Economics and the Civil War - History

Economics and the Civil War - History

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Economics and the Civil War

by Marc Schulman

In the years before the Civil War, the economic interests of Americans in the North and Northwest grew increasingly further from those of Americans in the South and Southwest. Although the Civil War itself was caused by a number of different factors, the divergent paths taken in the economic development of North and South contributed to the animosity between the regions, the development of the Confederacy and, ultimately, the victory of the Union.

Contrasting Economies
As a nation, the United States was still primarily agricultural in the years before, during and immediately after the Civil War. About three-quarters of the population lived in rural areas, including farms and small towns. Nevertheless, the Industrial Revolution that had hit England decades before gradually established itself in the "former colonies."
While factories were built all over the North and South, the vast majority of industrial manufacturing was taking place in the North. The South had almost 25% of the country's free population, but only 10% of the country's capital in 1860. The North had five times the number of factories as the South, and over ten times the number of factory workers. In addition, 90% of the nation's skilled workers were in the North.
The labor forces in the South and North were fundamentally different, as well. In the North, labor was expensive, and workers were mobile and active. The influx of immigrants from Europe and Asia provided competition in the labor market, however, keeping wages from growing very quickly. The Southern economy, however, was built on the labor of African American slaves, who were oppressed into providing cheap labor. Most Southern white families did not own slaves: only about 384,000 out of 1.6 million did. Of those who did own slaves, most (88%) owned fewer than 20 slaves, and were considered farmers rather than planters. Slaves were concentrated on the large plantations of about 10,000 big planters, on which 50-100 or more slaves worked. About 3,000 of these planters owned more than 100 slaves, and 14 of them owned over 1,000 slaves. Of the four million slaves working in the South in 1860, about one million worked in homes or in industry, construction, mining, lumbering or transportation. The remaining three million worked in agriculture, two million of whom worked in cotton.
Since Eli Whitney's 1793 invention of the cotton 'gin, the cotton industry became a lucrative field for Southern planters and farmers. Utilizing slave labor, cotton planters and farmers could cut costs as they produced cotton for sale to other regions and for export to England. In exchange, Southern farmers and planters purchased manufactured goods from the North, food items from the West and imported luxuries like European designer clothes and furniture from England. The growth of the Southern cotton industry served as an engine of growth for the entire nation's economy in the antebellum (pre-war) years.
The other critical economic issue that divided the North from the South was that of tariffs. Tariffs were taxes placed on imported goods, the money from which would go to the government. Throughout the antebellum period, whenever the federal government wanted to raise tariffs, Southern Congressmen generally opposed it and Northern Congressmen generally supported it. Southerners generally favored low tariffs because this kept the cost of imported goods low, which was important in the South's import-oriented economy. Southern planters and farmers were concerned that high tariffs might make their European trading partners, primarily the British, raise prices on manufactured goods imported by the South in order to maintain a profit on trade.
In the North, however, high tariffs were viewed favorably because such tariffs would make imported goods more expensive. That way, goods produced in the North would seem relatively cheap, and Americans would want to buy American goods instead of European items. Since tariffs would protect domestic industry from foreign competition, business interests and others influenced politicians to support high tariffs.
Americans in the West were divided on the issue. In the Southwest, where cotton was a primary commodity, people generally promoted low tariffs. In the Northwest and parts of Kentucky, where hemp (used for baling cotton) was a big crop, people supported high tariffs.

Economic Factors in Secession
As the 1850s proceeded, the divide between the North and Northwest and the South and Southwest widened. The bitter debates over the slave status of newly-admitted states, which had been going on since at least the Missouri Compromise of 1820, were signs of the very real fear Southerners had of having their voice in Congress drowned out by "Yankee industrialists." Incidents such as the Southern protests against the "Tariff of Abominations" in the 1820s and the Nullification Crisis of the 1830s demonstrated how deep a rift the tariff controversy was creating between North and South.
In Congress, Southern Representatives and Senators were concerned that their interests would not be suitably addressed. As immigrants flocked to the Northern areas, swelling the ranks, Southerners were afraid the Northern states would increase their representation in the House of Representatives, blocking "Southern-friendly" legislation. The interests of Southern Americans who were African Americans, however, did not seem to concern a large number of Southern Congressmen. By the late 1850s, the fear of Northern domination in national economic policy, combined with the desire to maintain Southern institutions (including slavery), became a major influence on the people who eventually chose to secede from the Union.
What did the Confederacy hope to accomplish by seceding from the Union? The clearest goal was to defend and preserve the right of Southern Whites, including the right to own slaves. While the concept of owning another human being would obviously be a moral and criminal issue today; many slaveowners either ignored or tried to justify their way out of that dimension, focusing on the economic aspects of slavery. They held that the right to own people was a property right, just like owning land or buildings. Thus, when Northern politicians tried to ensure that new states admitted to the Union were "free-soil" (i.e., that no slavery was allowed), slaveowners felt that their right to settle in the West with their "property," including slaves, was being infringed. In addition, in the minds of secessionists, the threat of national abolition not only had the potential of reducing the wealth of many prominent Southerners, but also interfered with the "property" rights of Southern Whites. Thus, secession seemed to be the only way of preserving those rights.
In addition, some secessionists were interested in preserving the "Southern way of life." While the image of the large plantations and elegant Scarlet O'Hara-esque Southern belles sipping mint juleps was applicable to only a small minority of southern farms, the gentility and clearly-defined class system was something of a comfort, even for those Southerners who did not live in that world. In addition, some accepted the myth of the happy, subservient slave, who was not quite a human being and would benefit from the civilizing influence of Southern gentility. At the foundation of the "Southern way of life," however, was its oppressive economic system. In addition to reducing millions of Americans to the status of chattel, it made it very difficult for non-landed, unskilled Whites to succeeded in the face of labor competition from slaves.
Part of the "Southern way of life" was the European flavor and aspirations of the planter class. This cultural influence grew out of and was fed by the long-standing mutual economic relationship between England and the South. In order to ensure that the British market for Southern cotton remained open, Southern planters and others had to maintain relatively sizable importation of goods from Britain. At the same time, the European influence on Southern gentile society; in education, fashion, arts, and other fields; created a large demand for European imports. An imbalance in this relationship, such as would be caused by the abolition of slavery or increases in tariffs, would have cultural implications for the South.

Economics and the Union Victory
Despite the advantages the Confederacy had in well-trained officers and dedication to a cause, it was inevitable that the Union would win the war. The only hope for the Confederacy would have been that the Union would not resist secession, or that foreign nations would assist the Confederate cause. Once the Union decided to fight for unity and European nations chose to remain largely neutral, there was little long-term hope for the Confederacy. The Union's resources, although far from unlimited, were much greater than the Confederacy's resources, and would eventually last longer.
The Union had more than double the population of the Confederacy (including slaves), and almost four times the number of men of combat age. Even with only 50% of eligible men enlisted, relative to the Confederacy's 75%, the Union still had more than twice the number of people in the armed forces.
In addition to being more industrialized than the South (see "Contrasting Economies" Section), the North had better infrastructure. By the time of the Civil War, an extensive railroad system had been built, with new lines through the Northwest being added. In the South, disputes between states prevented the construction of interstate railroad systems. In all, the North had 20,000 miles of railroad compared to the South's 9,000 miles. In addition to possessing 70% of the total miles of railroad in the United States, the North had 96% of the United States' railroad equipment. The long-standing shipbuilding industry in New England ensured that the North would have a large merchant marine, as well as easy access to naval resources. Because of interstate conflicts, there were few continuous interstate railroad systems through the South. In addition, although there was a small Southern industry producing naval stores, there were few merchant ships or naval vessels in the South.
In the North, the US government was able to fund the war effort with the nation's treasury. The Union had strong banking institutions, and controlled at least 70% of the nation's wealth. To raise more funds, the US government raised taxes on goods and services and set high imports tariffs;. In addition, the Treasury issued paper money ("greenbacks") which was not backed by gold, but by government credit, thus reducing the amount of specie necessary for a given amount of money. The US government also raised money by selling bonds to individuals and banks.
The Southern economy, with its agricultural emphasis and relative lack of industrialization, did not have the money or capacity to support a war effort. The Confederacy had less than $1 million in specie in its treasury. Because of the Union blockade, Southern imports fell drastically, reducing the amount of import customs duties the Confederate government could collect. The blockade also prevented Southern farmers to export their goods; Southern cotton exports, for example, fell to 2% of their prewar volume. Thus, farmers and planters had little income with which to pay taxes. Because of issues of states rights, central Confederate taxation was too controversial to be effective, and the states were not contributing enough to the Confederate coffers to support its needs. The existence of slavery in the South and the unlikeness of Confederate victory made foreign governments generally reluctant to loan money to the Confederacy. The Confederacy tried to raise money by borrowing from its citizens, in exchange for Confederate bonds. The Confederate government issued over $150 million in bonds, none of which was ever repaid.
In order to raise money, the Confederacy printed more currency, about $1 billion, causing drastic inflation. By 1864, Confederate dollars were worth about $.05 in gold. Prices shot up, and many basic foods were out of the price range of most Southerners. In the spring of 1862, bread riots began in many Southern cities, the worst being the Richmond Bread Riot of April 2, 1862. More than a thousand women marched and rioted in downtown Richmond, shouting "bread or blood." Jefferson Davis himself ended the riot by appearing in person and threatening to order the militia to open fire.
By the end of the war, the South was economically devastated, having experienced extensive loss of human life and destruction of property. Poverty was widespread, and many resented the many Northerners and Southerners who took advantage of the needy in the South as the war came to an end. These conditions made it more difficult for the nation to heal the wounds which its union had suffered.

It is clear that economics was only one factor in the Civil War. Nevertheless, the economic tension between North and South contributed greatly to political tensions. In addition, economic realities were largely responsible for the Union's victory. While regional tensions and conflicts remained, the end of the Civil War signaled the beginning of the United States' development, economically and otherwise, as one nation.

The South did experiment with using slave labor in manufacturing, but for the most part it was well satisfied with its agricultural economy. The North, by contrast, was well on its way toward a commercial and manufacturing economy, which would have a direct impact on its war making ability.

The north-south divide is a term used to describe the social, economic and cultural disparities between the London and the south-east of England and the rest of the UK. People living in the south-east typically have a longer life expectancy, higher income and better standard of living than those living in the north.

How the Civil War Changed the Way Americans Thought About Economic Inequality

I n the run-up to the 2020 election, some Americans are increasingly worried about the immense power that wealth plays in the country&rsquos democracy. Those concerns would not have surprised Americans in 1776 &mdash they assumed that property and political power were intertwined. Indeed, one had to own property to vote, although in America (unlike England) landholding was widespread and therefore most free men could vote. But even as Americans praised their new republic as uniquely egalitarian, they worried that a future aristocracy of wealth would corrupt its politics. Some even called for legal limits on property ownership. After 1800 the country changed markedly, as individual property rights became increasingly sacred, wage labor became increasingly common, and the gap between rich and poor widened. States gave voting rights to all white men, making race instead of property the foundation of politics. But the tradition of American economic equality persisted in the Workingmen&rsquos parties of the 1820s and the communitarian movement of the 1840s.

That egalitarian tradition surged during the Civil War. As the war became a campaign to end slavery, some leading Republicans envisioned using confiscation to reshape the aristocratic South into a more equal society in terms of property ownership and power. As growing numbers of black people fled slavery, Union officers offered those refugees land on abandoned plantations. Egalitarian land reform became official policy in the wake of the Emancipation Proclamation, as President Lincoln issued an order allowing freedmen to claim up to 40 acres of abandoned or confiscated land for $1.25/acre.

Northern reformers saw redistribution as linking the egalitarian tradition of the American Revolution to the needs of emancipated Americans. The abolitionist Wendell Phillips told an enthusiastic crowd that &ldquoIf the people own the land, it is a democracy if a few men own it, it is an oligarchy,&rdquo and that since the U.S. for generations had robbed millions of men of their lives and labor, it &ldquoowes to the negro not merely freedom &mdash it owes to him land&rdquo &mdash reflecting the view dating back to John Locke that a man&rsquos labor gave value to the land. In early 1864, Congress considered a bill that would have allowed freedmen to claim up to 160 acres of confiscated lands in the South. Although the bill failed, its goal was applauded by many. The New Orleans Tribune, the first black-owned newspaper in the South, insisted that &ldquono true republican government&rdquo could exist &ldquounless the land and wealth in general, are distributed among the great mass of the inhabitants&rdquo and that &ldquoan oligarch of slaveholders or property holders&rdquo had no place in America.

At this point, the U.S. Army, for practical reasons, instituted confiscation and redistribution. As General Sherman&rsquos forces cut a devastating swath through the southeast, they were joined by many people who were fleeing slavery with few possessions. On Jan. 12, 1865, after Sherman took Savannah, he met with 20 African American leaders, who emphasized their desire &ldquoto have land, and turn it and till it&rdquo &mdash the right to vote was much further down their list. Four days later, Sherman issued Special Field Order 15, confiscating 400,000 acres of fertile land along the coast and redistributing it to freedmen families in 40-acre allotments, with Army mules to help them plow &mdash the famous &ldquo40 Acres and a Mule.&rdquo In March, before adjourning for the year, Congress created the Freedman&rsquos Bureau within the War Department and gave it the task of renting or selling abandoned or confiscated land to freedmen at low rates.

Throughout the occupied South, former slaves took control of plantations abandoned by Confederate owners. They claimed freedom from dependency as well as from slavery, planting food and sometimes a little cotton. They created governing councils, churches and schools, and in various ways sought to control their land. When plantation heirs tried to reclaim the land, freedmen forcefully resisted. Observers throughout the South, like the Freedmen’s Bureau official in South Carolina, reported the “wide spread opinion amongst these people that the land of their former masters belongs to them, that they have worked on it all of their lives without pay and it is now theirs as a compensation for such work.&rdquo

The situation darkened with Lincoln&rsquos assassination on April 14, 1865. The new president, Andrew Johnson, thought black people should remain dependent laborers and offered amnesty to all Confederates leaders. Yet through the end of the year, freedmen continued to believe that the U.S. would confiscate rebel-owned plantations and redistribute it in 40-acre parcels, and they were encouraged by calls for such action by leading Congressmen like Thaddeus Stevens of Pennsylvania. By the fall, rumors spread that this would happen between Christmas and New Year&rsquos Day, and in some places these rumors took on the mystical tinge of the biblical Great Jubilee and Revelations. Unfortunately, freedmen were disappointed as federal officials moved reluctantly to enforce Johnson&rsquos policies.

Confiscation and redistribution again seemed possible when radical Republicans gained power with the November 1866 elections and renewed those efforts. Stevens in the House told his colleagues that, for freedmen, homesteads were &ldquofar more valuable&rdquo than the vote as a way to avoid future servitude, and Charles Sumner in the Senate insisted that black Americans needed farms to exercise effective political clout. But their party was increasingly focused on social stability, defending prewar property rights, and ending military occupation of the South. At the end, Congress insisted that freedmen only needed the vote, which it (supposedly) guaranteed with the 15th Amendment.

Congress&rsquos refusal to confiscate and redistribute land highlighted the new assumptions that political and economic power were distinct, private property sacred, and wage labor virtuous. Until the 1800s, Americans assumed that a citizen needed economic independence in order to exercise their proper political role in a virtuous republic. By the end of the Civil War they overwhelmingly believed that citizens needed only the vote. Unfortunately, that assumption would allow Southern reactionaries to regain power and shove African Americans back into poverty. It would also fail to prevent great wealth from mushrooming and playing an increasingly dominant role in American politics, which was precisely what the Founders feared.

In 1862, the first income tax was established in the Union by President Lincoln. A 3% tax rate was imposed on individuals earning between $600-$10,000, while a 5% income tax was imposed on incomes exceeding $10,000. In 1863, the Confederacy also established its first graduated income tax which exempted wages up to $1,000 but imposed a 1% tax rate on the first $1,500 above the exemption and a 2% tax rate on all other income. As the cost of war continued to rise, the Union increased the income tax rate to bridge the budget deficit. A 5% tax rate was imposed on incomes ranging from $600 to $5,000 with a 7.5% tax rate on income ranging from $5,001 to $10,000. Higher incomes were taxed at the rate of 10%.

In addition to passing tax laws to help finance the war, the government also passed the Legal Tender Act in the year 1862. In 1863, the government also passed the National Bank Act.
Between 1862 and 1863, less than 15% of government expenditure was funded by tax revenue. When the Legal Tender Act of 1962 was enacted on February 25, 1962, the U.S. Treasury issued $150 million in currency notes (greenbacks), which were not backed by gold. Before the war ended, the government had printed between $250 million to $450 million in greenbacks. The printing of currency notes accounted for 18% of government revenue.

When the National Bank Act of 1863 was enacted on February 25, 1863, the national banking system was established and made it possible for the government to borrow from local banks. The Act also made it possible for the government to implement a standardized currency system currently in use. It also paved way for the government to issue war bonds worth $500 million.

After the two laws were enacted, government revenue increased significantly. In 1862, government revenue stood at $60 million, but this increased to $124 million in 1863 and $348 million in 1865.

In the aftermath of the Civil War, the government&rsquos main expenses were Union soldiers&rsquo pensions and reconstruction, which totaled $300 million a year. The tax laws and banking acts passed during the Civil War significantly influenced modern taxation and the federal banking system.

A New Look at the Economics Behind the Civil War

A hundred and fifty years ago, our country was in the midst of the most difficult and deadly experience of its history, the Civil War, in which 660,000 would perish.

How had it come to be that the country was in Lincoln’s words, “half slave, half free,” and because of it, inflicting on itself such terrible blows?

A year ago in this space I had opportunity to tout the work of the young historian par excellence Phillip W. Magness, whose dissertation on tariffs in the nineteenth century is changing settled narratives of American political economy. Reading further into Magness’s work has begun to convince me that we need a new comprehensive explanation of why North and South developed so differently from 1815 to 1861 – so differently, that there had to be a most terrible war to settle things.

We begin in 1815. In that year, the one in which Napoleon met his Waterloo in Europe – the United States began to implement what came to be known as the “American System,” chiefly under the auspices of Representative Henry Clay of Kentucky.

The American System was a scheme to wean the nation off of Europe economically, if not politically and socially. The idea was that Europe had become so volatile in recent decades – what with the French Revolution, the Napoleonic wars, and the embargo battles that realized themselves on these shores in the War of 1812 – that it was best to part ways with the place once and for all.

The federal government set up a big protective tariff on imported goods and used the revenue to build a transportation network beyond the Appalachian mountains, so that the country might soon become self-sufficient economically.

From the outset, the tariff was terribly unpopular in many places in the South and West, no more than in South Carolina. The problem in South Carolina was that the economy was undiversified. Mass agricultural goods (chiefly cotton and rice) and little else were produced. South Carolinians were thus at the mercy of the market to buy everything else with cash.

But the tariff ensured that no cheap goods would come into the country. The standard of living in South Carolina dropped, while of necessity purchases were made that enriched expensive domestic producers in the Northern United States.

South Carolina and its favorite political son, Vice President and later Senator John C. Calhoun, went to the wall against the tariff in the 1832, “nullifying” it within state borders – as if that were anywhere near constitutional. Federal power stopped this transgression of the law, and the tariff status quo was maintained with only slight modification.

Thus did South Carolina, and the South as a whole, bear little chance of diversifying its economy from the American System days onward. If not just consumer goods, but especially capital goods – which industrializing Europe was getting excellent at producing – were going to be had only at dear prices, the Southern economy never stood to develop out of its odd cash-crop emphasis.

Calhoun became one of the gravest defenders of slavery in the years before his death in 1850. But it is worth wondering why Calhoun was so little preoccupied with slavery beforehand, when the tariff consumed his thoughts. Perhaps the tariff made slavery economically feasible.

Surely the tariff created a high bar for the importation of the kind of machines and devices that would have made the industrialization of the South possible. As has long been a verity in economic history, the chattel slavery that characterized the South was incompatible with an industrial workforce, which is optimally productive as wage-labor.

Furthermore, it can have been no accident that Indian removal from the South coincided with the tariff battles in the 1830s, in that Southerners were going to need more cheap land if coastline trade and manufacture were going to face impediments to development.

The great irony in all this is that the whole American System was based on a premise that turned out to be false: the supposition that Europe would continue in its volatile ways. From 1815 to 1914, Europe in fact enjoyed the greatest run of general peace and prosperity in its history. There was no reason for the U.S. to wall itself off from European influence after 1815. Yet this is exactly what it strove to do.

The two societies that met each other on the battlefields of the Civil War were very different, to be sure: one of the reasons the North was able to grind out a victory. It is likely that had the tariff been repealed or substantially reduced in the 1830s, as Calhoun desired, the nation’s economy would have developed in tandem across its geographical regions. If such a thing had happened, slavery may well have faded away with the decades, as the industrial revolution bore along North and South alike.

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My thanks, without implication of responsibility for remaining errors, go to Galen Burghardt, Ronald Ehrenberg, Stanley Engerman, Robert Fogel, Claudia Goldin, and an anonymous referee of this Journal.

1 There are numerous anthologies and commentaries on the issue of the cause of the Civil War, but the following are useful, representative statements containing references for further reading: Pressly , Thomas J. , ed., Americans Interpret Their Civil War ( Princeton : Princeton University Press , 1964 )Google Scholar Rozwenc , Edwin C. , ed., The Causes of the American Civil War ( Boston : D. C. Heath , 1961 )Google Scholar Stampp , Kenneth M. , ed., The Causes of the Civil War ( Englewood Cliffs : Prentice Hall, 1965 )Google Scholar David M. Potter, “The Literature on the Background of the Civil War” in Potter , David M. , The South and the Sectional Conflict ( Baton Rouge : Louisiana State University Press , 1968 )Google Scholar and (a review of recent literature) Lee Benson, “Explanations of American Civil War Causation: A Critical Assessment and a Modest. Proposal to Reorient and Reorganize the Social Sciences” in Benson , Lee , Toward the Scientific Study of History ( Philadelphia : J. B. Lippincott, 1972 ).Google Scholar

2 A good statement of the conflicting objectives which each of the parties faced and therefore the necessity of recognizing some trade-off or compromise between them is contained in David M. Potter, “Why the Republicans Rejected Both Compromise and Secession” in Knowles , George Harmon , ed., The Crisis of the Union ( Baton Rouge : Louisiana State University Press , 1965 ).Google Scholar

3 An excellent summary and explanation of this subject is contained in Fogel , Robert W. and Engerman , Stanley. L. , Time on the Cross ( Boston : Little, Brown and Co. , 1974 ).Google Scholar

4 Fogel and Engerman, Time on the Cross, p. 96.

5 Goldin , Claudia Dale , “The Economics of Emancipation” The Journal of Economic History , XXXIII (March 1973 ).Google Scholar This estimate compares very closely with the assessment of slaves (adjusted for the included populations) made by the Confederate government in July of 1861. See Todd , Richard Cecil , Confederate Finance , ( Athens : Univ. of Georgia Press , 1954 ) p. 199 .Google Scholar

6 An important corollary of this discussion is that the primary and predominant effect of the abolition of slavery (without compensation) would most likely be a transfer of earnings from slave owners to the freemen. Third parties, such as northerners, would be affected little on net. Slavery is implicitly a method of distributing the returns from labor differently than the distribution of benefits which result from free labor. In either case, however, the value of the labor effort is derived from the resulting output. The demand for cotton or any other antebellum southern crop should have been independent of the form of labor input except insofar as it affected the price of the final product (cotton textiles, for example). One might conjecture that slavery—as opposed to free labor—would produce cotton much cheaper because the grower would need only to provide the subsistence for slaves while he would be required to pay the (much higher) prevailing wage rates for free labor. That view, however, is very misleading. The real cost of slave labor to its employer was slave maintenance plus the opportunity cost of the investment in acquiring him. (The same phenomenon appeared when slaves were hired by the year rather than purchased. The hire rate was at least several times as large as room and board expenses for the slave.) Furthermore the opportunity cost of using slaves tended to rise to the level of free labor because, when it was less, potential employers had reason to purchase slaves to capture those extra profits thereby bidding up the price of the slaves. Thus the cost of producing cotton tended to be equalized whichever labor system was employed in providing it and northerners had little economic stake in the institutions which the South utilized to organize its economy. This argument should be hedged, however, by the possible existence of economies of scale in the utilization of slaves not otherwise possible with free labor. See Engerman , Stanley L. “Some Considerations Relating to Property Rights in Man,” The Journal of Economic History , XXXIII (March 1973 ). Engerman's paper is the best comprehensive treatment currently available of the role of slavery in its broader context as a property right. See also Fogel and Engerman, Time on the Cross, pp. 232–246.Google Scholar

7 The basic framework is presented in Davis , Lance E. and North , Douglass C. , Institutional Change and American Economic Growth ( New York : Cambridge University Press , 1971 ).CrossRefGoogle Scholar

8 Richard A. Easterlin, “Interregional Differences in Per Capita Income, Population, and Total Income, 1840 to 1950,” Trends in the American Economy in the Nineteenth Century (Studies in Income and Wealth, Volume Twenty-four) by the Conference on Research in Income and Wealth (Princeton, 1960) and Gallman , Robert E. , “Gross National Product in the United States, 1834–1909,” Conference on Research in Income and Wealth, Output Employment and Productivity in the United States after 1800 , (Studies in Income and Wealth, Vol. 30 , New York : Columbia University Press , 1966 ).Google Scholar

9 Evans , Robert Jr . “The Economics of American Negro Slavery, 1830–1860,” Aspects of Labor Economics ( Princeton : Princeton Univ. Press , 1962 ), p. 216 Google Scholar , also available in Robert W. Fogel and Stanley L. Engerman, “The Economics of Slavery,” p. 325, in Fogel , Robert W. and Engerman , Stanley L. , eds., The Reinterpretation of American Economic History ( New York : Harper and Row, 1971 ).Google Scholar Robert W. Fogel and Stanley L. Engerman, Time on the Cross, pp. 67–78. Because Fogel and Engerman's earning structure was calculated for the period approximating the 1850 level of slave income, all net positive incomes of slaves were increased by a factor of 1.18 (the ratio of Evan's hire rates for 1860 to the average of those for 1846–50 and 1851–55).

10 Gunderson , Gerald , “Southern Antebellum Income Reconsidered,” Explorations in Economic History , X ( Winter 1973 ).Google Scholar

11 These figures are strong evidence against the “slave-power conspiracy” hypothesis. They state that the aggregate vested interest in slavery for each of the states which initially seceded is sufficient to explain their actions that is, it is not necessary to resort to an explanation of a contriving minority. This will be formalized in inequality (7) below.

12 The obvious advantage of using numbers to express these interests is that it bypasses the morass of explaining whether some, a majority, most, or all individuals believed and acted in such a way. Hereafter when such groups as the North or the South are used they refer to the weighted averages of their preferences or costs as revealed in their actions. It should definitely not be taken as implying that all included parties agreed with a given decision or held preferences or equal intensity about it.

The very strong relation between the ownership of slaves and the vote for secession within states has been demonstrated by Wouster , Ralph A. in his The Secession Conventions of the South ( Princeton : Princeton University Press , 1962 ).Google Scholar Another important observation relevant here was made by Olsen , Otto H. when he showed that by any reasonable relative standard, slave ownership was widespread in the South. See his “Historians and the Extent of Slave Ownership in the Southern United States,” Civil War History , XVIII (June 1972 ).Google Scholar

13 Railroad bonds were yielding 7½ percent in January of 1860. Call rates on the New York stock exchange for all of 1860 averaged 6 percent. See Conrad , Alfred H. and Meyer , John R. , The Economics of Slavery and other Studies in Econometric History ( Chicago : Aldine, 1964 ), p. 55 .Google Scholar The sensitivity of the results of this study to this particular rate is reduced by using the same value for other capitalizations such as the respective costs of the war.

14 Using the income level of 1860 as the fixed base for calculating the various annuity costs raises the possibility that growth after 1860—or decreases, for that matter—might affect the results of this study. While a general evaluation is very complicated, an over-all appraisal suggests that this is not likely to be an important factor within the range of (known) post-war economic change. For this complication to exist, increases in output must be dependent on the existing level of income. If, for example, growth results from maximizing behavior in the face of foreseen opportunities for innovation independent of the level of income, post-war growth rates could be unaffected by wartime losses. Even when the growth and the incremental gains to output are positively correlated, however, the probable amount of the effect appears to be insufficient to affect the results of the study. (The following explanation will be more comprehensible after reading through the appropriate sections of the text below.) All the parameters of the study with the exception of the cost of the war are stated as fractions of the income level and therefore automatically adjust to any changes in it. It is only changes in income relative to the cost of the war that could endanger the results of the analysis. In the (most likely) case of increasing incomes, that effect would be most likely to appear in inequality (6). Generally, paired combinations of F and D in which F is relatively small and D relatively large are most vulnerable. For “middle values” of the pair, however, it would require relatively large growth rates after 1860 to violate this inequality. For example, for the mid-point of the locus of F and D combinations, D≤13.3%,F ‹11.4% (See Figure 1), it would require a growth of real per capita income in excess of two percent to reverse the behavior modeled in inequality (6). This is greater than any long-term growth in per capita income in the latter half of the nineteenth century which begins at 1860—the relevant initial year for this study.

15 Suppose compensated emancipation was financed by taxing only northern citizens. Now T as seen by the North would rise from .06 to .09 and as seen by the South would fall from .06 to zero. Clearly the North would find other alternatives, such as war, relatively more attractive how while the South would obviously favor compensated emancipation. This would now. establish conditions which would encourage the South to compensate or “pay off” the North to move it away from its favored action, such as war, toward the course favored by the South, compensated emancipation. In other words bargaining between the two regions could adjust the terms of such a program if there was any interest by either side in doing so.

Another emancipation program occasionally suggested would have freed the slaves and then taxed them by the amount necessary to pay off their purchase price. One problem with this procedure would be to induce the slaves to work sufficiently to pay such taxes. After the war the freed men showed a strong preference for the leisure which had been previously denied them and such a program would only reinforce their incentive not to work. Probably more important, however, this program would simply switch ownership of the slave from his former master to the federal government. If the price of the slave approximates the present value of his expected future earnings net of subsistence, the federal government would need to extract that identical stream of earnings to pay off his purchase price. Such a program would not alter the basic nature of the institution or the primary source of objections to its propriety.

16 The implications of a value of T greater than .06 for the South will become more obvious below as the paper unfolds. An increase in T first increases the upper bound values of the pair of D and F, the expectation of the South being subjugated and the size of the war respectively. This, in turn, (through inequality (3) implies an increase in SL the reduction in the present value of slaves that continue to be Kept in the Union. The sum of these changes do not affect any of the conclusions of this study other than increasing the indicated parameter values by a scaler factor.

17 A test for extra-economic motivation by the South in maintaining slavery can be developed in the following way. Below in the study some possible independent measures of the value of SL are suggested. These should suggest whether SL is adequately explained by direct losses in slave values or is sufficiently large to indicate other factors as well.

18 Two good descriptions of this important period are Stampp , Kenneth M. , And the War Came ( Binghamton, New York : Louisiana State University Press , 1950 ),Google Scholar and Catton , Bruce , The Coming Fury ( New York : Doubleday, 1961 ).Google Scholar

19 Inequality (9) below will show that the North's primary motivation in going to war was its antislavery sentiment. Several simulations on inequalities (9) and (10) and variants thereof yield similar implications namely, that in the probable range of N (the North's antislave preference) of .015 to .04, .the feasible values of D are bounded by about 20 percent to 50 percent.

20 These values are inferred at a time when the war has begun. Thus C, the foreseen probability of war resulting from Lincoln's election, is set at one. The value of C prior to the beginning of the conflict will be estimated later in the paper.

21 See, for example, William , and Catton , Bruce , Two Roads to Sumter ( New York : McGraw Hill, 1963 ).Google Scholar

22 Current , Richard N. , “God and the Strongest Battalions” in Donald , David , ed., Why the North Won the Civil War ( Binghamton, New York : Louisiana State University Press , 1960 ).Google Scholar

23 The rationale for that assumption is demonstrated in inequality (5) below. The assumption is not strictly necessary, however, in that there is some “surplus” in inequality (4) so that D can rise above any values given in Figure 1 for a given value of F. For example, in inequality (4) where F < 12%, D could rise as high as 16 percent whereas in Figure 1 at that F value it could be no higher than 12.5 percent. Thus, the original seven states of the Confederacy could “afford to go it alone” in that they could accept a somewhat higher probability of subjugation if the lower border states did not join them.

24 This position can be viewed as a statement of fact and/or a bargaining stance on the part of these states. In the latter case, the threat is aimed at the North in that it clearly indicates a substantial increase in the South's military capabilities in the event of war. It also suggests (to the extent that the position is being used as a bargaining tool) that these states viewed it more likely that war would be initiated by the North rather than the South. The border states were the one section of the nation to whom war did not seem the best alternative and thus one of their major interests would be in preventing it, if possible.

25 Wright , Quincy , A Study of War ( Chicago : University of Chicago Press , 1965 ).Google Scholar

26 North , Douglass C. , Growth and Welfare in the American Past ( Englewood Cliffs : Prentice Hall, 1974 ), 2nd. ed., chapter 9.Google Scholar

27 The basic distinction between the North's possible motives of abolishing slavery or the preservation of the Union (in the broad context of preserving national institutions) is fairly widely recognized. Attributing the motivation to an aversion to slavery is generally acknowledged to have begun, with Rhodes , James Ford . See his Lectures on the American Civil War , ( New York , Macmillan, 1913 ).Google Scholar The best known modern articulation of this hypothesis is Schlesinger , Arthur M. Jr 's “The Causes of the American Civil War: A Note on Historical Sentimentalism,” Partisan Review , XVI ( 1949 ).Google Scholar

Modern historians have given far less emphasis to the importance of preserving the Union or national institutions than contemporaries at the beginning of the Civil War. This possible motivation continues to be mentioned in discussions of the question even though no specific well-known interpretation gives it substantial emphasis. A variant of this general explanation has recently emerged, however, underlining a frequent observation about the question of the Civil War's causation namely, that because no definitive answers have been available, old explanations continue to revive and adapt to new concerns. See Paludon , Phillip S. , “The American Civil War Considered as Crisis in Law and Order,” The American Historical Review , LXXVII (October 1972 ).Google Scholar

28 Stampp , Kenneth , The Peculiar Institution: Slavery in the Ante-Bellum South ( New York : Knopf, 1956 ).Google Scholar

29 These estimates of emancipation rates are constructed by assuming that the slave population would have grown at an average rate of twenty percent per decade approximating that for all slaves in the nation during that period. Any shortfall from this forecast would be explained by exports of slaves or emancipation. The division between these two alternatives can be made from the census figures for free blacks reported in Negro Population, 1790–1915, Department of Commerce, Bureau of the Census (Washington: G. P. O., 1918) p. 57. This pattern of relative emancipation among states appears to continue in the 1830 to 1860 period, but because free blacks then constituted a large portion of the Negro population, possible variations in their population growth on migration make such an estimation procedure less reliable. This finding is verified by Calderhead , William , “How Extensive was the Border State Slave Trade?” Civil War History , XVIII (March, 1972 ).Google Scholar

30 See, for example, Table 5 by Robert Evans Jr. as quoted in Fogel and Engerman, “The Economics of Slavery,” p. 325.

31 The same phenomenon was also evident during the war. When Union armies occupied Confederate territory, slavery in that locality simply began to dissolve. Slaves deserted their masters and clung to the military as a refuge. This occurred from the very first hostilities, well before the Emancipation Proclamation and it occurred even in the slave states such as Maryland and Missouri which officially remained in the Union. Whatever motivated the North to subjugate the South, either the desire to end slavery or the preservation of the Union or some combination thereof—an issue we shall examine below—northern armies marching across the South would inevitably destroy slavery in the process.

32 Todd , Richard Cecil , Confederate Finance ( Athens : University of Georgia Press , 1954 ): Loans, pp. 82 – 84 notes, pp. 119–120 tariffs and taxes, p. 156.Google Scholar

  • HIST 83A: Market and States: The History of Economic Thought Since 1750
  • HIST 1028: Race, Capitalism, and the Coming of the Civil War
  • HIST 1939: Economic History of Modern China
  • HIST 2968: History and Economics: Proseminar
  • HIST 2955A: History of Global Capitalism: Seminar
  • GENED 1159: American Capitalism
  • HIST 84G: Harvard and Slavery
  • HIST 1602: Modern China
  • HIST 2955B: History of Global Capitalism: Seminar


Ayers, Edward L. The Promise of the New South: Life after Reconstruction. New York: Oxford University Press, 1992.

Higgs, Robert.The Transformation of the American Economy, 1865 – 1914. New York: Oxford University Press, 1971

Jones, Howard Mumford. The Age of Energy: Varieties of American Experience, 1865-1915. New York: Viking, 1971.

Vatter, H. C. The Drive to Industrial Maturity: The U.S. Economy, 1860-1914. New York: Oxford University Press, 1975.

Wright, Gavin. Old South, New South: Revolutions in the Southern Economy Since the Civil War. New York: Basic Books, 1982.

Economics and the Civil War - History

The United States, on the verge of civil war, contained two distinct economies. While the majority of Americans in every part of the country lived and worked on farms, their economic lives differed fundamentally from each other. In the South, life revolved around unfree labor and staple crops. The North contained a greater diversity of industry, finance, and commerce resting on the “free labor” of wage earners and small proprietors. The war years would alter this picture, leaving the South in shambles and clearing the way for the continued growth of the northern economy. In 1859 and 1860, southern planters were flush with prosperity after producing record cotton crops–America’s most valuable export at the time. Southern prosperity relied on over 4 million African American slaves to grow cotton, along with a number of other staple crops across the region. Cotton fed the textile mills of America and Europe and brought great wealth to the region. On the eve of war, the American South enjoyed more per capita wealth than any other slave economy in the New Word. To their masters, slaves constituted their most valuable assets, worth roughly three billon dollars. Yet this wealth obscured the gains in infrastructure, industrial production, and financial markets occurring north of the Mason-Dixon line, a fact that the war would unmask for all to see.

In contrast to the slave South, northerners praised their region as a land of free labor, populated by farmers, merchants, and wage-laborers. It was also home to a robust market economy. By 1860, northerners could buy clothing made in a New-England factory, or light their homes with kerosene oil from Pennsylvania. The Midwest produced seas of grain that fed the country, with enough left over for export to Europe. Farther west, mining and agriculture were the mainstays of life. Along with the textile mills, shoe factories and iron foundries, firms like the McCormick Harvesting Machine Company, or the Colt Company displayed the technical advances of northern manufacturers. These goods crisscrossed the country on the North’s growing railroad network. Underlying production was an extensive network of banks and financial markets that helped aggregate capital that could be reinvested into further growth.

The Civil War, like all wars, interrupted the rhythms of commercial life by destroying lives and property. This was especially true in the Confederacy. From 1861 onwards, the Confederate government struggled to find the guns, food, and supplies needed to field an army. Southerners did make astonishing gains in industrial production during this time, but it was never enough. The Union’s blockade of the Atlantic prevented the Confederacy from financing the war with cotton sales to Europe. To pay their troops and keep the economy alive, the Confederate Congress turned to printing paper money–which quickly sank in value and lead to rapid inflation. In many cases, Confederate officials dispensed with taxes paid in cash and simply impressed the food and materials needed from their citizens. Perhaps most striking of all, in the vast agricultural wealth of the South, many southerners struggled to find enough to eat.

The war also pushed the US government to take unprecedented steps. Congress raised tariffs, and passed the first national income tax in 1862. After the suspension of specie payments in late 1861, Congress created the US’s first fiat currency called “greenbacks.” At first, the expansion of the currency and the rapid rise in government spending translated into an uptick in business in 1862-1863. As the war dragged on, inflation also hit the North. Workers demanded higher wages to pay rents and buy necessities, while the business community groaned under their growing tax burden. The United States, however, never embarked on a policy of impressment for food and supplies. The factories and farms of the North successfully supplied Union troops, while the federal government, with some adjustments, found the means to pay for war. None of this is to suggest that the North’s superior ability to supply its war machine made the outcome of the war inevitable. Any account of how the war progressed must take account of the tangled web of politics, battles, and economics that occurred between 1861 and 1865.The aftermath of the war left portions of the Confederacy in ruins, and with little or no money to rebuild. State governments were mired in debt, and white planters, who had most of their capital tied up in slaves, lost most of their wealth. Cotton remained the most significant crop, but the war changed how it was grown and sold. Planters broke up large farms into smaller plots tended to by single families in exchange for a portion of the crop, called sharecropping. Once cotton production resumed, Americans found that their cotton now competed with new cotton plantations around the world.

War brought destruction across the South. Governmental and private buildings, communication systems, the economy, and transportation infrastructure were all debilitated. “[Richmond, Va. Crippled locomotive, Richmond & Petersburg Railroad depot],” c. 1865. Library of Congress.

Emancipation was the single most important economic, social and political outcome of the war. Freedom empowered African Americans in the South to rebuild families, make contracts, hold property and move freely for the first time. During Reconstruction, Republican policy in the South attempted to transform the region into a free-labor economy like the North. Yet the transition from slave labor to free labor was never so clear. Well into the 20th century, white southerners used a combination of legal force and extra-legal violence to keep a degree of control of over African American labor. Peonage and vagrancy laws attempted to keep African Americans bound to their white employers. In the later nineteenth-century, poor whites would form mobs and go “white-capping” to scare away blacks from jobs. Lacking the means to buy their own farms, black famers often turned to sharecropping. Sharecropping often led to cycles of debt that kept families bound to the land. For the South as a whole, the war and Reconstruction marked the start of a period of deep poverty that would last until at least the New Deal of the 1930s.Victory did not translate into a quick economic boom for the United States. The North would not regain its prewar pace of industrial and commodity output until the 1870s. The war did prove beneficial to northern farmers, who responded to wartime labor shortages with greater use of mechanical reapers, which boosted yields. The most significant change for the North was the increased presence of the federal government in the economy. Republican Congresses during the Civil War passed a series of laws that restructured the relationship between the government and the market and set the stage for the Gilded Age. New tariff laws sheltered northern industry from European competition. The Morrill Land Grant helped create colleges such as the University of California, Illinois, and Wisconsin. With the creation of the National Banking System and the greenbacks, Congress replaced hundreds of state bank notes with a system of federal currency that accelerated trade and exchange between regions of the country. This was not to say that Republican policy worked perfectly. The Homestead Act, meant to open the West to small farmers was often frustrated by the actions of Railroad corporations and speculators. The Transcontinental Railroad, also created during the war, failed to produce any economic gains until decades after its creation. The war years also forged a close relationship between government and the business elite, a relationship that sometimes resulted in corruption and catastrophe as it did when markets crashed on Black Friday September 24, 1869. This new relationship created a political backlash, especially in the West and South against Washington’s perceived eastern and industrial bias. In other words, the end of the slavery issue during the Civil War gave way to long political conflict over the direction of American economic development that would mark politics for the rest of the century.

Massachusetts Agricultural College (now known as University of Massachusetts Amherst) was one of many colleges founded through the Federal Morrill-Land Grant Colleges Act. “Massachusetts Agricultural College, Amherst, Mass. 1879,” 1880. Wikimedia.

American Civil War - The Economics of Slavery

Slavery existed in America from colonial times until the end of the Civil War in 1865. The 13th Amendment to the U.S. Constitution ended slavery forever.

In the North: Slavery was not economical in the North.

African slaves arrived slowly during the first 50 years of American colonization. Some came as indentured servants. Most indentured servants in the colonies were white Europeans who had voluntarily sold themselves for a period of years to pay for their passage to the New World. Indentured servants, both black and white, made up most of the labor force in the early colonial period. People of the time understood the system of indentured servant. In the early days, the northern colonies were remarkable free of racial bias. Free blacks owned land, voted, held elected offices, and sometimes imported their own white indentured servants. The prejudice of the time was that of the English gentry towards the lower classes without regard to color of skin.

Indentured servants were under the complete authority of their master for the duration of their term as a servant. It was legal for an indentured servant to be whipped, branded, sold, or prevented from marrying by their owner. Indentured servants worked long hard hours, doing jobs no one else wanted to do. Why have slaves? Why not simply keep indentured servants? Slaves from African had been captured and forced to the New World. Many had been ripped apart from their families in Africa, so they were unhappy. They did not speak the language of the colonists, so they were difficult to train. Business owners did not want the expense of caring for a slave's family until their small children could be put to work. To their owners, slavery in the North was not cost effective. Many slaves, after a certain amount of time, were freed.

In the South: Slavery was economical in the South.

The climate in the southern colonies was ideal for large-scale farming, with long growing seasons. The availability of slave labor was critical to running a cost effective, large-scale farming operation. There were many waterways to use to get crops to market. Crops that made some southern farmers rich included tobacco, sugar cane, and rice. A large number of laborers were needed to plant, care for, and harvest these crops. Not only did an owner receive a lifetime of service from a slave, they also gained a renewable resource - a lifetime of service from the children of female slaves, as these children were born into slavery. In the beginning, a female slave was expected to have 3 kids. As time went on, and farms expanded and needed more labor, a female slave was expected to have 6 kids. As tobacco farms grew in Virginia and Maryland, more slaves were purchased. Rice farming grew in importance in South Carolina. Again, slave labor was economical. Not everyone in the south owned a plantation. There were many small farms and medium sized farms. There were many businesses designed to support the farms. But those farms or plantations with size depended upon slave labor. And many businesses depended upon farms of size.

The invention of the cotton gin, before the Civil War, encouraged the growth of another crop - cotton. Cotton as a major crop spread throughout the South. Between 1790 and 1860 (the year Abraham Lincoln was first elected president), about one million slaves were put to work on the new cotton plantations. That was nearly twice as many slaves as imported during the prior 200 years of slave trade. The South had become dependent upon slavery.

Feature Causes Of The Civil War

The causes of the Civil War and its cost to a young nation.

More from Wes about the causes of the Civil War.

What led to the outbreak of the bloodiest conflict in the history of North America?

A common explanation is that the Civil War was fought over the moral issue of slavery.

In fact, it was the economics of slavery and political control of that system that was central to the conflict.

A key issue was states' rights.

The Southern states wanted to assert their authority over the federal government so they could abolish federal laws they didn't support, especially laws interfering with the South's right to keep slaves and take them wherever they wished.

Another factor was territorial expansion.

The South wished to take slavery into the western territories, while the North was committed to keeping them open to white labor alone.

Meanwhile, the newly formed Republican party, whose members were strongly opposed to the westward expansion of slavery into new states, was gaining prominence.

The election of a Republican, Abraham Lincoln, as President in 1860 sealed the deal. His victory, without a single Southern electoral vote, was a clear signal to the Southern states that they had lost all influence.

Feeling excluded from the political system, they turned to the only alternative they believed was left to them: secession, a political decision that led directly to war.

Causes of the Civil War

The causes of the Civil War and its cost to a young nation.

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