Download Economic Activity Following the Civil War Indexed by Postal Money

Economic Activity Following the Civil War
Indexed by Postal Money Order Data
May 2013
Prof. Robert Dimand (Brock University)
Prof. Terence Hines (Pace University)
Prof. Thomas Velk (McGill University)
Olivia Gong (McGill University)
Nolan Prinzen (McGill University)
Edward Scadden (McGill University)
Ian Pearson (McGill University)
1 ABSTRACT
Following the Civil War the southern states were in dire economic condition. Reconstruction
resulted in decades of economic stagnation. We report here new data on the degree to which the
former Confederate states lagged behind the former Union states in the 25 years following the war.
We use data on the number and value of postal money orders issued and cashed in the former
Confederate and Union states as a measure of the time course of economic recovery in the former.
The data is taken from the Annual Reports of the Postmaster General of the United States for the
years 1865 through 1900. These reports provide, for each year, tabular listings by individual states, of
the total number and value of domestic postal money orders issued and cashed. The several states
differed in the number of post offices issuing money orders as well as in population. Data on the
number of offices was taken from the United States Official Postal Guides for the period and
population figures came from census reports. Combining the data from these sources will enable us
to describe the pattern of economic activity in the former Confederate states in the 25 years
following the Civil War and contrast that with activity in the former Union states.
2 I. INTRODUCTION The United States domestic postal money order system was established in 1864 largely in order to
allow Union soldiers in the American Civil War to safely send money home to their families. The
system quickly expanded to allow the average person a safe and efficient way to send money around
the country. In 1865 there were only 412 post offices issuing money orders. By 1890, that number
had risen to 9849 offices. The amount of money handled by the money order system is equally
impressive. There is a stock versus flow issue in comparing the volume of money that moved
through the system versus the quantity of money in circulation, but it is worth noting that by the
year 1890, the currency held by the public was $910 million while the total value of money orders
purchased was $114 million. Interestingly, this important contribution to the circulation of money in
the United States was overlooked by Friedman and Schwartz’s (1970) A Monetary History of the United
States.
We have argued elsewhere for the importance of postal money order data for the general
study of the economic history of the United States in the 19th century. The specific purpose of this
paper is to examine a particular aspect of that data. Here we use the postal money order data to
examine the flow of funds among the states with special attention to the relative rate of recovery of
former Confederate versus former Union states.
II. ABOUT THE DATA
Using Annual Reports of the Postmaster General from the years 1867 to 1900, we compare the
postal money order activity data between the former Confederate and Union states. We analyze the
values of the number and dollar amount of domestic postal money orders issued and paid. The four
main categories of data were the number of orders issued, the number of orders paid, the dollar
amount of orders issued, and the dollar amount of orders paid. An issued money order is an outflow
of money from the region of the issuing post office. A paid money order is an inflow of money to
the region of the post office recording the payment.
The data represents money inflow and money outflow from the former Union and
Confederate states. By calculating the sum of the dollar value of orders issued and paid, we also
derive the total money volume, which gives insight into the differing state of the economies of the
3 former Union States and the Confederate states following the Civil War. Furthermore, we calculate
the per capita increase and decrease of money orders using census data.
It is worth noting that the Annual Reports of the Postmaster General of Canada provide
equivalent data. That is, for each year the number and value of money orders issued and paid are
given for each province. We expect that such data will provide useful information on Canadian
economic history. III. DEFINING UNION STATES AND CONFEDERATE
STATES
Beginning in 1867, twenty-six states are classified as former Union states: California, Colorado,
Connecticut, Delaware, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New
Jersey, New York, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah,
Vermont, Washington, West Virginia, and Wisconsin. The former Confederate states were: Alabama,
Arizona, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina,
Tennessee, Texas, and Virginia. Due to the complexity of internal state politics a number of states
cannot be fully classified as Union or Confederate.
IV. ASSUMPTIONS
One main assumption is the utilization of a common growth rate in population between census data
years. As the census data is on a decade-by-decade basis, we believe that maintaining a constant
growth rate between census years enables us to make a more accurate depiction of the per capita
data.
V. ERROR IN DATA
We note one error in the data. In the original Report of the Postmaster General data provided,
Pennsylvania did not have a value for the dollar amount of orders issued in the year 1887. Because
the Pennsylvania inflow did not have a balancing outflow, this creates a data outlier or spike from
the years 1886 to 1887.
To get rid of the outlier and balance both data spikes that appeared to be unnatural outliers,
an average value of the dollar amount of orders issued was calculated from 1882 to 1889. From
1882 to 1889, the average dollar amount of $82,546.68 is manually added to the Union’s inflow value.
4 This value represents the average increase from 1882 to 1889 in the Union’s Inflow, an increase
from $9,983,729.27 and $10,561,556.03 respectively (See Appendix B).
VI. THE POPULATION FACTOR
There is a relationship between population and money order inflow/outflow in both the former
Union and Confederate states. Our data provides evidence that as population increases in the North
(Union States), the inflow of money order funds also increases. From 1870 to 1900, the population
increased by 94%. For the same period the inflow of money order funds increased by 404%. In the
South (Confederate States), however, as population increased there was a decreased inflow of money
order funds. From 1870 to 1900, the population increased by 94% (about the same as the North)
but the inflow of funds decreased by 285%.
The most populated states in the North had the highest inflows of money order funds. . In
1900, New York had the largest population of all Union States with 7,268,894 people. During this
time it had the second highest inflow of funds with $12,965,309.05. In 1900 Illinois had the third
highest population of the Union States with 4,821,550 and the highest inflow of funds with a total of
$16,362,380.16. A state in the North that did not experience this trend was Pennsylvania. For
example, in 1900 Pennsylvania had the second highest population of all Union States with 6,302,115
people. During this time, however, the state had more of an outflow ($1,636,259.37) of funds than
an inflow. This could have been due to the strike against the Pennsylvania Railroad as in 1877 as well
as strikes in the anthracite coalfields in 1897 and 1902 (History 1). Another potential cause may have
been the competitive influence of Pennsylvania’s New York State neighbor, which was thriving
economically through this period with very significant inflows.
When looking at the Southern States individually there seems to be a relationship between
high populations and high outflow of money order funds with a couple of exceptions. Texas, the
most populated Southern state in 1900 with 3,048,710 people, had the highest outflow with
$3,141,768. Louisiana and Tennessee were the only two states from 1867 to 1900 that had a higher
inflow than outflow for 5 years or more. Only one other state, Virginia, had at least one year in
which the inflow was more than the outflow. Interestingly in 1900 Tennessee, which had the third
highest population of the former Confederate states, had a large inflow of funds (630,994,56). This
anomaly in this former Confederate state could be due to its geographical location. Tennessee
borders Kentucky and Missouri, which were two Union States that were economically successful for
most years from 1867 to 1900. Tennessee also borders seven former Confederate states. It is
possible that Tennessee was used as gateway for economic activity between the former Union and
5 the Confederate states. In addition, this anomaly could be due Tennessee’s major cash crops; cotton
and tobacco. “Cotton production more than doubled and tobacco production increased by almost
fifteen percent between 1860 and 1900” (Agriculture 1).
VII. FINDINGS – UNION STATES
An analysis of the data reveals that former Union states have an aggregate inflow of funds in the
postal money order system. With the exception of the year 1896 and 1897, the number of money
orders paid and the dollar amount of the money orders paid outnumbered the number of orders
issued.
Money inflow and total money volume support the claim that the Union economy exceeded
that of the Confederacy after the Civil War. While the Union experienced a consistent inflow of
revenue, the Confederacy experienced a consistent outflow. Union inflow grew from $50,613.60 in
1867 to $13,687,568.18 in 1900 (Appendix B). In addition, in the same period, Union Total Money
Volume grew from $17,108,395.72 to $396,916,941.40 (Appendix E). These numbers support the
key assumptions that the Union had a majority of the country’s money, as well as the fact that Union
industry and its economy experienced continuous prosperous growth.
On a state-to-state basis, the Union inflow was comprised between a select few former
Union States: New York, Pennsylvania, Ohio, Kentucky, Illinois, and Missouri. Specifically, New
York, Ohio, and Illinois make up most of the money order funds inflow for this period of interest.
This is evidence to support the claim that Union cities, such as New York, Chicago, Cincinnati, and
Cleveland were economic hubs for the entire country. Much of the nation’s population growth, as
well as its economic productivity, were occurring in Union. Possible explanations include drastic
increases in population, as well as the inflow of money, as demonstrated by the postal money order
data.
The former Union state’s total money volume increased along a generally linear path. Its
economic recovery was stable, secure, and positive. These states were the economic hub of the
country. Postal money orders were one source of revenue for the factories, firms, and banks of the
major cities in the North. Due to the railroad boom, the North developed a connectivity that
enabled an active flow and counter-flow of economic activity. It is likely that postal money orders
played a part. Its population enjoyed stable economic conditions and a better standard of living than
was the case for the immigrant workers “back home”. Population growth, economic vigor, and
6 wide-spread prosperity in the former Union states are good reasons why these states showed such
active use of postal money orders.
VIII. FINDINGS – CONFEDERATE STATES
In our analysis of the former Confederate states, we have found a number of important and unique
features in the money order data: (1) For the former Confederate states, the period of 1867-1874
marks the most dramatic outflow of money in the entire data set (1867-1900). This indicates that
immediately following the war there was a huge outflow of capital from the South. A number of
factors could explain this. The most likely is the great number of Union soldiers still within the
South in the post-war years. Many of these soldiers needed to send money back to their families in
the North in a safe manner and the money order system was a perfect and safe way for them to do
so. (2) The former Confederacy lost money every year in the money order data from 1867-1900.
This indicates that rebuilding after the devastation of war took a long time. Moreover, the industrial
North was the source of some of the assets needed for recovery. (3) Throughout the data set in the
former Confederacy, the higher the utilization of money orders the larger was the money outflow.
The outflow of money from Union soldiers still in the South is a possible explanation during the
first post-war years. Carpetbaggers, long believed by critics of reconstruction to have drained
money from the South, may have been a factor. Other structural processes must have been at work
to explain why the postal money order system showed a steady outflow from the former
Confederacy to the former Union states throughout our data set. (4) The period from 1883-1893
saw a halt in the growth of the money outflow from the South and a ten-year trend of stable money
outflow on a non per capita basis. The gap between the dollar value of orders issued and dollar
values paid grew from 1867-1883, stabilized from 1883-1893 (declined per capita) and then
continued to grow from 1893 onwards. This suggests a period where money remained in the South
(economic prosperity) or a slowdown in the availability of money. Remember that in order to “buy”
a money order, specie must be advanced to the post office. (5) In the Confederacy, the use of
money orders and the total money volume (paid and issued) is highly correlated with population
growth (90%
). This tells us that the use of postal money orders is mainly associated with
population levels rather than other economic variables. (6) The year 1895 is marked by an abnormal
and unexplained increase in both the number of money orders issued and number of orders paid.
We find this to be an abnormal data point due to the following: (a) 40% increase in number of
orders issued between 1894 and 1895, along with continued rapid growth thereafter (b) 112%
7 increase in the number of orders paid between 1894 and 1895, followed by a 30% in 1896 (No trend
continuation). (c) The dollar values of both issued and paid were not abnormal in those years. In
other words, the 112% increase in the number of orders paid deviates far from the trend. Since the
money value did not grow nearly so much, we think the implied sudden fall in the average value of
individual orders is possibly a measurement error of some kind.
The money order data confirms the common belief that the former Confederate States of
America suffered greatly in the aftermath of the Civil War. The data show that the former
Confederate economy was less “monetized” than the Union: its per capita use of postal money
orders was less, and the typical order was smaller than that of the North (See Appendix F). The
persistent outflow of money from the South (per capita and non per capita basis) reflects a larger
theme of capital outflow and economic degradation of the South. Money order data is consistent
with the hypothesis that the former Confederacy passed through three phases after the War: (1) A
severe economic recession from 1867-1883 (2) A stagnation followed by a mild “recovery” from
1883-1893 (3) A return of recession and stagnation from 1893 onwards. The South was ravaged by
war and reconstruction, staggered into a short period of recovery, but never achieved a positive
inflow of postal money order funds. In contrast, the North was the destination of the postal money
orders bought and delivered after the war: Moreover, certain areas in the North were the focus of
significant inflows. Overall, our data gives us vital, detailed, state specific insights into the evolution
of the post war Southern/Northern national economy.
IX. CONCLUSION
Evidence obtained from Annual Reports of the Postmaster General for the years 1865 to 1900
shows that economic conditions in the former Union states were significantly better than in the old
Confederacy. In general, there was an inflow of dollars through former Union post offices, and the
outflow of dollars through former Confederate post offices. The former Union state’s money
volume total in 1900 was $396,916,941.40 (Appendix E); the former Confederacy ended that time
period with a total money volume of $67,542, 564 (Appendix E). These values are consistent with
the hypothesis that the former Union economy was the driver for the United States after the Civil
War. Before the War, North and South had a rough equality. Afterwards, the Union’s military
victory became economic.
The money order data from the former Union and Confederacy show both common
characteristics and persistent discrepancies: (1) in both regions the use of money orders increased
dramatically from 1867 to 1874. A number of factors may explain this occurrence. The
8 establishment of the money order system in 1864 was a means to allow soldiers to send money
home to their relatives and to reduce the risks sending of cash through traditional mail. Its capacity
to greatly increase the efficiency of the specie standard, and supply safe, cheap, national and, starting
in 1869, international monetary services to ordinary citizens made inevitable this dramatic increase in
money order utilization. Additionally, the conclusion of the war and the creation of a continent-wide
national economy gave rise to increased economic activity and augmented demand for money
services. (2) On a per capita basis, the number of orders and dollar values of orders paid and issued
were higher in the former Union than Confederacy (Appendix D and F). The only exception is the
period 1883-1889, where the dollar value of orders issued in the former Confederacy was about
equal to or greater than in the former Union ( Appendix F). (3) On a non per capita basis, the
numbers of orders and dollar values of orders paid and issued were higher in the former Union than
the former Confederate states (Appendix C and E). The persistent differences in the economic
regions suggest that the larger industrialized and victorious North likely utilized money orders on a
greater scale and with a greater dollar value than the agrarian, defeated South. (4) The large increase
during 1895-1900 in number of orders issued/paid and dollar value of orders issued/paid in the
former Union was either not experienced in the former Confederacy or not nearly on a comparable
scale ( per capita and non per capita basis). Although the “Gilded Age” of prosperity in the United
States saw an economic boom throughout the period of our data set, 1895 marks a dramatic increase
in US overall GDP. The lack of an uptick in the South highlights that the economic boom of 1895+
might not have been felt in the South or not felt to the degree that it was in the Union.
Our findings here are not surprising and are quite consistent with existing beliefs about the
post Civil War economic balance between the former Union and Confederacy. The Confederacy
was a defeated nation. Its agricultural export economy, once a money machine whose dividends
created wealth for the entire country, was no match for the urban manufacturing and financial
centers of the Union. Ironically, the export earnings and the tariff that kept that money at home
were a major reason for the rise of the protected industries of the North, and the capitalization of
the banking system that moved the money around. Our numbers are quite consistent with this view.
What is important in our work is the discovery of the magnitude of this previously little known
source of monetary services, used by ordinary Americans. It is useful to know that this monetary
institution’s general behavior is what would be expected. Thus when the postal money order
system is used to show, for example, the state-to-state impact of 19th century business cycles, we can
expect results that are easy to interpret.
9 Appendix A: Union Money Inflow (Outflow) before data adjustment.
Appendix B: Union Money Inflow (Outflow) before after data adjustment.
10 Appendix C: Regional differences in money inflow or outflow. The difference between the dollar
values of orders paid and issued measures the money inflow or money outflow of the regions.
Appendix D: Regional differences in money inflow or outflow. The difference between the dollar
values of orders paid and issued measures the money inflow or money outflow of the regions (Per
Capita).
11 Appendix E: Regional differences in the volume of money. The volume of money is measured by
the sum of the total dollar value of orders issued and paid in the respective regions.
Appendix F: Regional differences in the volume of money. The volume of money is measured by
the sum of the total dollar value of orders issued and paid in the respective regions (Per Capita).
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