Question

The federal government financed itself during the Civil War with a combination of printing money (greenbacks), issuing debt, and collecting taxes. If you had to change the mix of financing methods and do more of 1 or 2 of these 3 and less of 1 or 2 of these 3 to finance the Union’s effort and government finances during the Civil War, what would you change and why?

Answer 1

ANSWER-

I would like to add a point- Borrowing money

During the civil war, the government can borrow some money from the bank and international bank.

The government has three main sources of revenue:

• Taxes & fees – such as Income Tax, National Insurance, Value Added Tax (VAT), taxes on alcohol, fuel, flights and so on.
• Borrowing – this is mainly achieved through the issuing of bonds.
• Creation of money – the revenue from this source is negligible under the current monetary system

Borrowing money-

Rather than borrowing from banks, the government typically borrows from the ‘market’ – primarily pension funds and insurance companies. These companies lend money to the government by buying the bonds that the government issues for this purpose. Many companies favour investing money in government bonds due to the lack of risk involved: the UK government has never defaulted on its debt obligations and is unlikely to in the future, primarily because it is able to collect money from the public via taxation. The market in government debt also tends to be stable and liquid, and offers an interest rate in excess of that which is available on other riskless investments (i.e. physical cash).