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Roger Ransom
The Civil War in American Economic History
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The Civil War in American Economic History
Roger L. Ransom
University of California, Riverside
The Civil War was the deadliest war in American history. Almost 3 million men fought
in either the Union or Confederate Armies, and as many as 750,000 of them died as a result of
the war. Another half million or so more limped home with wounds that left them unable to
fully resume their lives after the war. The effort to mobilize resources for the war bankrupted the
Confederacy and left a financial burden on the United States Government that lasted well into
the twentieth century. Finally, the war dramatically restructured the institutional landscape of
the United States by freeing four and half million African American slaves. Writing sixty years
after Appomattox, historians Charles and Mary Beard called the Civil War a “Second American
Revolution” which paved the way for the economic transformation of the United States in the
last third of the nineteenth century. Not surprisingly, the history of how this happened has drawn
economic historians into the examination of both the causes and the impact of the war on the
course of economic development of the American economy. This essay examines four questions
that economics historians have raised with regard to the “economics” of the Civil War:
1] Was slavery a significant factor in causing the Civil War?
2] What was the economic cost of the Civil War?
3] What were the economic consequences of Emancipation?
4] What was the economic legacy of the Civil War?
The Economics of Slavery and the Civil War
The political debates over slavery go back to the formative years of the Republic. The
Continental Congress had dealt with the most contentious aspect of slavery by enacting the Land
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Ordinance of 1787 prohibiting slavery north of the Ohio River. Three years later the newly
formed Congress of the United States passed a Land Ordinance of 1790 that guaranteed slavery
could persist south of the Ohio River.1 These two laws seemingly settled the issue over where
the western expansion of slavery would be permitted. However, in 1803 the United States
acquired the Louisiana Purchase, thus reopening the question of slavery in the western territories.
In 1820 the admission a new slave of Missouri caused uproar because Missouri was clearly north
of the Ohio River. The resulting compromise drew an imaginary line westward from the
Mississippi River to the Rocky Mountains which was meant to serve as a boundary between any
future free and slave states. This worked well enough until 1850, when the admission of
California as a free state sparked a bitter debate that was resolved only after anti-slave forces
agreed to new and more stringent Fugitive Slave Act.
In the long run each of these Attempts at compromise made the slave problem worse by
encouraging the continued westward expansion of slavery. In 1790 there were already 700,000
slaves living in the United States. This meant that in the Southern States, where most of the
slaves lived, about one out of three people were someone else‟s “property”. By 1860 there were
3.9 million slaves in the United States, worth an estimated $3 billion.2 The economic tentacles
of the slave system had spread into every aspect of life in the South. According to one estimate,
one-fourth of the income accruing to all whites in the slave states could be attributed to slave
labor in 1859.3 The planters‟ capital invested in slaves by planters represented nearly half of the
wealth reported to the census in the major cotton-growing states of the south in 1859.
Manufacturing capital amounted to only one percent of the total wealth accumulated in the
South.4
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The stunning economic success of a system relying on slave labor remained both an
embarrassment and a puzzle for Americans who believed that slave labor was not only immoral,
but also inefficient when compared to the labor of free men and women. Planters at the time
insisted that they lost money planting crops with slave labor, and historians delving into the
account books of plantations came to the same conclusion. But if slavery was “unprofitable” and
“inefficient”, how had it survived – indeed prospered – in a free market society for over two
centuries? The answer is that one must think of slaves as property rather than as people. Slaves
are economic assets that are purchased to obtain a rate of return from the capital investment.
In 1958 two young economists, Alfred Conrad and John Meyer, demonstrated that if one
included not only the output from slave labor, but also the value of any slave children, then
slavery turns out to be quite profitable.5 Five decades of research have not seriously challenged
the results obtained from Conrad-Meyer‟s “asset pricing model” of slavery. A slaveholder who
managed to keep his slaves alive and willing to have children could make at least a normal profit
from capital gains alone. A further implication of this model was that slave labor not only made
the South a very prosperous region, it also produced powerful pressures for the westward
expansion, which continually brought the slave society into contact with free labor that was also
moving west. It was this continual intersection of slave and free settlers that fanned the flames
of conflict over slavery in the west throughout the antebellum years.
The economic robustness of slavery in the South produced huge rents that accrued to
slaveholders. The effect of these rents on the distribution of wealth in the United States can be
seen in Map 1 below, which shows the average level of wealth per free person reported for each
county of the United States in 1859. Virtually all of the counties reporting an average of $1,500
or more are in the South, and in the areas where slaves were located the reported per capita
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wealth tended to exceed $5,000 – a huge sum in those days. No other sections of the country
reported anywhere near this level of wealth per capita. This concentration of wealth strongly
was a highly visible reminder of the concentration of power – economic and political – in the
hands of a small number of very powerful men. To many people in the North, what they referred
to as the “Slave Power” was a sinister group of Southerners who manipulated the national
government to their own advantage.
INSERT MAP 1
By itself, the accumulation of slave wealth could explain why the South might be willing
to take extreme measures – including secession and war – to protect their property. However, so
long as their property was not threatened, Southerners had powerful incentives to remain in an
economic system that was earning them huge rewards. The returns on cotton depended on a
complex system of regional and international specialization that tied the antebellum American
economy together into one of the most lucrative marketplaces in the world. The United States
could be divided into three broad regions of differing economic specialization; The slave South,
the New England and Middle Atlantic states, and the states in the West that were north of the
Ohio River. It was like a three legged stool. Each region was dependent upon the other two, and
all three were needed to support the expanding national and international economy. The South,
as the principal supplier of cotton to the textile industries of Great Britain and the northern
United States provided the economic stimulus to the rest of the economy. The East had both
financial and commercial centers together with a manufacturing sector in New England that
found lucrative markets throughout the United States. The West produced and exported a wide
range of agricultural products to the rest of the country – and after the 1830s – to the rest of the
world as well. This system of export driven growth was extraordinarily successful. By 1859 the
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United States was one of the richest economies in the world.6 An outsider looking at a statistical
summary of the American economy would surely be surprised to discover that Americans were
teetering on the brink of a civil war.
INSERT MAP 2
While each region benefited from external markets to create demand for their products,
the dynamics of growth within each region differed markedly. Although the westward expansion
of cotton increased production and income, the social and economic structure of Southern society
remained that of a rural economy based on slave plantations together with small, largely selfsufficient, farms. In the Northern states, on the other hand, economic growth had brought
dramatic social and economic changes as people came to rely more and more on markets to meet
the demands of everyday life. Perhaps the most obvious manifestation of these changes was the
growth of towns and cities in the areas affected by the market revolution. Map 2 shows the
urban counties in the United States in 1860. The concentration of towns and cities along the
Atlantic Seaboard and westward along the southwestern edge of the Great Lakes provides a
sharp contrast with the absence of urban areas south of the Ohio River.
Urbanization in the
North and West led to the formation a new and very different political party. The Republican
Party was built on a foundation of opposition to the expansion of slavery combined with a
program that championed state built internal improvements, cheap western land, and formation
of a more centralized federal banking system. The expanding economic and political ties
between the Northeast and the Northwest led to a political economy that embraced an ideology
of free labor that was anathema to the slave labor in the South.7
The idea that the Civil war was a conflict arising from a “modernizing” or industrializing
North clashing with the more “traditional” agrarian society of the slave south is hardly new.
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What is novel about the more recent economic interpretations of war is the emphasis on the
extent to which the North – with its rapid economic and social change – can be seen as the
“aggressor” in this dispute by pressing an agenda of revolutionary change upon the South. As
Virginian Robert Dabney bitterly noted after the war, “On the Northern side, [slavery] was
merely the pretext, employed by that aggressive section to carry out ambitious projects of
domination.”8
Was Dabney right to claim that slavery was just a “pretext” behind Northern aims to
dominate the South? While Southerners feared the power of a federal government controlled by
the Republicans, many Northerners feared that a federal government, which was already too
weak to deal with the obstructionist tactics of the slave power, might be further weakened if
states were allowed to simply to pack up and leave. Furthermore, many Northerners did fear the
possibility of the slave power free to exercise its nefarious influence as an independent nation
that would control the Atlantic Coast from Baltimore to Texas. By 1860 the demographic and
economic growth of the North and West had allowed the economic interests from that region to
gain majority control of congress, and with the election of a Republican president, they were in a
position to press forward with their case for a program based on a political economy that was
tilted towards the needs of a rapidly expanding market economy. From a Northern perspective
secession would not solve any of the problems that were plaguing mid-century America. They
could easily imagine a world where an independent slave south remained a continual source of
tension between the two nations. To Northerners, the way to control the Slave Power would be
to keep the United States intact so that politicians could restrict slave property rights – perhaps
even going so far as to pass a constitutional amendment emancipating slaves. 9 The only way
Southerners could make slave property secure would be to leave the Union.
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The issue over slave property became increasingly a question of social and economic
change. In December 1858 Senator William Seward of New York, told his colleagues that the
collision of interests between North and South was not “the work of interested or fanatical
agitators,” it was, he explained, “an irrepressible conflict between opposing and enduring forces,
and it means that the United States must and will sooner or later, become entirely a slaveholding
nation or entirely a free-labor nation,”10 Well-meaning men in congress and elsewhere could
debate at length the issues of political economy between North and South, but when push came to
shove the problem of what to do with 4 million slaves worth three billion dollars was a deal
breaker. As Thomas Jefferson observed after the debates surrounding the Compromise of 1820,
“we have the wolf by the ear, and we can neither hold him, nor safely let him go. Justice is in one
scale, and self-preservation in the other.”11 The inability of lawmakers to deal with the economics
of slavery proved to be the undoing of the American Union in the fall of 1860. “The realignment
of the 1850s,” wrote James Huston, “was about slavery, the slave power, and the protection of a
free village society … Republicans changed the agenda of the country by altering the property
rights in people.”12
That is not to say that either side wanted a war. Abraham Lincoln summarized the
situation as well as anyone before or since when he said in his second inaugural address: “Both
parties deprecated war, but one of them would make war rather than let the nation survive, and
the other would accept war rather than let it perish.”
So the War came.
The Economic Cost of the Civil War
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With a population twice as large as the Confederacy and financial and industrial
capabilities that dwarfed those of the rebel states, the Union obviously had a huge advantage in
their effort to thwart the rebellion. The economic organization of the North allowed the Union to
mobilize an army that one military historian judged to be “the largest, best equipped, best fed,
and most powerful fighting machine ever assembled in the history of the world to that date.”13
Economic mobilization, as much as military strategy, would win the war for the North.
That is not to say the outcome was forgone. What is often overlooked in assessing the
military and economic challenges facing both sides in 1861 is that neither side was ready to fight
a full-fledged war in the spring of 1861. The United States Army in 1861 consisted of just over
16,000 officers and men; most of them stationed in the South and the West. The U. S. Navy had
fewer than 50 commissioned vessels ready for action in 1861. Bull Run, The first major
engagement of the war, was fought with quickly assembled volunteers. The war would not begin
in earnest until the spring of 1862 with the Union launched simultaneous invasions of Tennessee
and Virginia. Both efforts fell short of their goals so the two sides settled into a prolonged
struggle that taxed the resources of governments on both sides.
The cost of that struggle far surpassed any previous military expenditure on the part of
the United States. Claudia Goldin and Frank Lewis estimate that combined expenditures by both
government totaled 3.3 billion 1860 dollars.14 To this they add $1.5 billion to account for the
destruction of the war – most of which occurred in the South. This gives a total of $4.8 billion –
with each region incurring roughly half the total. Adding an additional $2.2 billion to account
for the discounted economic value associated with loss of military deaths would bring the total
cost of the war in 1860 dollars to just under $7 billion.15 While these figures are only an
educated guess, they provide us with the order of magnitude of the economic effort required to
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wage the war. What stands out in addition to the absolute size of the bill is disparity in the
burden these costs represented to the people in the North and the South. On a per capita basis,
the costs to the North population were about $150 – or just over the income of the United States
economy in 1860. The per capita burden on Southerners was more than twice that amount.
[INSERT FIGURE 1 HERE]
The mobilization of men was facilitated by the existence of a militia system that had
worked well enough in the Mexican War. However, when the new recruits began to arrive, it
suddenly became clear that the government had no way to pay for the procurement of supplies to
equip their armies. In the decade prior to the Civil War over 90 percent of all tax revenues
collected by the United States government were from the tariff on imported goods. Figure 1
presents data on the sources of the Union Government during the war. Facing a severe financial
crisis in 1862, the Union government increased the tariff, enacted excise taxes and an imposed a
3% income tax on people making more than $600, with an additional 2% tax in those earning
over $10,000. The result was a dramatic increase in revenues, but this extra money still fell far
short of war-related expenditures. Congress therefore authorized the issuance of treasury notes –
called “greenbacks” – that were not backed by gold. Over the course of the war, taxes and
greenbacks accounted for just over 40 percent of all United States government revenues.
remaining funds were obtained by selling bonds to the public.
The
Between 1861 and 1865
Northerners bought nearly $2 billion dollars in treasury notes.
This influx of notes and bonds was not without a cost; consumer prices doubled over the
period of the war. Wartime inflation can be thought of as a flat tax on all expenditures in the
economy. While such a tax has the advantage that it is very difficult to evade, it tends to be
highly regressive, and these effects were exacerbated for the working class by the failure of
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wages to keep pace with the rise in consumer goods. The circulation of $400 million worth of
notes that were not backed by gold also caused significant problems with the United States
convertibility of U.S. currency in international markets. In 1862 the U.S. Government was
obliged to discontinue gold payments due to an outflow of specie. We will return to the
implications of this action in our analysis of the postwar challenges facing the United States
government.
Overall, it seems reasonable to give the Union a passing grade for its wartime fiscal and
debt policies. The issuance of greenbacks, which was the most inflationary means of financing,
peaked in 1863 and had practically disappeared by 1865. A quarter of the war costs were
defrayed by taxes, which was a reasonably impressive accomplishment in light of the fiscal
experiences of other countries who have been called upon to finance wars in the modern era.
The need to issue long-term debt, and the creation of a national banking system, as we shall see
below, were significant institutional changes in the financial system that affected economic
performance long after the war.
[FIGURE 2 HERE]
The chaotic efforts of the Confederate government to pay for their war efforts stand in
marked contrast to the reasonably orderly arrangements in the United States. The best estimates
of the Confederate finances are presented in Figure 2.16 The first thing to notice is the inability
of the Richmond government to levy taxes to pay for the war. Only 11 percent of the wartime
revenues collected were from taxes; the rest had to be borrowed. The absence of a welldeveloped securities market in the South meant that the Confederates had to rely on selling
bonds in either London or Amsterdam for much of their debt issue.
[FIGURE 3 HERE]
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More than half the total revenues of the Confederate government were obtained through
the issue of notes. The printing of money on such a huge scale produced huge inflationary
pressures that would eventually destroy the Confederate economy. Figure 3 charts data on the
inflation that ravaged the Eastern states of the Confederacy over the course of the war.
Consumer prices increased at a rate of inflation that averaged over 10 percent per month!
Between Bull Run and Gettysburg, the inflationary pressures could be largely attributed to the
huge influx of money to pay for deficits of the Richmond government. However, from the
middle of 1863 on, the increase in prices outstripped the increase in the supply of money.
Several economic historians have suggested that at this point the behavior of prices is a reflection
of peoples‟ confidence in the future of the Confederacy as a viable state.17
In late 1863 and
early 1864, following the Confederate 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 rapid upward spiral after the fall of Atlanta in September 1864. By
the end of the war, inflation had reached a point where the value of the Confederate currency was
virtually zero and people had taken to engaging in barter or using Union dollars (if they could be
found) to conduct their transactions.
A final way that economic factors may have played a significant role in the defeat of the
Confederacy war was the strategy employed by the Union to undermine the Confederate
economy and morale of the Confederate civilian population. Early in the war Union general
Winfield Scott proposed a naval blockade to shut down every port in the Confederacy. There is
considerable debate among historians whether or not Scott‟s “Anaconda Plan” was a major
factor in the Union victory. The popular impression is that the blockade got more effective as
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However, success of steam-powered Confederate blockade-runners actually
increased over time, and at least one study concludes that the blockade “was not a major factor in
Confederate collapse and defeat.”18 But while blockade may not have cut off the military
supplies to support the rebel armies, it did seriously interdict the coastal trade that was a vital
part of the antebellum South‟s transportation system. For the resources expended, the blockade
may have been a worthwhile experiment.19 The final element in the blockade debate is the
psychological impact on the civilian population caused by the interruption of imported goods.
Figure 3 includes a price index for imported goods, which includes salt, coffee and tea. The
marked increase in the prices of these items suggests that the blockade made these popular items
of household consumption difficult to obtain. The blockade also prevented exports from the
South. The index of agricultural goods in Figure 3, which is dominated by cotton and tobacco
stays well below the average level of prices, suggesting that real income to farmers who
produced these staples saw their income decline in real terms. Perhaps the best assessment of the
Union blockade is that of Lance Davis and Stanley Engerman, who conclude that “it appears
that, although [it] may not have „garroted‟ the Confederacy, it did play a significant role in the
Union Victory.”20
The implementation of a blockade represented an economic strategy designed to cripple
the Confederate economy. Another way of doing this was to direct the Union Armies to destroy
the economic capacity of the South to continue the war. William Tecumseh Sherman‟s famous
march to the sea and Philip Sheridan‟s infamous destruction of crops and property the
Shenandoah Valley in the fall of 1864 were both strategies aimed at the destruction of productive
property rather than the surrender of opposing armies. Judging by the hue and cry that went up
both during and after the war, these military operations had a perceptible effect on the morale of
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the enemy population. Though most of the South was not actually “occupied” by Northern
troops, the ease with which Union Armies could move through areas in 1864 was an effective
way to disrupt what remained of the Confederate economy. One of the things that surprised the
Union troops was the quantity of supplies that were still on the farms they burned. This was a
vivid testimony to the inability of the Confederate transportation system to move much needed
goods to the front during the last year of the war.
The Economic Consequences of Emancipation
In December 1865 the thirteenth amendment to the Constitution accomplished with the
stroke of the pen what decades of political bargaining had failed to obtain. The institution of
slavery was simply abolished, and the property rights attached to the ownership of slaves were
transferred from slave owners to the former slaves. It soon became apparent that this change of
ownership involved much more than a transfer payment on an accounting sheet. The Southern
economy had to be completely rebuilt.
Slavery was gone and there was nothing the planters could do to regain their lost slave
property. In a report to President Andrew Johnson on “conditions in the South” written in 1867,
Theodore Peters observed that “The scarcity of capital at the South can only be comprehended
by one who has been through the country. … There has never been a time when so much general
good could be done with so little capital at so small a risk.”21 Without the collateral to obtain
credit in the shattered capital markets planters were hard pressed to obtain supplies for the
planting season or to find the cash to pay laborers to plant and harvest the crops. The situation
was further complicated by the reaction of Freedmen and their families to emancipation. Eager
to gain the leisure that was denied them under slavery, freedmen refused to maintain the long
hours of work they had contributed as slaves. While this was a perfectly reasonable response to
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freedom, it convinced white planters that a system of free labor working for wages could never
work in the postbellum South. While landlords were able, for the most part, to cling to their
landholdings, they were ultimately forced to abandon the plantation system that had been the
cornerstone of the antebellum Southern economy and rent small parcels of land to the freedmen.
Table 1: Farm Size in the Cotton States: 1860 and 1870
Improved Acres
Thousands of Farms
1860
Percent of Farms
1870
1860
Percent of Improved Land
1860
1870
1870
3-49
69.2
173.6
36.9
60.9
7.4
20.2
50-99
45.4
56.4
24.2
19.8
12.0
19.6
100-499
60.0
49.0
32.0
17.2
47.6
49.1
500 and up
12.9
5.9
6.9
2.1
33.0
11.1
Total
187.6
284.9
100.0
100.0
100.0
100.0
Source: Ransom and Sutch, One Kind of Freedom, 2001; Table 4.5, p.71
[INSERT TABLE 1 HERE]
From a situation where tenancy was extremely rare, the South became an agricultural
economy characterized by tenant farms. The figures in Table 1, which are constructed from a
data reported to the 1880 Census, show how rapid and dramatic this change in farming was
throughout the South. By 1870 the number of small family operated farms – those with less than
50 acres of tilled land – had more than doubled, while the number of very large farms – the
closest thing to a plantation – had been cut in half. Prior to the Civil War, small family farms
accounted for just over 7 percent of all improved land while plantations accounted for 33
percent. By 1870 the share of improved acres in plantations had shrunk to 11 percent while the
share of the smallest farms had grown to 20 percent. These dramatic changes in farm size were
accompanied by equally dramatic shifts in tenure arrangements. By 1880, the first year in which
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there are accurate figures on race and tenure, the antebellum plantation had virtually disappeared.
More than 80 percent of the farms in the Cotton South reported 50 or fewer acres in crops, and
most of them were run with family labor. Sharecropping, a form of farm management virtually
unknown in the South before 1860, accounted for almost 40 percent of all farms in the South by
1880.
Given a wider choice of options, neither, the freedmen or the planters would have chosen
sharecropping. Freedmen would surely have preferred to own and operate their own farm.
However, a combination of virulent racism that effectively blocked the sale of land to freedmen,
and the absence of a capital market that could be used to finance purchase of land led to a denial
of land to the ex-slaves. In 1880 only 7 percent of the farms in the Cotton South were owned by
blacks. White landowners would have preferred to run their farms with hired labor. However
blacks refused to work under conditions that resembled the gang labor of slavery, and
sharecropping had the added advantage to the land lord that it required little if any cash in an
economy that was starved for money.
[FIGURE 4 HERE]
The demise of the plantation and the rise of tenant farming had a dramatic impact on the
level and the distribution of income in the South after the war. There are no estimates of income
by state for the period around the Civil War; however Figure 4 presents estimates for agricultural
output per capita for 1857 and 1879.22 In an agricultural economy such as the postbellum South,
these figures can serve as a reasonable proxy for per capita income of southern farmers. The
first thing to note is that overall, per capita output of farms fell by about 20 percent. Much of
this is undoubtedly a reflection of the inability of whites to continue their exploitation of slave
labor. The percapita output of white farms declined by 35 percent; almost all of which was
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absorbed by the slave-owning families. Indeed, whites who owned no slaves may have actually
seen their income rise after the war. The one group in Figure 4 who clearly gained from the
changes brought about by emancipation was the ex-slaves, whose income rose by 45 percent as a
result of their newly gained independence. This gain for blacks is often overlooked when adding
up the “costs” of the war, which tend to add in the loss of income and capital of the planters. It
is also important to realize that, despite their losses, the antebellum planter class was hardly
driven into poverty by the results of the war. A number of studies have clearly established that
the planter class retained both their landholdings and their social and political control of
Southern society long after the war ended.23
War and emancipation had rid the United States of the institution of slavery, but in the
process it had created an economic and social disequilibrium that would take more than a century to
straighten out.
The Economic Legacy of the Civil War
The biggest and most obvious legacy of the Civil War was the death and injuries to men
who fought in the war. To account for the economic value of these human losses, I included an
estimate of $2.0 billion in our discussion of costs of the war, but that does not begin to cover the
emotional and psychological burden left in with those who survived. The federal government
made some attempt to help those survivors by establishing a system of pensions for Union
veterans that remained a significant component of the federal budget for the next half century.
Initially, only those veterans with disabilities from the war received pensions; however the
coverage was gradually expanded so that by 1910 every male over the age of 62 who served in
the Union army was eligible for a pension that averaged $170 per year. At a time when per
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capita working class incomes were around $350, this was a sizeable payment. Union veterans
comprised about 20 percent of all males over the age of 60 in the United States, in 1910, and
pensions were a significant political issue throughout the last decades of the nineteenth century.
Although they started as a program to aid wounded veterans, the system of pensions established
at the time of the Civil War eventually anticipated the enactment social insurance of a social
security system in the twentieth century.24 The federal pension system did not cover Confederate
veterans, who were given much smaller pensions by state governments.
Another economic challenge facing the federal government in 1865 was the interest
payments for the national debt, which accounted for more than a third of all government outlays
throughout the 1870s. Secretary of the Treasury Hugh McCulloch favored a policy of reducing
the National Debt as rapidly as possible. His idea was to retire the greenbacks issued during the
war. Congress thought this too drastic and rejected the idea, preferring instead to keep the
increased tariff rates passed during the war in place so that the resulting budget surplus could be
used to retire bonds. This policy was very successful; government bonds held by the public
gradually decreased from $2.3 billion right after the war to less than a billion dollars by 1890.
However, the decision not to retire the $300 million of greenbacks that remained in circulation
left the United States with a dual currency system. After a decade and a half of tight money and
stringent fiscal policies, the United States government resumed gold payments with the
Resumption Act of 1879. However , because the greenbacks were still in circulation, the
monetary system remained on a bimetallic standard of gold and silver. This required that the
government maintain a delicate balancing act on the part of the Treasury to maintain the parity
between the prices of the two metals. The efforts to bring the United States currency into
equilibrium for a resumption of international gold payments produced another two decades of
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political and monetary uncertainty; culminating with William Jennings Bryan famous acceptance
speech at the 1896 Democratic convention in which he accused his Republican opponent of
trying to “crucify mankind on a cross of gold”! His plea was not answered; Congress finally
passed the Gold Standard Act in 1900.25
[FIGURE 5 HERE]
The result of all this turmoil was some major instability in the United States economy
through the 1870s and 1880s. Figure 5 presents data on the gross domestic product (GDP)
measured in both current and 1860 prices, together with an index of prices between 1840 and
1889.26 The blank box in the middle of the period to reflects the economic disruptions created by
the war. During the two decades before the war, prices showed some volatility, but both real and
nominal GDP showed solid growth. After the war, the lines show a far more complex picture.
The wartime spending produced a dramatic jump in prices during the war; a shift that is also
reflected by the discontinuity in the nominal GDP series. At the end of the war people had more
money, but everything cost more.
Over the next decade and a half the United States endured the longest deflation in
American history. Although real GDP continued to follow the antebellum pattern of growth,
GDP in current prices actually declined rather sharply immediately after the war, and did not
regain its 1865 level until the 1880s. Prolonged periods of price deflation accompanied by
declining money wages and incomes seldom lead to optimistic projections.
These were
tumultuous times politically and economically as the country struggled with Reconstruction and
the postwar macroeconomic adjustments throughout the economy.
Farmers in the Midwest
formed the “Grange”; a movement to protest railroad rates and middlemen who foreclosed on
their mortgages. Their protests were joined by other groups, who eventually came together in
Roger Ransom
The Civil War in American Economic History
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the Populist Party of the 1880s and 1890s. Urban areas were filled with labor unrest by workers
who saw their wages declining and working conditions deteriorating. Yet throughout this period
of economic and political turmoil, real GDP – which is the best measurement of macroeconomic
performance – moved steadily upwards with a noticeable acceleration in 1875. Consequently,
many economic historians have presented this period as one of rapid economic growth when the
United States was transformed from an agricultural to an industrial nation. The Civil War, in
Douglass North‟s words, “was only a pause in the economic expansion which was already
deeply rooted in American society”.27
A lot of interesting things happened during that “pause.” The Republican Congress that
took power in March, 1861 not only wanted to save the Union; they had an ambitious program of
political economy that had been worked out over the past decade. In the space of a few months
in the spring of 1862 the following legislation was approved:
The National Banking Act was the first of two acts that established a system of banks that were
chartered by the federal government and issued a single currency. This reform, which
had been hotly debated for years after the demise of the Second Bank of the United States
in 1839, put in place the institutional framework for a banking system that lasted until the
creation of the Federal Reserve Act a half century later.
The Homestead Act broadened the principle of “homesteading” that had been formally
recognized in the Preemption Act of 1841 by giving settlers allotments of 160 acres of
free land. More than 1 million parcels of land were eventually distributed under the
terms of this act.
The Pacific Railway Act was the first of several acts that were designed to facilitate construction
of a railway “from Missouri to the Pacific Coast” by giving grants of federal land to build
Roger Ransom
The Civil War in American Economic History
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the first transcontinental railroad. The project finally was completed in 1869 and by
1900 there were five transcontinental railways and 200,000 miles of railroads in the
United States
The Morrill Land Grant Colleges Act established federal land grants for colleges in Universities.
The Morrill Act created the foundation for one of the most impressive systems of public
education in the world.
The impact of all four of these acts are still evident 150 years later, and other noteworthy
congressional actions followed over the next three years. On January 31, 1865 the House of
Representatives took the most important step of all when they approved the Thirteenth
amendment to the Constitution.
In assessing the economic legacy of the war, we should ask one last question: Could all
of this have been possible without the War? Economists look at the Civil War “box” in Figure 5
and see only the dashed line of real GDP. For them the answer is seems simple enough; without
the war GDP would have stayed on its antebellum path. But if you look into the box, the answer
to our question appears to be a resounding no! Wars are by their nature destructive, and once
they begin, no objective is more important than victory on the battlefield. The need for victory
unleashes incredible effort and energy that can result in acceptance of changes that would not
otherwise be approved.
The Thirteenth Amendment is an excellent example of this
phenomenon. Abraham Lincoln understood that he had to get the Amendment – which had
already cleared the Senate – approved in the House before the war ended! Without the urgency
of the war effort as part of the pressure to pass the amendment, it might languish in the House.
But as part of a victorious war effort it he was able to succeed in getting it passed.
Roger Ransom
The Civil War in American Economic History
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What is not visible within the box of Figure 5 is the enormous effort that produced not
only the means of winning the Civil War, but also reorganized the agriculture of the South and
the nation‟s capital markets, and the legislative actions in Congress that changed the American
social and economic landscape for years to come. Those changes would not have happened in a
world where Congress was still dominated by the slave power. The economics of slavery meant
that a small group of southern slaveholders were able to exert an undue influence through the
ownership of 3.9 million Americans worth $3 billion. There was no way that the owners of this
slave property could be peacefully divested of their property. It took a war to pass the Thirteenth
Amendment, and it was the thirteenth amendment that opened the floodgates of changed for the
postbellum expansion of the United States.
The causes and consequences of war are never a simple matter. There were plenty of
potential reasons – economic and otherwise – that could help “explain” the Civil War. But to
paraphrase a popular saying about the importance of money: slavery may not have been the only
cause of the Civil War, but it is way ahead of whatever is in second place.
Roger Ransom
The Civil War in American Economic History
Maps and Figures:
Map 1: Per Capita Wealth by County in the United States, 1859
-22-
Roger Ransom
The Civil War in American Economic History
Map 2: Urban Counties in the United States, 1859
-23-
Roger Ransom
The Civil War in American Economic History
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Roger Ransom
The Civil War in American Economic History
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Roger Ransom
The Civil War in American Economic History
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Roger Ransom
The Civil War in American Economic History
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Roger Ransom
The Civil War in American Economic History
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Roger Ransom
The Civil War in American Economic History
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References:
Bensel, Richard (2000), The Political Economy of American Industrialization, 1877-1900 (New
York: Cambridge University Press).
Bensel, Richard F. (1990), Yankee Leviathan: The Origins of Central State Authority in America,
1859-1877 (New York: Cambridge University Press).
Bonner, Michael and McCord, Peter (2011), 'Reassessment of the Union Blockade's
Effectiveness in the Civil War', The North Carolina Historical Review, LXXXVIII (4),
375-98.
Burdekin, Richard C.K. and Langdana, Farrokh K. (1993), 'War Finance in the Southern
Confederacy', Explorations in Economic History, 30 (July), 352-77.
Conrad, Alfred H. and Meyer, John R. (1958), 'The Economics of Slavery in the Ante Bellum
South', Journal of Political Economy, 66 (April), 93-130.
Dabney, Robert L. (1867), A Defence of Virginia, [and Through Her of the South] ( Richmond:
E. Hale Jackson & Son).
Davis, Lance E. and Engerman, Stanley L. (2006), Naval Blockades in Peace and War (New
York: Cambridge University Press).
Egnal, Marc (2001), 'The Beards Were Right: Parties in the North, 1840-1860', Civil War
History, 47 (March), 30-56.
--- (2009), Clash of Extremes: The Economic Origins of the Civil War (New York: Hill and
Wang).
Foner, Eric (1970), Free Soil, Free Men and Free Labor: The Ideology of the Republican Party
Before the Civil War (New York: Oxford University Press).
Ford, Paul Leister (ed.), (1905), The Writings of Thomas Jefferson (12; New York: G.P.
Putnam's and Sons).
Roger Ransom
The Civil War in American Economic History
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Goldin, Claudia and Lewis, Frank (1975), 'The Economic Costs of the American Civil War:
Estimates and Implications', Journal of Economic History, 35 (June), 299-326.
Gunderson, Gerald (1974), 'The Origin of the American Civil War', Journal of Economic
History, 34 (December ), 915-50.
Hacker, J. David (2011), 'A Census Based Count the Civil War Dead', Civil War History, LVII
(4).
Huston, James (2003), Calculating the Value of the Union: Slavery, Property Rights, and the
Economic Origins of the Civil War (Chapel Hill: University of North Carolina Press).
North, Douglass C. (1961), The Economic Growth of the United States, 1790-1860 (Englewood
Cliffs: Prentice Hall).
Peters, Theodore (1867), A Report Upon Conditions of the South, with Regard to Its Needs for a
Cotton Crop and Its Financial Wants in Connection Therewith as Well as the Safety of
Temporary Loans (Baltimore: H.A. Robinson).
Ransom, Roger L. (1989), Conflict and Compromise: The Political Economy of Slavery,
Emancipation, and the American Civil War (New York: Cambridge University Press).
Ransom, Roger L. and Sutch, Richard (1988), 'Capitalists Without Capital: The Burden of
Slavery and the Impact of Emancipation', Agricultural History, 62 (Fall), 119-47.
--- (2001a), 'Conflicting Visions: The American Civil War as a Revolutionary Conflict',
Research in Economic History, 20, 249-301.
--- (2001b), One Kind of Freedom: The Economic Consequences of Emancipation (Second edn.;
New York: Cambridge University Press).
Surdam, David G. (2001), Northern Naval Superiority and the Economics of the American Civil
War (Columbia, SC: University of South Carolina Press).
Roger Ransom
The Civil War in American Economic History
-31-
Sutch, Richard and Carter, Susan (2006), Historical Statistics of the United States, Earliest
Times to the Present: Millennial Edition, 5 vols. (New York: Cambridge University
Press).
United States, Commissioner of Pensions (1910), 'Report of the Commissioner of Pensions',
Reports of the Department of the Interior for the Year Ended June 30 1910 (I;
Washington D.C.: U.S. Government Printing Office), 145-75.
Weidenmier, Marc (2000), 'The Market for Confederate Bonds', Explorations in Economic
History, 37 (January), 76-97.
Wiener, Jonathan M. (1976), 'Planter Persistence and Social Change in Alabama, 1850-1871',
Journal of Interdisciplinary History, 7 (Autumn 1976), 235-60.
Wilson, Mark (2006), The Busines of Civil War: Military Mobilization and the State, 1861-1865
(Baltimore: The Johns Hopkins Press).
Roger Ransom
The Civil War in American Economic History
-32-
Endnotes:
1
See Roger L. Ransom, Conflict and Compromise: The Political Economy of Slavery,
Emancipation, and the American Civil War (New York: Cambridge University Press, 1989) at
22-27.
2
Roger L. Ransom and Richard Sutch, 'Capitalists without Capital: The Burden of
Slavery and the Impact of Emancipation', Agricultural History, 62/Fall (1988), 119-47 at Table
A1.
3
Gerald Gunderson, 'The Origin of the American Civil War', Journal of Economic
History, 34/December (1974), 915-50. at 922.
4
The estimates are for the states of South Carolina, Georgia, Alabama, Mississippi, and
Louisiana. See Ransom and Sutch, 'Capitalists without Capital: The Burden of Slavery and the
Impact of Emancipation', (1988).
5
Alfred H. Conrad and John R. Meyer, 'The Economics of Slavery in the Ante Bellum
South', Journal of Political Economy, 66/April (1958), 93-130.
6
The economic growth model described in the text was first presented in Douglass C.
North, The Economic Growth of the United States, 1790-1860 (Englewood Cliffs: Prentice Hall,
1961). An excellent account of the development of the Lakes Economy can be found in Marc
Egnal, 'The Beards Were Right: Parties in the North, 1840-1860', Civil War History, 47/March
(2001), 30-56.; and Marc Egnal, Clash of Extremes: The Economic Origins of the Civil War
(New York: Hill and Wang, 2009).
Roger Ransom
7
The Civil War in American Economic History
-33-
For a discussion of these issues, see Roger L. Ransom and Richard Sutch, 'Conflicting
Visions: The American Civil War as a Revolutionary Conflict', Research in Economic History,
20 (2001a), 249-301.
8
Robert L. Dabney, A Defence of Virginia, [and through Her of the South] ( Richmond:
E. Hale Jackson & Son, 1867) at 374.
9
For a strong case that Northerners feared that impact of secession threatened the
viability of the United States government in his book see Richard F. Bensel, Yankee Leviathan:
The Origins of Central State Authority in America, 1859-1877 (New York: Cambridge
University Press, 1990) at Chapter 2.
10
Quoted in Eric Foner, Free Soil, Free Men and Free Labor: The Ideology of the
Republican Party before the Civil War (New York: Oxford University Press, 1970) at 69-70.
11
Paul Leister Ford (ed.), The Writings of Thomas Jefferson (12; New York: G.P.
Putnam's and Sons, 1905) at 159.
12
James Huston, Calculating the Value of the Union: Slavery, Property Rights, and the
Economic Origins of the Civil War (Chapel Hill: University of North Carolina Press, 2003) at
234.
13
Mark Wilson, The Busines of Civil War: Military Mobilization and the State, 1861-
1865 (Baltimore: The Johns Hopkins Press, 2006) at 1. Wilson‟s book is an excellent account of
how the Union mobilized its resources for the war.
14
Claudia Goldin and Frank Lewis, 'The Economic Costs of the American Civil War:
Estimates and Implications', Journal of Economic History, 35/June (1975), 299-326.
Roger Ransom
15
The Civil War in American Economic History
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Goldin and Lewis gave an estimate of $1.8 billion based on an estimated 625,000
deaths. J. David Hacker has used census data to estimate that the number of deaths must have
been about 750,000. See J. David Hacker, 'A Census Based Count the Civil War Dead', Civil
War History, LVII/4 (2011). To account for the increased deaths the Goldin-Lewis estimate has
been increased to $2.2 billion.
16
Richard C.K. Burdekin and Farrokh K. Langdana, 'War Finance in the Southern
Confederacy', Explorations in Economic History, 30/July (1993), 352-77.
17
See ibid. and Marc Weidenmier, 'The Market for Confederate Bonds', Explorations in
Economic History, 37/January (2000), 76-97.
18
Michael Bonner and Peter Mccord, 'Reassessment of the Union Blockade's
Effectiveness in the Civil War', The North Carolina Historical Review, LXXXVIII/4 (2011),
375-98 at 398.
19
David G. Surdam, Northern Naval Superiority and the Economics of the American
Civil War (Columbia, SC: University of South Carolina Press, 2001) at 209.
20
Lance E. Davis and Stanley L. Engerman, Naval Blockades in Peace and War (New
York: Cambridge University Press, 2006) at 158.
21
Theodore Peters, A Report Upon Conditions of the South, with Regard to Its Needs for
a Cotton Crop and Its Financial Wants in Connection Therewith as Well as the Safety of
Temporary Loans (Baltimore: H.A. Robinson, 1867) at 6-7. For more on the financial disorder
in the South after the war, see Roger L. Ransom and Richard Sutch, One Kind of Freedom: The
Economic Consequences of Emancipation (Second edn.; New York: Cambridge University
Press, 2001b) at Chapter 6.
Roger Ransom
22
The Civil War in American Economic History
-35-
The estimates are taken from "Growth and Welfare in the American South in the
Nineteenth Century," Explorations in Economic History 16, no. April (1979): 144-47. The
output estimates for slave income are based on the bundle of consumption good provided by the
masters.
23
Jonathan M. Wiener, 'Planter Persistence and Social Change in Alabama, 1850-1871',
Journal of Interdisciplinary History, 7/Autumn 1976 (1976), 235-60.
24
The figures on pensions are from Commissioner of Pensions United States, 'Report of
the Commissioner of Pensions', Reports of the Department of the Interior for the Year Ended
June 30 1910 (I; Washington D.C.: U.S. Government Printing Office, 1910), 145-75.
25
For a more complete account of the debates over gold in the last quarter of the
nineteenth century, see Richard Bensel, The Political Economy of American Industrialization,
1877-1900 (New York: Cambridge University Press, 2000) at Chapter 6.
26
The data are from Richard Sutch and Susan Carter, Historical Statistics of the United
States, Earliest Times to the Present: Millennial Edition, 5 vols. (New York: Cambridge
University Press, 2006) at 3-25.
27
North, The Economic Growth of the United States, 1790-1860 at 215.