That summer in 1865 following the capitulation of General Lee, the last Confederate regulars surrendered not to the Union armies, interestingly, but to the British. The Confederate raiding ship, the CSS Shenandoah, sailed into Liverpool, and the captain handed the ship over to the prime minister in a letter. The British turned the vessel over to the federal government in Washington, who sold it to the Sultan of Zanzibar.

But the insurrection continued, particularly in Texas. It was only on 20 August 1866 that President Andrew Johnson (his predecessor having been assassinated) could finally and officially declare the American Civil War over: "Order, tranquillity, and civil authority now exists in and throughout the whole of the United States of America."

As is so often the case, the side with the most money won. When the Confederate government collapsed, the bonds it had issued weren't worth the money they were printed on, hobbling the southern states for decades.

Recommended

What really causes inflation? Here’s what prices since 1970 tell us
Inflation

What really causes inflation? Here’s what prices since 1970 tell us

As UK inflation hits 3.2%, Dominic Frisby compares the cost of living 50 years ago with that of today, and explains how debt drives prices higher.
15 Sep 2021
Should you defer your pension and stay in work?
Pensions

Should you defer your pension and stay in work?

The pros and cons of deferring your pension and staying in employment beyond 66 are finely balanced.
15 Sep 2021
I wish I knew what a marginal tax rate was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what a marginal tax rate was, but I’m too embarrassed to ask

Your marginal tax rate is simply the tax rate you pay on each extra pound of income you earn. Here's how that works.
14 Sep 2021
The UK jobs market is booming – what does that mean for investors?
UK Economy

The UK jobs market is booming – what does that mean for investors?

Unemployment in the UK is back to pre-pandemic levels, employers are desperate to hire more staff, and wages are rising. John Stepek looks at what tha…
14 Sep 2021

Most Popular

Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How you can profit from the power of the grey pound
Share tips

How you can profit from the power of the grey pound

Higher life expectancy and surging asset prices have proved a boon for the baby-boomer generation, which has accumulated vast wealth. Younger generati…
10 Sep 2021