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.

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.