During the American Civil War, both the Union and the Confederacy faced significant financial challenges. The Union, led by President Abraham Lincoln, financed the war through a combination of taxes, war bonds, and loans. The introduction of the first income tax in 1861 helped generate revenue, while the sale of bonds allowed the government to borrow money from citizens and institutions. In contrast, the Confederacy struggled with its finances due to a lack of industrial resources and a smaller tax base. The Confederate government issued paper money, leading to rampant inflation. As the war progressed, the South's financial situation worsened, contributing to its eventual defeat.