what happened to the economy in the north during the civil war?

The Economics of the Civil State of war

The Civil War has been something of an enigma for scholars studying American history. During the first half of the twentieth century, historians viewed the war as a major turning point in American economical history. Charles Beard labeled it "Second American Revolution," challenge that "at bottom the so-called Civil War – was a social war, ending in the unquestioned establishment of a new power in the government, making vast changes – in the course of industrial development, and in the constitution inherited from the Fathers" (Bristles and Beard 1927: 53). By the time of the Second World War, Louis Hacker could sum up Beard'due south position by only stating that the war'southward "striking achievement was the triumph of industrial capitalism" (Hacker 1940: 373). The "Bristles-Hacker Thesis" had become the well-nigh widely accepted interpretation of the economic impact of the Civil War. Harold Faulkner devoted ii capacity to a discussion of the causes and consequences of the war in his 1943 textbook American Economic History (which was then in its fifth edition), challenge that "its effects upon our industrial, financial, and commercial history were profound" (1943: 340).

In the years later on Earth State of 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. As they looked for the keys to American growth in the nineteenth century, these economic historians questioned whether the Civil War — with its enormous destruction and disruption of society — could have been a stimulus to industrialization. In his 1955 textbook on American economic history, Ross Robertson mirrored a new view of the Ceremonious War and economic growth when he argued that "persistent, fundamental forces were at work to forge the economic system and not even the catastrophe of internecine strife could greatly affect the outcome" (1955: 249). "Except for those with a particular interest in the economic science of war," claimed Robertson, "the iv year period of conflict [1861-65] has had lilliputian attraction for economic historians" (1955: 247). Over the next two decades, this became the ascendant view of the Civil War's role industrialization of the United States.

Historical research has a way of returning to the same problems over and over. The efforts to explain regional patterns of economic growth and the timing of the United states' "have-off" into industrialization, together with extensive research into the "economic science" of the slave system of the South and the impact of emancipation, brought economical historians back to questions dealing with the Civil State of war. Past the 1990s a new generation of economic history textbooks one time again examined the "economics" of the Ceremonious War (Atack and Passell 1994; Hughes and Cain 1998; Walton and Rockoff 1998). This afterthought of the Civil War by economical historians can be loosely grouped into 4 wide issues: the "economic" causes of the war; the "costs" of the state of war; the problem of financing the War; and a re-test of the Hacker-Beard thesis that the War was a turning bespeak in American economic history.

Economic Causes of the State of war

No one seriously doubts that the enormous economic stake the Southward had in its slave labor forcefulness was a major factor in the exclusive disputes that erupted in the middle of the nineteenth century. Figure 1 plots the full value of all slaves in the U.s. from 1805 to 1860. In 1805 there were merely over one million slaves worth about $300 1000000; fifty-five years afterward there were four million slaves worth close to $3 billion. In the 11 states that eventually formed the Confederacy, four out of ten people were slaves in 1860, and these people deemed for more than than one-half the agricultural labor in those states. In the cotton wool regions the importance of slave labor was even greater. The value of capital invested in slaves roughly equaled the total value of all farmland and farm buildings in the South. Though the value of slaves fluctuated from year to year, there was no prolonged period during which the value of the slaves owned in the The states did non increase markedly. Looking at Figure ane, it is hardly surprising that Southern slaveowners in 1860 were optimistic about the economic future of their region. They were, later on all, in the midst of an unparalleled ascension in the value of their slave assets.

A major finding of the enquiry into the economical dynamics of the slave system was to demonstrate that the rise in the value of slaves was not based upon unfounded speculation. Slave labor was the foundation of a prosperous economic system in the S. To illustrate just how important slaves were to that prosperity, Gerald Gunderson (1974) estimated what fraction of the income of a white person living in the Due south of 1860 was derived from the earnings of slaves. Tabular array 1 presents Gunderson'south estimates. In the 7 states where most of the cotton was grown, about half the population were slaves, and they accounted for 31 percent of white people'due south income; for all eleven Confederate States, slaves represented 38 percentage of the population and contributed 23 percent of whites' income. 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 belongings equally a potentially catastrophic threat to their entire economic system. By itself, the South's economic investment in slavery could easily explain the willingness of Southerners to adventure war when faced with what they viewed as a serious threat to their "peculiar establishment" afterward the electoral victories of the Republican Political party and President Abraham Lincoln the fall of 1860.

Table 1 The Fraction of Whites' Incomes from Slavery
State	Percent of the Population That Were Slaves	Per Capita Earnings of Free Whites (in dollars)	Slave Earnings per Free White (in dollars)	Fraction of Earnings Due to Slavery
Alabama	45	120	fifty	41.7
South Carolina	57	159	57	35.8
Florida	44	143	48	33.6
Georgia	44	136	xl	29.4
Mississippi	55	253	74	29.ii
Louisiana	47	229	54	23.half dozen
Texas	thirty	134	26	xix.4
Seven Cotton wool States	46	163	50	thirty.6
North Carolina	33	108	21	19.4
Tennessee	25	93	17	18.3
Arkansas	26	121	21	17.iv
Virginia	32	121	21	17.iv
All 11 States	38	135	35	25.9
Source: Computed from data in Gerald Gunderson (1974: 922, Table 1)

The Northern states too had a huge economic stake in slavery and the cotton trade. The first one-half of the nineteenth century witnessed an enormous increment in the production of short-staple cotton fiber in the Southward, and most of that cotton was exported to U.k. and Europe. Figure two charts the growth of cotton exports from 1815 to 1860. By the mid 1830s, cotton wool shipments deemed for more half the value of all exports from the Us. Annotation that there is a marked similarity between the trends in the export of cotton and the rising value of the slave population depicted in Figure 1. There could be trivial doubt that the prosperity of the slave economy rested on its power to produce cotton more efficiently than whatsoever other region of the world.

The income generated by this "export sector" was a major impetus for growth not simply in the South, but in the rest of the economic system as well. Douglass North, in his pioneering study of the antebellum U.Southward. economy, examined the flows of merchandise within the Usa to demonstrate how all regions benefited from the South'due south concentration on cotton wool production (North 1961). Northern merchants gained from Southern demands for shipping cotton to markets abroad, and from the need by Southerners for Northern and imported consumption goods. The low cost of raw cotton produced past slave labor in the American South enabled fabric manufacturers — both in the United States and in Britain — to expand product and provide benefits to consumers through a declining cost of textile products. Every bit manufacturing of all kinds expanded at home and abroad, the need for nutrient in cities created markets for foodstuffs that could be produced in the areas n of the Ohio River. And the main force at work was the economic stimulus from the export of Southern Cotton fiber. When James Hammond exclaimed in 1859 that "Cotton is King!" no i rose to dispute the indicate.

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. Yet no solution emerged. 1 "economic" solution to the slave problem would be for those who objected to slavery to "buy out" the economic interest of Southern slaveholders. Under such a scheme, the federal regime would purchase slaves. A major problem here was that the costs of such a scheme would have been enormous. Claudia Goldin estimates that the cost of having the authorities buy all the slaves in the United States in 1860, would be nigh $2.7 billion (1973: 85, Table ane). Obviously, such a large sum could not be paid all at one time. However even if the payments were spread over 25 years, the annual costs of such a scheme would involve a tripling of federal government outlays (Ransom and Sutch 1990: 39-42)! The costs could exist reduced essentially if instead of freeing all the slaves at once, children were left in bondage until the age of 18 or 21 (Goldin 1973:85). Withal there would remain the problem of how fifty-fifty those reduced costs could exist distributed among various groups in the population. The cost of any "compensated" emancipation scheme was so loftier that even those who wished to eliminate slavery were unwilling to pay for a "buyout" of those who endemic slaves.

The high cost of emancipation was not the only way in which economic forces produced potent regional tensions in the United States earlier 1860. The regional economical specialization, previously noted as an important crusade of the economic expansion of the antebellum menstruation, also generated very strong regional divisions on economical issues. Recent research by economical, social and political historians has reopened some of the arguments showtime put forward past Bristles and Hacker that economic changes in the Northern states were a major factor leading to the political plummet of the 1850s. Bristles and Hacker focused on the narrow economic aspects of these changes, interpreting them as the efforts of an emerging grade of industrial capitalists to gain command of economic policy. More recently, historians take taken a broader view of the situation, arguing that the sectional splits on these economic bug reflected sweeping economic and social changes in the Northern and Western states that were not experienced past people in the South. The term nigh historians take used to draw these changes is a "market place revolution."

Source: U.s.a. Population Census, 1860.

Perhaps the best single indicator of how pervasive the "marketplace revolution" was in the Northern and Western states is the rising of urban areas in areas where markets take get of import. Map ane plots the 292 counties that reported an "urban population" in 1860. (The 1860 Census Office defined an "urban place" equally a boondocks or city having a population of at least ii,500 people.) Table 2 presents some boosted statistics on urbanization by region. In 1860 half dozen.1 one thousand thousand people — roughly 1 out of v persons in the United States — lived in an urban county. A glance at either the map or Table 2 reveals the enormous difference in urban development in the Due south compared to the Northern states. More than two-thirds of all urban counties were in the Northeast and West; those two regions accounted for well-nigh 80 percent of the urban population of the state. By dissimilarity, less than 7 percentage of people in the eleven Southern states of Table ii lived in urban counties.

Table 2 Urban Population of the United States in 1860 a
Region	Counties with Urban Populations	Full Urban Population in the Region	Percent of Region's Population Living in Urban Counties	Region'due south Urban Population every bit Percent of U.S. Urban Population
Northeastb	103	3,787,337	35.75	61.66
Westc	108	1,059,755	13.45	17.25
Borderd	23	578,669	18.45	9.42
Southeast	51	621,757	vi.83	10.12
Far Westf	7	99,145	15.nineteen	1.54
Totalg	292	6,141,914	19.77	100.00
Notes: a Urban population is people living in a city or town of at to the lowest degree 2,500 b Includes: Connecticut, Maine, Massachusetts, New Hampshire, New Bailiwick of jersey, New York, Pennsylvania, Rhode Island, and Vermont. c Includes: Illinois, Indiana, Iowa, Kansas, Minnesota, Nebraska, Ohio, and Wisconsin. d Includes: Delaware, Kentucky, Maryland, and Missouri. e Includes: Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, N Carolina, Southward Carolina, Tennessee, Texas, and Virginia. f Includes: Colorado, California, Dakotas, Nevada, New Mexico, Oregon, Utah and Washington g includes Commune of Columbia Source: U.S Census of Population, 1860.

The region forth the north Atlantic Coast, with its extensive development of commerce and manufacture, had the largest concentration of urban population in the United States; roughly one-3rd of the population of the 9 states divers every bit the Northeast in Table two lived in urban counties. In the South, the picture was very different. Cotton tillage with slave labor did non require local financial services or nearby manufacturing activities that might generate urban activities. The xi states of the Confederacy had only 51 urban counties and they were widely scattered throughout the region. Western agriculture with its emphasis on foodstuffs encouraged urban activeness nearly to the source of product. These centers were non necessarily big; indeed, the W had roughly the same number of large and mid-sized cities as the South. Still at that place were far more pocket-size towns scattered throughout settled regions of Ohio, Indiana, Illinois, Wisconsin and Michigan than in the Southern landscape.

Economic policy had played a prominent role in American politics since the birth of the republic in 1790. With the germination of the Whig Party in the 1830s, a number of fundamental economic problems emerged at the national level. To illustrate the extent to which the rise of urban centers and increased market place activity in the N led to a growing crisis in economic policy, historians take re-examined iv specific areas of legislative action singled out by Bristles and Hacker as evidence of a Congressional stalemate in 1860 (Egnal 2001; Ransom and Sutch 2001; 1989; Bensel 1990; McPherson 1988).

Land Policy

1. Land Policy. Settlement of western lands had always been a major bone of contention for slave and costless-labor farms. The fashion in which the federal government distributed state to people could have a major impact on the nature of farming in a region. Northerners wanted to encourage the settlement of farms which would depend primarily on family labor past offering cheap country in pocket-sized parcels. Southerners feared that such a policy would brand it more than hard to keep areas open for settlement by slaveholders who wanted to establish large plantations. This all came to a head with the "Homestead Human activity" of 1860 that would provide 160 acres of free land for anyone who wanted to settle and farm the land. Northern and western congressmen strongly favored the nib in the Firm of Representatives simply the measure received only a single vote from slave states' representatives. The bill passed, but President Buchanan vetoed it. (Bensel 1990: 69-72)

Transportation Improvements

2. Transportation Improvements. Post-obit the opening of the Erie Canal in 1823, in that location was growing support in the North and the Northwest for authorities support of improvement in transportation facilities — what were termed in those days "internal improvements". The need for government- sponsored improvements was particularly urgent in the Bang-up Lakes region (Egnal 2001: 45-l). The advent of the railroad in the 1840s gave added back up for those advocating government subsidies to promote transportation. Southerners required far fewer internal improvements than people in the Northwest, and they tended to view federal subsidies for such projects to be role of a "deal" between western and eastern interests that held no obvious gains for the Due south. The bill that all-time illustrates the regional disputes on transportation was the Pacific Railway Bill of 1860, which proposed a transcontinental railway link to the West Coast. The bill failed to pass the House, receiving no votes from congressmen representing districts of the South where at that place was a significant slave population (Bensel 1990: seventy-71).

The Tariff

3. The Tariff. Southerners, with their emphasis on staple agriculture and demand to buy goods produced outside the Southward, strongly objected to the imposition of duties on imported appurtenances. Manufacturers in the Northeast, on the other hand, supported a high tariff as protection against cheap British imports. People in the W were caught in the middle of this controversy. Similar the agricultural South they disliked the thought of a loftier "protective" tariff that raised the cost of imports. However the tariff was also the main source of federal revenue at this time, and Westerners needed government funds for the transportation improvements they supported in Congress. Every bit a event, a compromise reached by western and eastern interests during in the tariff debates of 1857 was to support a "moderate" tariff; with duties ready loftier enough to generate revenue and offer some protection to Northern manufacturers while non putting too much of a brunt on Western and Eastern consumers. Southerners complained that fifty-fifty this level of protection was excessive and that it was one more than example of the willingness of the West and the Northward to make economic bargains at the expense of the South (Ransom and Sutch 2001; Egnal 2001:fifty-52).

Cyberbanking

iv. Banking. The federal regime's office in the chartering and regulation of banks was a volatile political issue throughout the antebellum period. In 1834 President Andrew Jackson created a major furor when he vetoed a bill to recharter the Second Bank of the United States. Jackson'southward veto ushered in a menstruation of that was termed "free banking" in the U.s., where the chartering and regulation of banks was left entirely in the hands of country governments. Banks were a relatively new economic institution at this point in fourth dimension, and opinions were sharply divided over the caste to which the federal authorities should regulate banks. In the Northeast, where over sixty per centum of all banks were located, at that place was strong support by 1860 for the creation of a organisation of banks that would be chartered and regulated past the federal government. Just in the South, which had little need for local banking services, in that location was little enthusiasm for such a proposal. Hither again, the western states were caught in the middle. While they worried that a system of "national" banks that would exist controlled past the already dominant eastern banking establishment, western farmers constitute themselves in need of local banking services for financing their crops. Past 1860 many were inclined to support the Republican proposal for a National Cyberbanking System, however Southern opposition killed the National Bank Bill in 1860 (Bribe and Sutch 2001; Bensel 1990).

The growth of an urbanized market place society in the North produced more than just a legislative program of political economy that Southerners strongly resisted. Several historians have taken a much broader view of the marketplace revolution and industrialization in the N. They encounter the economic disharmonize of North and Southward, in the words of Richard Brown, equally "the conflict of a modernizing society" (1976: 161). A leading historian of the Civil War, James McPherson, argues that Southerners were correct when they claimed that the revolutionary program sweeping through the Due north threatened their style of life (1983; 1988). James Huston (1999) carries the argument 1 step further by arguing that Southerners were right in their fears that the triumph of this coalition would somewhen atomic number 82 to an assault past Northern politicians on slave property rights.

All this provided aplenty argument for those clamoring for the South to leave the Union in 1861. Just why did the North fight a state of war rather than merely letting the unhappy Southerners go in peace? It seems unlikely that anyone will e'er exist able to show that the "gains" from the war outweighed the "costs" in economical terms. Still, war is always a chance, and with the neither the costs nor the benefits easily calculated before the fact, leaders are oftentimes tempted to take the risk. The evidence above certainly lent stiff support for those arguing that it made sense for the Southward to fight if a belligerent N threatened the establishment of slavery. An economic case for the North is more problematic. Most writers argue that the determination for war on Lincoln'south role was non based primarily on economic grounds. However, Gerald Gunderson points out that if, as many historians argue, Northern Republicans were intent on controlling the spread of slavery, so a war to keep the South in the Union might take made sense. Gunderson compares the "costs" of the war (which we discuss beneath) with the toll of "compensated" emancipation and notes that the two are roughly the same club of magnitude — 2.5 to 3.vii billion dollars (1974: 940-42). Thus, going to war made as much "economical sense" as buying out the slaveholders. Gunderson makes the further point, which has been echoed by other writers, that the but mode that the Northward could ensure that their programme to contain slavery could be "enforced" would be if the South were kept in the Union. Allowing the Southward to go out the Matrimony would mean that the North could no longer control the expansion of slavery anywhere in the Western Hemisphere (Ransom 1989; Bribe and Sutch 2001; Weingast 1998; Weingast 1995; Wolfson 1995). What is novel about these interpretations of the state of war is that they argue information technology was economical pressures of "modernization" in the North that fabricated Northern policy towards secession in 1861 far more ambitious than the traditional story of a Due north forced into military action past the South's set on on Fort Sumter.

That is not to say that either side wanted state of war — for economic or whatsoever other reason. Abraham Lincoln probably summarized the state of affairs as well as anyone when he observed in his second inaugural address that: "Both parties deprecated state of war, but one of them would make war rather than let the nation survive, and the other would accept war rather than let information technology perish, and the war came."

The "Costs" of the War

The Civil State of war has often been called the first "modern" war. In function this reflects the enormous try expended by both sides to carry the war. What was the cost of this conflict? The most comprehensive effort to reply this question is the work of Claudia Goldin and Frank Lewis (1978; 1975). The Goldin and Lewis estimates of the costs of the war are presented in Table 3. The costs are divided into two groups: the direct costs which include the expenditures of country and local governments plus the loss from devastation of property and the loss of man uppercase 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. Goldin and Lewis judge that the combined outlays of both governments — in 1860 dollars — totaled $3.three billion. To this they add $i.8 billion to account for the discounted economical value of casualties in the war, and they add $ane.5 billion to account for the destruction of the war in the South. This gives a full of $6.half-dozen billion in direct costs — with each region incurring roughly half the total.

Table 3 The Costs of the Civil War (Millions of 1860 Dollars)
	S	North	Full
Directly Costs:
Government Expenditures	one,032	2,302	3,334
Physical Devastation	1,487		1,487
Loss of Human Uppercase	767	1,064	1,831
Total Direct Costs of the War	3,286	3,366	6,652
Per capita	376	148	212
Indirect Costs:
Total Decline in Consumption	6,190	ane,149	seven,339
Less:
Effect of Emancipation	i,960
Effect of Cotton Prices	1,670
Total Indirect Costs of The State of war	2,560	1,149	iii,709
Per capita	293	51	118
Total Costs of the War	five,846	4,515	10,361
Per capita	670	199	330
Population in 1860 (Million)	eight.73	27.71	31.43
Source: Ransom, (1998: 51, Table 3-1); Goldin and Lewis. (1975; 1978)

While these figures are just a very rough estimate of the actual costs, they provide an educated guess as to the social club of magnitude of the economic endeavour required to wage the war, and it seems likely that if at that place is a bias, information technology is to understate the total. (Thus, for example, the estimated "economic" losses from casualties ignore the emotional cost of 625,000 deaths, and the estimates of property destruction were quite conservative.) Even and then, the direct cost of the war as calculated by Goldin and Lewis was one.five times the full gross national product of the United States for 1860 — an enormous sum in comparison with any armed forces effort by the United States up to that point. What stands out in improver to the enormity of the bill is the disparity in the burden these costs represented to the people in the Due north and the South. On a per capita ground, the costs to the North population were well-nigh $150 — or roughly equal to one year's income. The Southern brunt was 2 and a half times that amount — $376 per human, woman and child.

Staggering though these numbers are, they represent only a fraction of the full costs of the war, which lingered long later on the fighting had stopped. 1 style to measure the total "costs" and "benefits" of the war, Goldin and Lewis argue, is to estimate the value of the observed postwar stream of consumption in each region and compare that figure to the estimated hypothetical stream of consumption had at that place been no war (1975: 309-ten). (All the figures for the costs in Table 3 have been adjusted to reflect their discounted value in 1860.) The Goldin and Lewis estimate for the discounted value of lost consumption for the South was $6.2 billion; for the North the estimate was $one.15 billion. Ingenious though this methodology is, it suffers from the serious drawback that consumption lost for whatever reason — not just the state of war — is included in the effigy. Particularly for the Due 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 non continue, and in that location was a dramatic change in the supply of labor due to emancipation. Consequently, Goldin and Lewis subsequently adjusted their guess of lost consumption due to the war down to $2.56 billion for the Southward in guild to exclude the effects of emancipation and the collapse of the cotton market. The magnitudes of the indirect effects are detailed in Table 3. After the adjustments, the estimated costs for the war totaled more than than $x billion. Allocating the costs to each region produces a per capita brunt of $670 in the South and $199 in the North. What Table three does not show is the extent to which these expenses were spread out over a long period of fourth dimension. 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. We shall return to this issue below.

Financing the State of war

No state of war in American history strained the economic resources of the economy as the Civil War did. Governments on both sides were forced to resort to borrowing on an unprecedented scale to meet the financial obligations for the state of war. With more developed markets and an industrial base that could ultimately produce the goods needed for the war, the Union was conspicuously in a better position to meet this challenge. The South, on the other manus, had always relied on either Northern or foreign capital letter markets for their financial needs, and they had virtually no manufacturing establishments to produce military supplies. From the outset, the Confederates relied heavily on funds borrowed outside the South to purchase supplies abroad.

Effigy 3 shows the sources of revenue collected by the Wedlock government during the war. In 1862 and 1863 the government covered less than 15 per centum of its total expenditures through taxes. With the imposition of a higher tariff, excise taxes, and the introduction of the commencement income tax in American history, this situation improved somewhat, and by the war's end 25 percentage of the federal government revenues had been collected in taxes. But what of the other 75 per centum? In 1862 Congress authorized the U.S. Treasury to issue currency notes that were not backed past gold. By the end of the war, the treasury had printed more than $250 meg worth of these "Greenbacks" and, together with the issue of gold-backed notes, the press of money accounted for 18 percent of all government revenues. This still left a huge shortfall in revenue that was not covered by either taxes or the printing of coin. The remaining revenues were obtained by borrowing funds from the public. Between 1861 and 1865 the debt obligation of the Federal government increased from $65 million to $ii.7 billion (including the increased issuance of notes by the Treasury). The financial markets of the Northward were strained by these demands, but they proved equal to the chore. In all, Northerners bought almost $2 billion worth of treasury notes and absorbed $700 meg of new currency. Consequently, the Northern economic system was able to finance the war without a significant reduction in private consumption. While the increase in the national debt seemed enormous at the fourth dimension, events were to evidence that the economy was more than able to bargain with it. Indeed, several economic historians have claimed that the cosmos and subsequent retirement of the Civil War debt ultimately proved to be a significant impetus to postal service-war growth (Williamson 1974; James 1984). Wartime finance besides prompted a significant change in the banking organization of the Us. In 1862 Congress finally passed legislation creating the National Banking System. Their motive was not but 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 buy large blocs of federal bonds to hold as security against the issuance of their national banking company notes.

The efforts of the Amalgamated government to pay for their state of war endeavor were far more chaotic than in the North, and reliable expenditure and revenue data are not available. Effigy 4 presents the best acquirement estimates we have for the Richmond government from 1861 though Nov 1864 (Burdekin and Langdana 1993). Several features of Amalgamated finance immediately stand up out in comparison to the Union effort. Showtime is the failure of the Richmond government to finance their war expenditures through taxation. Over the course of the war, revenue enhancement revenues accounted for only eleven pct of all revenues. Another contrast was the much higher fraction of revenues deemed for by the issuance of currency on the part of the Richmond government. Over a third of the Amalgamated government's revenue came from the printing press. The residual came in the form of bonds, many of which were sold abroad in either London or Amsterdam. The reliance on borrowed funds proved to exist a growing problem for the Confederate treasury. By mid-1864 the costs of paying interest on outstanding regime bonds absorbed more than one-half all government expenditures. The difficulties of collecting taxes and floating new bond issues had become then severe that in the final year of the war the total revenues collected past the Confederate Authorities actually declined.

The press of money and borrowing on such a huge scale had a dramatic effect on the economic stability of the Confederacy. The best measure of this instability and eventual collapse can be seen in the behavior of prices. An alphabetize of consumer prices is plotted together with the stock on coin from early 1861 to Apr 1865 in Effigy 5. By the outset of 1862 prices had already doubled; by centre of 1863 they had increased by a factor of xiii. Upwardly to this indicate, the inflation could exist largely attributed to the coin placed in the hands of consumers by the huge deficits of the government. Prices and the stock of coin had risen at roughly the same rate. This represented a classic case of what economists telephone call demand-pull aggrandizement: likewise much money chasing too few goods. However, from the centre of 1863 on, the behavior of prices no longer mirrors the money supply. Several economical historians have suggested that at this point the prices reflect people's confidence in the hereafter of the Confederacy as a viable country (Burdekin and Langdana 1993; Weidenmier 2000). Effigy 5 identifies three major armed services "turning points" between 1863 and 1865. In tardily 1863 and early 1864, post-obit the Amalgamated defeats at Gettysburg and Vicksburg, prices rose very sharply despite a marked decrease in the growth of the money supply. When the Union offensives in Georgia and Virginia stalled in the summer of 1864, prices stabilized for a few months, only to resume their upwardly spiral after the fall of Atlanta in September 1864. Past that time, of course, the Confederate cause was conspicuously doomed. By the end of the state of war, inflation had reached a point where the value of the Confederate currency was virtually zero. People had taken to engaging in barter or using Union dollars (if they could be found) to conduct their transactions. The collapse of the Confederate monetary system was a reflection of the overall collapse of the economic system'south efforts to sustain the war effort.

The Spousal relationship also experienced inflation equally a result of deficit finance during the state of war; the consumer cost index rose from 100 at the first of the war to 175 past the cease of 1865. While this is nowhere almost the degree of economic disruption caused by the increase in prices experienced by the Confederacy, a doubling of prices did have an effect on how the burden of the war'southward costs were distributed among diverse groups in each economy. Aggrandizement is a tax, and it tends to fall on those who are least able to afford it. Ane group that tends to be vulnerable to a sudden rise in prices is wage earners. Table four presents data on prices and wages in the United States and the Confederacy. The series for wages has been adjusted to reflect the decline in purchasing power due to aggrandizement. Not surprisingly, wage earners in the South saw the real value of their wages practically disappear by the end of the state of war. In the Due north the state of affairs was non as severe, but wages certainly did not keep pace with prices; the real value of wages roughshod by nigh twenty percent. It is non obvious why this happened. The need for manpower in the army and the demand for war production should have created a labor shortage that would bulldoze wages higher. While the economic situation of laborers deteriorated during the war, one must remember that wage earners in 1860 were still a relatively small-scale share of the total labor force. Agriculture, not manufacture, was the largest economic sector in the due north, and farmers fared much in terms of their income during the war than did wage earners in the manufacturing sector (Ransom 1998:255-64; Atack and Passell 1994:368-seventy).

Table 4: Indices of Prices and Real Wages During the Civil War (1860=100)
	Union			Confederate
Year	Prices	Real Wages		Prices	Real Wages
1860	100	100		100	100
1861	101	100		121	86
1862	113	93		388	35
1863	139	84		1,452	19
1864	176	77		3,992	11
1865	175	82
Source: Union: (Atack and Passell 1994: 367, Table 13.5) Confederate: (Lerner 1954)

Overall, it is clear that the North did a far better job of mobilizing the economic resources needed to carry on the war. The greater sophistication and size of Northern markets meant that the Matrimony government could telephone call upon institutional arrangements that allowed for a more efficient system of redirecting resources into wartime product than was possible in the Southward. The Confederates depended far more upon outside resources and straight intervention in the production of goods and services for their war attempt, and in the end the domestic economic system could non bear up under the strain of the effort. It is worth noting in this regard, that the Union occludent, which by 1863 had largely closed down not only the external trade of the South with Europe, but also the coastal merchandise that had been an important element in the antebellum transportation organisation, may accept played a more than crucial function in bringing about the eventual plummet of the Southern war effort than is often recognized (Ransom 2002).

The Civil State of war every bit a Watershed in American Economic History

It is like shooting fish in a barrel to see why contemporaries believed that the Ceremonious War was a watershed event in American History. With a cost of billions of dollars and 625,000 men killed, slavery had been abolished and the Union had been preserved. Economic historians viewing the consequence fifty years after could notation that the half-century following the Civil State of war had been a menstruation of boggling growth and expansion of the American economy. But was the state of war really the "Second American Revolution" every bit Beard (1927) and Louis Hacker (1940) claimed? That was certainly the prevailing view as tardily as 1960, when Thomas Cochran (1961) published an commodity titled "Did the Civil State of war Retard Industrialization?" Cochran pointed out that, until the 1950s, in that location was no quantitative prove to testify or disprove the Bristles-Hacker thesis. Contempo quantitative research, he argued, showed that the state of war had actually slowed the charge per unit of industrial growth. Stanley Engerman expanded Cochran's argument past attacking the Bristles-Hacker claim that political changes — particularly the passage in 1862 of the Republican plan of political economy that had been bottled upwards in Congress by Southern opposition — were instrumental in accelerating economic growth (Engerman 1966). The major thrust of these arguments was that neither the war nor the legislation was necessary for industrialization — which was already well underway by 1860. "Aside from commercial cyberbanking," noted one commentator, "the Ceremonious War appears not to accept started or created whatsoever new patterns of economic institutional change" (Gilchrist and Lewis 1965: 174). Had there been no war, these critics argued, the trajectory of economic growth that emerged after 1870 would have done and so anyhow.

Despite this criticism, the notion of a "second" American Revolution lives on. Clearly the Beards and Hacker were in error in their merits that industrial growth accelerated during the war. The Ceremonious War, like most modern wars, involved a huge effort to mobilize resources to deport on the fight. This had the consequence of making it announced that the economic system was expanding due to the product of military goods. Yet, Beard and Hacker — and a proficient 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 (Bribe 1989: Chapter 7). But what of the larger question of political modify resulting from the war? Critics of Beard and Hacker claimed that the Republican program would have eventually been enacted fifty-fifty if there been no war; hence the state of war was not a crucial turning point in economic development. The problem with this line of statement is that it completely misses the betoken of the Beard-Hacker argument. They would readily agree that in the absence of a state of war the Republican plan of political economic system would triumph — and that is why there was a state of war! Historians who argue that economical forces were an underlying cause of exclusive conflicts go on to indicate out that war was probably the just way to settle those conflicts. In this view, the state of war was a watershed issue in the economical evolution of the United states of america because the Wedlock armed services victory ensured that the "market revolution" would not exist stymied by the South's attempt to break up the Wedlock (Ransom 1999).

Whatsoever the effects of the war on industrial growth, economic historians agree that the war had a profound event on the South. The destruction of slavery meant that the unabridged Southern economic system had to exist rebuilt. This turned out to be a monumental job; far larger than anyone at the time imagined. As noted in a higher place in the word of the indirect costs of the war, Southerners bore a disproportionate share of those costs and the brunt persisted long afterwards the war had ended. The failure of the postbellum Southern economic system to recover has spawned a huge literature that goes well beyond the effects of the war.

Economical historians who have examined the immediate furnishings of the war take reached a few of import conclusions. Get-go, the thought that the S was physically destroyed by the fighting has been largely discarded. Near writers have accepted the argument of Ransom and Sutch (2001) that the major "impairment" to the South from the war was the depreciation and neglect of holding on farms as a pregnant portion of the male workforce went off to war for several years. Second was the impact of emancipation. Slaveholders lost their enormous investment in slaves as a result of emancipation. Planters were consequently strapped for capital in the years immediately after the war, and this afflicted their options with regard to labor contracts with the freedmen and in their dealings with capital markets to obtain credit for the planting season. The freedmen and their families responded to emancipation by withdrawing upwards to a third of their labor from the market place. While this was a perfectly reasonable response, it had the effect of creating an credible labor "shortage" and it convinced white landlords that a free labor system could never work with the ex-slaves; thus farther complicating an already unsettled labor market. 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. While they were able, for the nigh function, to cling to their landholdings, the ex-slaveholders were ultimately forced to break up the great plantations that had been the cornerstone of the antebellum Southern economy and rent small-scale parcels of land to the freedmen under using a new form of rental contract — sharecropping. From a situation where tenancy was extremely rare, the South all of a sudden became an agricultural economic system characterized by tenant farms.

The result was an economy that remained heavily committed not only to agronomics, merely to the staple crop of cotton fiber. Crop output in the South barbarous dramatically at the cease of the state of war, and had not yet recovered its antebellum level past 1879. The loss of income was particularly hard on white Southerners; per capita income of whites in 1857 had been $125; in 1879 it was just over $fourscore (Ransom and Sutch 1979). Table five compares the economic growth of GNP in the The states with the gross crop output of the Southern states from 1874 to 1904. Over the concluding quarter of the nineteenth century, gross crop output in the South rose past about one percent per year at a time when the GNP of United states of america (including the South) was rise at twice that charge per unit. By the finish of the century, Southern per capita income had fallen to roughly two-thirds the national level, and the S was locked in a cycle of poverty that lasted well into the twentieth century. How much of this failure was due solely to the war remains open to debate. What is clear is that neither the dreams of those who fought for an independent South in 1861 nor the dreams of those who hoped that a "New South" that might emerge from the devastation of war later 1865 were realized.

Tabular array 5Annual Rates of Growth of Gross National Product of the U.S. and the Gross Southern Crop Output, 1874 to 1904
	Annual Per centum Charge per unit of Growth
Interval	Gross National Product of the U.S.	Gross Southern Crop Output
1874 to 1884	2.79	1.57
1879 to 1889	1.91	1.14
1884 to 1894	0.96	i.51
1889 to 1899	ane.fifteen	0.97
1894 to 1904	2.30	0.21
1874 to 1904	2.01	one.x
Source: (Ransom and Sutch 1979: 140, Tabular array seven.3

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Citation: Ransom, Roger. "Economic science of the Ceremonious State of war". EH.Net Encyclopedia, edited by Robert Whaples. August 24, 2001. URL http://eh.cyberspace/encyclopedia/the-economics-of-the-civil-state of war/

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