The Northern inflation coincided almost exactly in its early stages with the inflation in the South, and was produced by the same basic factor - a budgetary deficit due to war expenditure. The financial mobilization of the North was handicapped at the outset by a deficit inherited from the previous administration and by an impaired national credit. The prompt response of the Northern banks enabled the Treasury to overcome this initial handicap and to finance the greatly increased expenditure through the early months of the war. How long orthodox methods of borrowing would have sufficed has been ever since a matter of debate. Toward the end of 1861 the banking system had begun to show signs of serious strain which was greatly aggravated by the policies of Secretary Chase in concentrating at the Treasury a very large share of the supply of specie. The unfavorable state of national finances at the end of the year and the danger of war with England over the Trent affair were enough to produce a panic on December 16 and to force a suspension of specie payments on December 30, 1861.
John P. Dawson & Frank E. Cooper,
THE EFFECT OF INFLATION ON PRIVATE CONTRACTS: UNITED STATES, 1861-1879,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol33/iss6/3