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Inflation Is Always and Everywhere a Monetary Phenomenon: Richmond vs. Houston in 1864

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  • Richard C. K. Burdekin
  • Marc D. Weidenmier

Abstract

On April 1, 1864 the Confederate Currency Reform Act reduced the money supply in the Eastern Confederacy by one third. The delayed implementation of the reform west of the Mississippi provides a counterfactual view of what may have happened in the east had the reform not been enacted. This episode is a natural experiment illustrating the relative importance for prices of war news vs. the quantity of money in circulation. Our analysis of the major eastern and western gold markets, Richmond and Houston, strongly suggests that money matters more than war news in the post-reform period.
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Suggested Citation

  • Richard C. K. Burdekin & Marc D. Weidenmier, 2001. "Inflation Is Always and Everywhere a Monetary Phenomenon: Richmond vs. Houston in 1864," American Economic Review, American Economic Association, vol. 91(5), pages 1621-1630, December.
  • Handle: RePEc:aea:aecrev:v:91:y:2001:i:5:p:1621-1630 Note: DOI: 10.1257/aer.91.5.1621
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    References listed on IDEAS

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    1. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
    2. Pecquet, Gary M., 1987. "Money in the trans-Mississippi confederacy and the confederate currency reform act of 1864," Explorations in Economic History, Elsevier, vol. 24(2), pages 218-243, April.
    3. Willard, Kristen L & Guinnane, Timothy W & Rosen, Harvey S, 1996. "Turning Points in the Civil War: Views from the Greenback Market," American Economic Review, American Economic Association, pages 1001-1018.
    4. Brown, William O. & Burdekin, Richard C. K., 2000. "Turning Points in the U.S. Civil War: A British Perspective," The Journal of Economic History, Cambridge University Press, vol. 60(01), pages 216-231, March.
    5. Marc D. Weidenmier, "undated". "Turning Points during the U.S. Civil War: Views from the Grayback Market," Claremont Colleges Working Papers 1999-24, Claremont Colleges.
    6. Burdekin Richard C. K. & Langdana Farrokh K., 1993. "War Finance in the Southern Confederacy, 1861-1865," Explorations in Economic History, Elsevier, vol. 30(3), pages 352-376, July.
    7. Calomiris, Charles W, 1994. "Price and Exchange Rate Determination during the Greenback Suspension," Oxford Economic Papers, Oxford University Press, pages 344-344.
    8. McCandless, George T, Jr, 1996. "Money, Expectations, and U.S. Civil War," American Economic Review, American Economic Association, pages 661-671.
    9. Willard, Kristen L & Guinnane, Timothy W & Rosen, Harvey S, 1996. "Turning Points in the Civil War: Views from the Greenback Market," American Economic Review, American Economic Association, pages 1001-1018.
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    Citations

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    Cited by:

    1. Marc Weidenmier, 2004. "Gunboats, Reputation, and Sovereign Repayment: Lessons from the Southern Confederacy," NBER Working Papers 10960, National Bureau of Economic Research, Inc.
    2. Marc D. Weidenmier & Kim Oosterlinck, 2007. "Victory or Repudiation? The Probability of the Southern Confederacy Winning the Civil War," NBER Working Papers 13567, National Bureau of Economic Research, Inc.
    3. Richard C.K. Burdekin & Marc D. Weidenmier, "undated". "The Option Value of Confederate Currency and Inflation Control, 1861-1865," Claremont Colleges Working Papers 2000-29, Claremont Colleges.
    4. Marc D. Weidenmier, "undated". "Turning Points during the U.S. Civil War: Views from the Grayback Market," Claremont Colleges Working Papers 1999-24, Claremont Colleges.
    5. Richard C. K. Burdekin & Marc D. Weidenmier, 2003. "Suppressing Asset Price Inflation: The Confederate Experience, 1861--1865," Economic Inquiry, Western Economic Association International, vol. 41(3), pages 420-432, July.
    6. Weidenmier, Marc D., 2005. "Gunboats, reputation, and sovereign repayment: lessons from the Southern Confederacy," Journal of International Economics, Elsevier, pages 407-422.
    7. Hetherington, Bruce W. & Kower, Peter J., 2011. "Technological diffusion and the Union blockade," Explorations in Economic History, Elsevier, vol. 48(2), pages 310-324, April.
    8. William A. Bomberger & Gail E. Makinen, 2010. "Seigniorage, Legal Tender, And The Demand Notes Of 1861," Economic Inquiry, Western Economic Association International, vol. 48(4), pages 916-932, October.
    9. Burdekin, Richard C.K., 2008. "US pressure on China: Silver flows, deflation, and the 1934 Shanghai credit crunch," China Economic Review, Elsevier, vol. 19(2), pages 170-182, June.
    10. Gary M. Pecquet & Clifford F. Thies, 2006. "Texas Treasury Warrants, 1861-1865: A Test Of The Tax-Backing Of Money," Eastern Economic Journal, Eastern Economic Association, vol. 32(2), pages 191-203, Spring.
    11. Tang, Chor Foon, 2008. "Is inflation always a monetary phenomenon in Malaysia?," MPRA Paper 19778, University Library of Munich, Germany.
    12. repec:eco:journ1:2017-03-59 is not listed on IDEAS
    13. Richard C.K. Burdekin & Marc D. Weidenmier, "undated". "Circulating Interest-Bearing Currency: An Arkansan Experiment, 1861-1863," Claremont Colleges Working Papers 2003-04, Claremont Colleges.
    14. Richard C.K.Burdekin & Marc D.Weidenmier, 2002. "Interest-Bearing Currency and Legal Restrictions Theory:Lessons from the Southern Confederacy," Cato Journal, Cato Journal, Cato Institute, pages 199-209.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • N11 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: Pre-1913
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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