United States, Bureau of the Census. Recent quantitative research, he argued, showed that the war had actually slowed the rate of industrial growth. New York: Cambridge University Press, 2002. Particularly for the South, not all the decline in output after 1860 could be directly attributed to the war; the growth in the demand for cotton that fueled the antebellum economy did not continue, and there was a dramatic change in the supply of labor due to emancipation. Mechanization of farming allowed a single farmer growing crops such as corn or wheat to plant, harvest, and process much more than was possible when hand and animal power were the only available tools. In order to make the farms more efficient and to help industries develop new and better equipment, as well as provide opportunities for students in the "industrial classes," in 1862 Congress passed the Morrill Act (Land-Grant Colleges Act), by which each state was granted land for the purposes of endowing Agricultural and Mechanical (A and M) colleges. When Lincoln became president in March 1861, he faced a divided nation, but also a Congress dominated by Republicans after many Southern Democratic members left to join the Confederacy. Norwell, MA: Kluwer Academic Publishers, 1998. The Confederates depended far more upon outside resources and direct intervention in the production of goods and services for their war effort, and in the end the domestic economy could not bear up under the strain of the effort. Still, war is always a gamble, and with the neither the costs nor the benefits easily calculated before the fact, leaders are often tempted to take the risk. With the imposition of a higher tariff, excise taxes, and the introduction of the first income tax in American history, this situation improved somewhat, and by the war’s end 25 percent of the federal government revenues had been collected in taxes. These effects went either way during the civil war, but obviously, the south suffered greater … The American economy was caught in transition on the eve of the Civil War. The series for wages has been adjusted to reflect the decline in purchasing power due to inflation. The evidence above certainly lent strong support for those arguing that it made sense for the South to fight if a belligerent North threatened the institution of slavery. This gives a total of $6.6 billion in direct costs — with each region incurring roughly half the total. 1860-1864. During the war, Tredegar produced over 1000 canons for the Confederacy as well as armor plating for warships. “The Post-Bellum Recovery of the South and the Cost of the Civil War: Comment.” Journal of Economic History 38 (1978): 487-492. By 1860, 90 percent of the nation's manufacturing output came from northern states. What was the cost of this conflict? The North produced 3,200 firearms to every 100 produced in the South. (By 1860, a threshing machine could thresh 12 times as much grain per hour as could six men.) “Who Pays for Slavery?” In The Wealth of Races: The Present Value of Benefits from Past Injustices, edited by Richard F. America, 31-54. Under such a scheme, the federal government would purchase slaves. Abraham Lincoln probably summarized the situation as well as anyone when he observed in his second inaugural address that: “Both parties deprecated war, but one of them would make war rather than let the nation survive, and the other would accept war rather than let it perish, and the war came.”. The bill that best illustrates the regional disputes on transportation was the Pacific Railway Bill of 1860, which proposed a transcontinental railway link to the West Coast. Between 1861 and 1865 the debt obligation of the Federal government increased from $65 million to $2.7 billion (including the increased issuance of notes by the Treasury). Recent research by economic, social and political historians has reopened some of the arguments first put forward by Beard and Hacker that economic changes in the Northern states were a major factor leading to the political collapse of the 1850s. Second was the impact of emancipation. Even though greenbacks were not backed by similar amounts of gold and silver, creditors were required to accept them at face value. The Southern burden was two and a half times that amount — $376 per man, woman and child. Herds had been left un-managed during the war and had become half-wild by the time it had ended. Douglass North, in his pioneering study of the antebellum U.S. economy, examined the flows of trade within the United States to demonstrate how all regions benefited from the South’s concentration on cotton production (North 1961). Before the war, the South imported most manufactured goods from the North or overseas. National Park Service. Goldin and Lewis estimate that the combined outlays of both governments — in 1860 dollars — totaled $3.3 billion. Looking at Figure 1, it is hardly surprising that Southern slaveowners in 1860 were optimistic about the economic future of their region. A New Economic View of American History from Colonial Times to 1940. The South's economy became mainly based on cotton farming, therefore on slavery. A major finding of the research into the economic dynamics of the slave system was to demonstrate that the rise in the value of slaves was not based upon unfounded speculation. In the East, General Ulysses S. Grant threw men and materiel at Robert E. Lee's depleted and increasingly desperate army. No war in American history strained the economic resources of the economy as the Civil War did. The coal industry experienced similar growth, in 1861-65 enjoying an expansion rate 21% higher than that for the nation as a whole during the 4 years immediately preceding civil strife. EH.Net Encyclopedia, edited by Robert Whaples. With so much to lose on both sides of the Mason-Dixon Line, economic logic suggests that a peaceful solution to the slave issue would have made far more sense than a bloody war. Goldin, Claudia Dale. As the South scrambled to catch up, Texas emerged as a major manufacturing center. The collapse of the Confederate monetary system was a reflection of the overall collapse of the economy’s efforts to sustain the war effort. Several features of Confederate finance immediately stand out in comparison to the Union effort. Industry and Economy during the Civil War. An index of consumer prices is plotted together with the stock on money from early 1861 to April 1865 in Figure 5. But what of the larger question of political change resulting from the war? They would readily agree that in the absence of a war the Republican program of political economy would triumph — and that is why there was a war! (The 1860 Census Office defined an “urban place” as a town or city having a population of at least 2,500 people.) By that time, of course, the Confederate cause was clearly doomed. Northern merchants gained from Southern demands for shipping cotton to markets abroad, and from the demand by Southerners for Northern and imported consumption goods. Union forces moving south or west to fight often rode to battle on trains traveling on freshly lain tracks. The South did experiment with using slave labor in manufacturing, but for the most part it was well satisfied with its agricultural economy. With the formation of the Whig Party in the 1830s, a number of key economic issues emerged at the national level. What had been an almost purely agricultural economy in 1800 was in the first stages of an industrial revolution which would result in the United States becoming one of the world's leading industrial powers by 1900. Jackson’s veto ushered in a period of that was termed “free banking” in the United States, where the chartering and regulation of banks was left entirely in the hands of state governments. Fully seven-eighths of foreign immigrants settled in free states. Transportation Improvements. With a cost of billions of dollars and 625,000 men killed, slavery had been abolished and the Union had been preserved. Not just a Marx can observe that the Civil War involved a conflict between powerful, rival economic interests. This still left a huge shortfall in revenue that was not covered by either taxes or the printing of money. An economic case for the North is more problematic. Citation: Ransom, Roger. Industrialization During 1865 and 1920 That Influenced U.S. Society, Economy, and Politics 1205 Words | 5 Pages. With more developed markets and an industrial base that could ultimately produce the goods needed for the war, the Union was clearly in a better position to meet this challenge. North, Douglass C. The Economic Growth of the United States, 1790-1860. New York: Macmillan, 1927. The need for government- sponsored improvements was particularly urgent in the Great Lakes region (Egnal 2001: 45-50). Western agriculture with its emphasis on foodstuffs encouraged urban activity near to the source of production. Washington: U.S. Government Printing Office, 1975. c Includes: Illinois, Indiana, Iowa, Kansas, Minnesota, Nebraska, Ohio, and Wisconsin. People had taken to engaging in barter or using Union dollars (if they could be found) to conduct their transactions. If slavery was the corner stone of the Confederacy, cotton was its foundation. The Union, however, was far more advanced technologically than the Confederate states. First is the failure of the Richmond government to finance their war expenditures through taxation. Second edition. Consequently, the Northern economy was able to finance the war without a significant reduction in private consumption. The cotton trade with the Confederate states was a main influence in the level of intervention that Great Britain decided to pursue during the Civil War. It is easy to see why contemporaries believed that the Civil War was a watershed event in American History. The government seized needed supplies and livestock (paying with certificates that were to be paid off after the war, but never were). Those remaining behind could continue to manage the farm through the use of labor-saving devices like reapers and horse-drawn planters. How much of this failure was due solely to the war remains open to debate. The freedmen and their families responded to emancipation by withdrawing up to a third of their labor from the market. “The Economic Costs of the American Civil War: Estimates and Implications.” Journal of Economic History 35 (1975): 299-326. Allowing the South to leave the Union would mean that the North could no longer control the expansion of slavery anywhere in the Western Hemisphere (Ransom 1989; Ransom and Sutch 2001; Weingast 1998; Weingast 1995; Wolfson 1995). It is worth noting in this regard, that the Union blockade, which by 1863 had largely closed down not only the external trade of the South with Europe, but also the coastal trade that had been an important element in the antebellum transportation system, may have played a more crucial part in bringing about the eventual collapse of the Southern war effort than is often recognized (Ransom 2002). One of the most important factors in weighing the amount of British involvement in the American Civil War were economic ones. As the war dragged on, the Union's advantages in factories, railroads, and manpower put the Confederacy at a great disadvantage. In the cotton regions the importance of slave labor was even greater. Many of these bills set the course for the United States to emerge by war's end as a nation with enormous economic potential and poised for a massive and rapid westward expansion. McPherson, James M. Battle Cry of Freedom: The Civil War Era. All this provided ample argument for those clamoring for the South to leave the Union in 1861. your own Pins on Pinterest The costs are divided into two groups: the direct costs which include the expenditures of state and local governments plus the loss from destruction of property and the loss of human capital from the casualties; and what Goldin and Lewis term the indirect costs of the war which include the subsequent implications of the war after 1865. Cotton and the Civil War. Faulkner, Harold Underwood. Figure 2 charts the growth of cotton exports from 1815 to 1860. “The Economic Role of Political Institutions: Market Preserving Federalism and Economic Development.” Journal of Law, Economics and Organization 11 (1995): 1:31. As both the North and the South mobilized for war, the relative strengths and weaknesses of the "free market" and the "slave labor" economic systems became increasingly clear - particularly in their ability to support and sustain a war economy. Governor Francis R. Lubbock employed prison labor from the state penitentiary in Huntsville to make shoes and weave cloth for uniforms, which were manufactured in both Texas and Louisiana. What Table 3 does not show is the extent to which these expenses were spread out over a long period of time. But the beginnings of the industrial revolution in the prewar years was almost exclusively limited to the regions north of the Mason-Dixon line, leaving much of the South far behind. Southerners wanted a railroad built along a southern route. (1975; 1978). In the Northeast, where over 60 percent of all banks were located, there was strong support by 1860 for the creation of a system of banks that would be chartered and regulated by the federal government. American Economic History. He made good on his promise by signing the Homestead Act into law on May 20, 1862. In the South, life revolved around unfree labor and staple crops. In addition to this, Richmond’s industry produced a number of different war materials such as ammunition, guns and swords as well as supplied uniforms, tents and leather goods to the Confederate Army. On a per capita basis, the costs to the North population were about $150 — or roughly equal to one year’s income. Union invasions into the South resulted in the capture of Southern transportation and manufacturing facilities. Southerners complained that even this level of protection was excessive and that it was one more example of the willingness of the West and the North to make economic bargains at the expense of the South (Ransom and Sutch 2001; Egnal 2001:50-52). Table 5 compares the economic growth of GNP in the United States with the gross crop output of the Southern states from 1874 to 1904. Economic historians who have examined the immediate effects of the war have reached a few important conclusions. No war in American history strained the economic resources of the economy as the Civil War did. Most writers argue that the decision for war on Lincoln’s part was not based primarily on economic grounds. During the first half of the twentieth century, historians viewed the war as a major turning point in American economic history. During the war, Congress also passed several major financial bills that forever altered the American monetary system. 4. Citation. To this they add $1.8 billion to account for the discounted economic value of casualties in the war, and they add $1.5 billion to account for the destruction of the war in the South. Industry and Economy during the Civil War. August 24, 2001. It is not obvious why this happened. From the outset, the Confederates relied heavily on funds borrowed outside the South to purchase supplies abroad. Manufacturers in the Northeast, on the other hand, supported a high tariff as protection against cheap British imports. Their motive was not only to institute the program of banking reform pressed for many years by the Whigs and the Republicans; the newly-chartered federal banks were also required to purchase large blocs of federal bonds to hold as security against the issuance of their national bank notes. Bensel, Richard F. Yankee Leviathan: The Origins of Central State Authority in America, 1859-1877. Cochran, Thomas C. “Did the Civil War Retard Industrialization?” Mississippi Valley Historical Review 48 (September 1961): 197-210. Subject. These ostensibly independent journals were characterized by their small size (easier to read on bustling city streets), sensational stories of urban life, and cheap price (appealing to the laboring classes). 3. By itself, the South’s economic investment in slavery could easily explain the willingness of Southerners to risk war when faced with what they viewed as a serious threat to their “peculiar institution” after the electoral victories of the Republican Party and President Abraham Lincoln the fall of 1860. In the longer run, as Gavin Wright (1986) put it, emancipation transformed the white landowners from “laborlords” to “landlords.” This was not a simple transition. Northern transportation industries boomed during the conflict as well--particularly railroads. Southerners had for years opposed the idea because it would severely hamper any opportunity to expand slavery into the areas where settlement would be likely. New York: Dryden, 1998. Banks were a relatively new economic institution at this point in time, and opinions were sharply divided over the degree to which the federal government should regulate banks. In the North, consumption had regained its prewar level by 1873, however in the South consumption remained below its 1860 level to the end of the century. “Economics of the Civil War”. This reconsideration of the Civil War by economic historians can be loosely grouped into four broad issues: the “economic” causes of the war; the “costs” of the war; the problem of financing the War; and a re-examination of the Hacker-Beard thesis that the War was a turning point in American economic history. Englewood Cliffs: Prentice Hall, 1961. “The Economics of Emancipation.” Journal of Economic History 33 (1973): 66-85. The result was an economy that remained heavily committed not only to agriculture, but to the staple crop of cotton. About 75 percent of Southern males fought the war, as compared to about half of Northern men. “Watersheds and Turning Points: Conjectures on the Long-Term Impact of Civil War Financing.” Journal of Economic History 34 (1974): 636-661. Small wonder that Southerners — even those who did not own slaves — viewed any attempt by the federal government to limit the rights of slaveowners over their property as a potentially catastrophic threat to their entire economic system. More than two-thirds of all urban counties were in the Northeast and West; those two regions accounted for nearly 80 percent of the urban population of the country. Slavery had been an uncomfortable fact of life in the United States since the founding of the republic. The CEPPI Index clearly records a dramatic fall in economic conditions during the war. The cost of any “compensated” emancipation scheme was so high that even those who wished to eliminate slavery were unwilling to pay for a “buyout” of those who owned slaves. Second edition. “Public Debt Management and Nineteenth-Century American Economic Growth.” Explorations in Economic History 21 (1984): 192-217. Had there been no war, these critics argued, the trajectory of economic growth that emerged after 1870 would have done so anyway. But while the southern states produced two-thirds of the world's supply of cotton, the South had little manufacturing capability, about 29 percent of the railroad tracks, and only 13 percent of the nation's banks. Table 4 presents data on prices and wages in the United States and the Confederacy. In the 11 states that eventually formed the Confederacy, four out of ten people were slaves in 1860, and these people accounted for more than half the agricultural labor in those states. It also meant the literal and symbolic linking of East and West (to the exclusion of the South) and decreased travel times for passengers and goods. The civil war had a huge impact on the Texan cattle industry. In the years after World War II, a new group of economic historians — many of them trained in economics departments — focused their energies on the explanation of economic growth and development in the United States. Hacker, Louis. The most comprehensive effort to answer this question is the work of Claudia Goldin and Frank Lewis (1978; 1975). In 1860, the economic value of slaves in the United States exceeded the invested value of all of the nation's railroads, factories, and banks combined. The American economy was caught in transition on the eve of the Civil War. Engerman, Stanley L. “The Economic Impact of the Civil War.” Explorations in Entrepreneurial History, second series 3 (1966): 176-199 . d Includes: Delaware, Kentucky, Maryland, and Missouri. They were, after all, in the midst of an unparalleled rise in the value of their slave assets. Source. Prices and the stock of money had risen at roughly the same rate. An already troubled Confederate economy simply could not absorb such massive losses and survive. New York: Hill and Wang, 1976. The same was not true in the South. When James Hammond exclaimed in 1859 that “Cotton is King!” no one rose to dispute the point. While these figures are only a very rough estimate of the actual costs, they provide an educated guess as to the order of magnitude of the economic effort required to wage the war, and it seems likely that if there is a bias, it is to understate the total. Not surprisingly, wage earners in the South saw the real value of their wages practically disappear by the end of the war. Date. Other Northern industries--weapons manufacturing, leather goods, iron production, textiles--grew and improved as the war progressed. As noted above in the discussion of the indirect costs of the war, Southerners bore a disproportionate share of those costs and the burden persisted long after the war had ended. Inflation is a tax, and it tends to fall on those who are least able to afford it. The value of capital invested in slaves roughly equaled the total value of all farmland and farm buildings in the South. This all came to a head with the “Homestead Act” of 1860 that would provide 160 acres of free land for anyone who wanted to settle and farm the land. This law provided free title to up to 160 acres of undeveloped federal land outside the 13 original colonies to anyone willing to live on and cultivate it. Furthermore, the ruined economy meant there was little demand for expensive beef. The Goldin and Lewis estimates of the costs of the war are presented in Table 3. The costs could be reduced substantially if instead of freeing all the slaves at once, children were left in bondage until the age of 18 or 21 (Goldin 1973:85). Gunderson compares the “costs” of the war (which we discuss below) with the cost of “compensated” emancipation and notes that the two are roughly the same order of magnitude — 2.5 to 3.7 billion dollars (1974: 940-42). As a result, in 1860, the Northern states produced half of the nation's corn, four-fifths of its wheat, and seven-eighths of its oats. Figure 3 shows the sources of revenue collected by the Union government during the war. URL http://eh.net/encyclopedia/the-economics-of-the-civil-war/, To join the newsletters or submit a posting go to, http://eh.net/encyclopedia/the-economics-of-the-civil-war/, Percent of the Population That Were Slaves, Per Capita Earnings of Free Whites (in dollars), Slave Earnings per Free White (in dollars), Percent of Region’s Population Living in Urban Counties, Region’s Urban Population as Percent of U.S. Urban Population, Source: Union: (Atack and Passell 1994: 367, Table 13.5). The United States, on the verge of civil war, contained two distinct economies. Simply put, the United States of America would be a very different nation today than had the war never been fought. Gunderson makes the further point, which has been echoed by other writers, that the only way that the North could ensure that their program to contain slavery could be “enforced” would be if the South were kept in the Union. By war's end, it was the world's largest railroad system. However, Beard and Hacker — and a good many other historians — mistook this increased wartime activity as a net increase in output when in fact what happened is that resources were shifted away from consumer products towards wartime production (Ransom 1989: Chapter 7). Weingast, Barry R. “Political Stability and Civil War: Institutions, Commitment, and American Democracy.” In Analytic Narratives, edited by Robert Bates et al. The Southern lag in industrial development did not result from any inherent economic disadvantages. Huston, James L. “Property Rights in Slavery and the Coming of the Civil War.” Journal of Southern History 65 (1999): 249-286. By the end of the war, inflation had reached a point where the value of the Confederate currency was virtually zero. Brown, Richard D. Modernization: The Transformation of American Life, 1600-1865. In fact, as Northern forces traveled further south to fight and occupy the Confederacy, the War Department created the United States Military Railroads, designed to build rails to carry troops and supplies as well as operating captured Southern rail lines and equipment. CIVIL WAR AND INDUSTRIAL AND TECHNOLOGICAL ADVANCES. One group that tends to be vulnerable to a sudden rise in prices is wage earners. These centers were not necessarily large; indeed, the West had roughly the same number of large and mid-sized cities as the South. However there were far more small towns scattered throughout settled regions of Ohio, Indiana, Illinois, Wisconsin and Michigan than in the Southern landscape. As a consequence, the population of the states that stayed in the Union was approximately 23 million as compared to a population of 9 million in the states of the Confederacy. Free states attracted the vast majority of the waves of European immigration through the mid-19th century. Consequently, Goldin and Lewis subsequently adjusted their estimate of lost consumption due to the war down to $2.56 billion for the South in order to exclude the effects of emancipation and the collapse of the cotton market. Southerners, with their emphasis on staple agriculture and need to buy goods produced outside the South, strongly objected to the imposition of duties on imported goods.
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