Download economy, 1850–1878 From: Encyclopedia of American History: Civil

economy, 1850–1878
From: Encyclopedia of American History: Civil War and Reconstruction, 1856 to 1869,
Revised Edition (Volume V).
In 1850 the economy of the United States was booming. The South was exporting more
than $150 million worth of agricultural products a year. The North's factories were
growing as the region industrialized. The nation's railroad mileage tripled between 1850
and 1855 to 30,000 miles. Meanwhile, thousands of new schools and churches were
founded.
Panic 1857
The Panic of 1857 was a nation economic depression caused, principally, by Europe's
declining purchase of American agricultural products.
During the Crimean War in Europe, many European men left their lives as farmers to
enlist in the military. This resulted in many European countries depending upon
American crops to feed their people. With the end of the Crimean War, agricultural
production in Europe increased dramatically, as former soldiers returned to their lives as
farmers.
With declining income from agriculture, many Americans became worried at news that
an Ohio corporation, Cincinnati's Ohio Life Insurance and Trust Company, had ceased
operation. Thanks to the telegraph, news quickly spread across the United States of this
business failure. Investors in the Ohio Life Insurance and Trust Company lost all of their
funds invested in this company, leaving many people destitute. Fearing that a similar
situation might happen to them, investors in other companies, already facing declining
agricultural profits, withdrew their funds from these other businesses. Numerous
businesses failed as a result of the investors' actions, and thousands of workers became
unemployed.
While the Ohio Life Insurance and Trust Company's failure triggered the Panic of 1857,
Ohioans weathered the depression relatively well. Numerous businesses failed, but
most banking institutions survived. The Republican Party, currently in control of the
Ohio legislature and governor's seat, lost some power to the Democratic Party.
Governor Salmon P. Chase won reelection in 1857, but the Democratic Party gained
control of the Ohio General Assembly. Fortunately for all American citizens, the United
States' economy rebounded during 1859, saving the nation from as serious a depression
as occurred during the Panic of 1837.
The unexpected collapse of one of the nation's most prominent businesses started a run
on banks across the country and sent the nation into a depression that would last into
the Civil War. The panic of 1857 had a number of root causes: First, state banks,
operating with only minimal oversight, had failed to keep their capital reserves at a high
enough level. Second, railroads had expanded too much and were unable to meet their
costs. Third, the end of the Crimean War in Europe led to a resurgence of agriculture on
that continent, with a resulting drop in the prices being paid for the crops of
Midwestern farmers. Finally, gold prices had dropped due to an influx of gold from
California.
Panic 1857 in South
The South was largely unaffected by the panic of 1857, since European demand for
cotton remained high. At the same time, the South took advantage of new forms of
transportation and new kinds of cotton seeds. As a result, cotton production doubled
during the 1850s. In 1860 alone, the South grew 2 billion pounds of cotton with a value
of $250 million. The incredible profitability of "King Cotton" encouraged Southerners to
invest nearly all of their money in more land and more slaves. As a result, the region
failed to develop industrially and failed to build up meaningful cash reserves.
Paying for the War
When the Civil War broke out, then, neither the Northern nor the Southern economies
were ready for the financial demands of a war. The North was still suffering the effects
of the panic of 1857 and was also handicapped by an antiquated banking system. The
South had very little capital or credit and very little industrial capacity. Ultimately, the
Union was able to overcome the economic obstacles it faced, and this success played an
important part in the Northern victory. The Confederacy, on the other hand, made very
little progress in addressing its economic challenges, and this failure played a major role
in the South's defeat.
During the Civil War, the main economic issue that both the Union and Confederate
governments faced, naturally, was paying for the war. There were three main options
available for raising funds to pay the government's bills: taxation, bond issues, and
printing currency. Northern authorities used all of these tools in an effective fashion.
Early in the war, the Northern Congress authorized several bond issues. A bond is an
agreement between the government and private businesses or citizens; money is
loaned to the government with the promise that it will be repaid with interest at some
agreed-upon point in the future. Before the Civil War, bonds had been sold only to
bankers, but Treasury Secretary Salmon P. Chase decided to open up bond purchases to
the general public. This was a stroke of genius for two reasons: First, it gave the
government access to a vastly larger pool of money. Second, it gave the citizenry a
vested interest in the success of the Northern war effort and the Northern economy.
The public responded slowly at first, but eventually talented bond salesmen, most
notably Jay Cooke, succeeded in winning the people over. One family in four purchased
at least one bond during the war, adding $1.5 billion to the Union government's coffers.
The Congress also moved to increase taxation fairly early in the war. In March 1861,
before the war had even begun, Congress passed the Morrill Tariff Act. The Morrill Act
more than doubled the rates on goods coming into the country, raising them from 20
percent to 47 percent. In August 1861, Congress levied a tax of 3 percent on incomes
more than $800, the first income tax in American history. A succession of bills eventually
expanded the tax to 5 percent on incomes more than $600 up to 10 percent on incomes
more than $10,000. Income taxes and the high tariff helped keep inflation down in the
North while adding $600 million to the Union government's balance sheet.
The most controversial step the Northern Congress took in order to finance the war was
the passage of the Legal Tender Act of 1862. Prior to the Civil War, currency was almost
invariably backed by a quantity of silver or gold, known as specie, being held in a bank
vault. At any time, paper money could be exchanged at the institution that had issued it
for specie of equal value. By 1862, however, there was not enough specie in the North
to keep this system viable. As such, the Legal Tender Act provided for the printing of
$150 million worth of what is known as fiat currency, which is backed not by specie but
instead by the good credit of the government. The act also specified that this fiat
currency would be legal tender, which meant that people and businesses were legally
required to accept it as payment for debts.
There were a number of objections to the printing of fiat currency. Some congressmen
argued that Congress was not empowered to print money that was not backed by gold
or silver. Others felt that it was immoral to force Americans to accept this money. Still
others argued that fiat currency would create runaway inflation. These fears proved to
be unfounded. Most Northern citizens proved willing to acceptgreenbacks as a medium
of exchange, and inflation was kept within reasonable limits. In total, the printing of
greenbacks provided $447 million for the Union war effort.
As it worked to finance the war, the Union government also took steps to shore up the
foundations of its financial system. The National Banking Act of 1863 created a system
of banks chartered by the federal government. These banks were allowed to print
currency, as long as the currency was backed by government bonds. This created a
market for government bonds and strengthened the Union's greenback currency by
tying it to those bonds. It also gave the Union government more control over banks and
the nation's money supply. The Congress went even further in this direction in 1864
when it passed a law establishing a 10 percent tax on money printed by state-chartered
banks. This action effectively took these banks out of the business of printing money. By
the end of 1865, a total of 1,294 national banks had been chartered, and they had more
than five times the assets of the 349 state banks still in existence. This banking system
would remain in place throughout the Civil War andReconstruction.
Northern leaders, then, struck a balance between taxation, bond issues, and the printing
of currency while taking steps to rectify problems within their financial system.
Confederate authorities had the same options available to them, but under the
leadership of Treasury Secretary Christopher Memminger, they proved far less able to
maintain an effective balance. The results were devastating for the Confederate
economy.
Early in the war, the Confederate Congress considered the possibility of taxing its
citizens. There was widespread opposition to the idea, however. Some congressmen
opposed taxation because of their dislike of a strong central government. Others felt
that such a step would undermine support for the war. Still others saw a tax as
unnecessary, believing the war would end quickly. In August 1861, proponents of
taxation finally persuaded the Congress to exact a nominal property tax, but it ended up
adding very little money to the Confederate bottom line. In 1863 the poor state of the
Confederateeconomy allowed for the passage of a more comprehensive tax, but it also
did little to help the Confederate cause. The bill taxed incomes at rates from 1 percent
to 15 percent and established a "tax-in-kind" for farmers that required them to turn
over 10 percent of their crops to the government. Due to evasion and poor
enforcement, these taxes provided less than $150 million for the war effort, most of it in
depreciated currency late in the war.
Among Confederate officials, the preferred means for financing thewar was bond issues.
An initial offering of $15 million in 1861 was quickly purchased by patriotic Southerners.
After that, however, bonds became increasingly difficult to sell as the available money in
the South dried up. The Confederate Congress then authorized a "produce loan" of $100
million, wherein farmers would be allowed to pledge a portion of their crops in
exchange for bonds. Although an innovative idea, the produce loan failed to produce
the desired results. Farmers were reluctant to take advantage of the program,
preferring instead to hoard their crops or sell them to the Union soldiers. And when
pledges were made, the Confederate government often had difficulty collecting the
crops that were due. By the end of the war, the produce loan had generated only $34
million.
Given how little money was being raised through taxes and bonds, the Confederate
government had little choice but to begin printing fiat currency. The Congress
authorized the printing of $119 million worth of "bluebacks" in 1861 and $400 million
worth in 1862. This money quickly lost value, for a variety of reasons. The Confederate
government was not nearly as stable as the Union government, thus Confederate fiat
currency was far less trustworthy than Union fiat currency. Beyond that, there was far
too much currency in circulation. By the end of 1862 the Confederate government had
printed almost as much money as the Union government would print over the course of
the entire war. The glut of paper money was made even worse by the fact that state and
local governments were also compelled to print money to meet their obligations. Yet
another problem was that the Confederate government chose not to make Confederate
currency legal tender; Southern citizens and businesses were not legally required to
accept it as payment for goods and services. The purpose of this decision was to inspire
confidence in Confederate paper money, but in the end it had the opposite effect.
Southerners avoided Confederate money whenever possible, relying mostly on barter,
on specie when it was available, and sometimes on Union currency.
In addition to establishing a poor balance between sources of money, the Confederate
government also took steps that undermined its financial system. At the start of the
war, the South had a system of branch banks that was much more stable and much
more modern than the decentralized banking system of the North. Early in the war, the
Confederate Congress required Southern banks to provide loans to the government,
exchanging specie and bank notes for bonds. As the government's bonds declined in
value, the banks were effectively drained of capital. The government continued to
exacerbate the situation throughout the war through excessive taxation on banks and
additional forced loans. Union armies also contributed to the banks' woes. A large
portion of the assets of Southern banks was invested in land and slaves, and these
assets were lost as the Union armymarched across the South. By the end of the war, the
Southern banking system had effectively collapsed.
The failure of the Confederate government's economic policies was evident on both the
war front and the homefront. Confederate soldiers were notoriously undersupplied,
often going without proper uniforms, modern weapons, sufficient ammunition, or
adequate rations. In desperation, they took whatever steps possible—stealing, utilizing
captured goods, even trading with the enemy—to obtain the needed supplies.
On the home front, the situation was arguably even worse. Inflation was out of control
in the Confederacy— 9,000 percent over the course of the war. By 1865 flour cost as
much as $500 a barrel, and a suit of clothes cost $2,500. The Union's naval blockade
contributed to the Confederacy's economic problems by curtailing the amount of goods
flowing into the South while denying Southerners the opportunity to sell their cotton.
Although the South had an agricultural economy, many Southerners starved over the
course of the war. Railroads were in a state of disrepair, and food rotted in storage
because it could not be transported to the locations where it was needed. The
privations felt by the Southern people created disease and epidemics and even resulted
in occasional rioting. The largest riot occurred in Richmond, Virginia, on April 2, 1863,
when several hundred women marched through the streets smashing store windows
and chanting "Bread or Blood!" Jefferson Davis himself had to speak to the mob and
convince them to disperse.
The failures of the Southern economy stood in stark contrast to the successes of the
Northern economy. By 1862 the North had entirely recovered from the panic of 1857,
and its economy was thriving. While the Confederate army struggled to survive, the
Union army was the best-supplied military force in history. Inflation in the North was
kept in check as much as was possible in a wartime economy, only 80 percent compared
with the South's rate of inflation, which exceeded 9,000 percent over the course of the
war. A few Northern industries struggled due to the loss of Southern raw materials and
customers, but others prospered. The agricultural sector performed especially well, with
Northern farmers producing more wheat and corn in both 1862 and 1863 than the
entire nation had produced in 1859. Between 1861 and 1865, American agricultural
exports doubled, a remarkable accomplishment given that one-third of the workforce
was in the army.
The successes of the Northern economy and the failures of the Southern economy had a
clear impact on the outcome of the war. The Union government was able to put an
extremely well-equipped army into the field throughout the course of the war while still
satisfying the needs of civilians on the homefront. Meanwhile, the Confederacy was
increasingly unable to provide for the needs of its soldiers and itscivilians. This drained
an already outnumbered Southern army of manpower as some soldiers succumbed to
disease or starvation and others deserted to take care of needy family members.
Meanwhile, suffering on the homefront deprived the Confederacy of valuable labor and
undermined support for the war.
The long-term economic effects of the Civil War are harder to nail down. Some
historians argue that the Civil War started the United States on the path to
industrialization; others suggest that the CivilWar simply hastened trends already in
progress. What is certain is that the Civil War caused a major redistribution of wealth
from the South to the North. In 1860 the South's share of national wealth had been 30
percent; by 1870 it was 12 percent. This disparity would endure for decades after the
Civil War creating an almost constant state of economic deprivation in the South
throughout the Reconstruction period and extending into the late 19th and early 20th
centuries.
While the Southern economy struggled in the years immediately after the Civil War, the
Northern economy prospered. Industrialization continued, and the national banking
system established during theCivil War kept currency stable. A number of measures
adopted by the Republican Congress during the war, particularly the Pacific Railroad Act,
pumped government money into the economy. Meanwhile, Northern farmers
continued to fetch high prices for their crops as Europe suffered through a series of poor
harvests.
In 1873 a financial panic once again undermined Northern prosperity. The panic of 1873
began with the closure of Jay Cooke and Company and resulted in a lengthy depression.
Overextension of the railroadsonce again played a part, as did the collapse of several
European economies and the damage done by the great Chicago Fire of 1871.
Ultimately, the panic of 1873 left 3 million people unemployed while causing the failure
of businesses valued at $500 million. The economywould not recover until 1878, when
industrialization would once again begin to drive the economy forward at a breathtaking
pace.
Southern Economy Before War
Although slavery was highly profitable, it had a negative impact on the southern
economy. It impeded the development of industry and cities and contributed to high
debts, soil exhaustion, and a lack of technological innovation.
The philosopher and poet Ralph Waldo Emerson said that “slavery is no scholar, no
improver; it does not love the whistle of the railroad; it does not love the newspaper,
the mail-bag, a college, a book or a preacher who has the absurd whim of saying what
he thinks; it does not increase the white population; it does not improve the soil;
everything goes to decay.” There appears to be a large element of truth in Emerson’s
observation.The South, like other slave societies, did not develop urban centers for
commerce, finance, and industry on a scale equal to those found in the North. Virginia’s
largest city, Richmond, had a population of just 15,274 in 1850. That same year,
Wilmington, North Carolina’s largest city, had only 7,264 inhabitants, while Natchez and
Vicksburg, the two largest cities in Mississippi, had fewer than 3,000 white
inhabitants.Southern cities were small because they failed to develop diversified
economies. Unlike the cities of the North, southern cities rarely became processing or
finishing centers and southern ports rarely engaged in international trade. Their primary
functions were to market and transport cotton or other agricultural crops, supply local
planters and farmers with such necessities as agricultural implements, and produce the
small number of manufactured goods, such as cotton gins, needed by farmers.An
overemphasis on slave-based agriculture led Southerners to neglect industry and
transportation improvements. As a result, manufacturing and transportation lagged far
behind in comparison to the North. In 1860 the North had approximately 1.3 million
industrial workers, whereas the South had 110,000, and northern factories
manufactured nine-tenths of the industrial goods produced in the United States.The
South’s transportation network was primitive by northern standards. Traveling the
1,460 overland miles from Baltimore to New Orleans in 1850 meant riding five different
railroads, two stagecoaches, and two steamboats. Most southern railroads served
primarily to transport cotton to southern ports, where the crop could be shipped on
northern vessels to northern or British factories for processing.Because of high rates of
personal debt, Southern states kept taxation and government spending at much lower
levels than did the states in the North. As a result, Southerners lagged far behind
Northerners in their support for public education. Illiteracy was widespread. In 1850, 20
percent of all southern white adults could not read or write, while the illiteracy rate in
New England was less than half of 1 percent.Because large slaveholders owned most of
the region’s slaves, wealth was more stratified than in the North. In the Deep South, the
middle class held a relatively small proportion of the region’s property, while wealthy
planters owned a very significant portion of the productive lands and slave labor. In
1850, 17 percent of the farming population held two-thirds of all acres in the rich
cotton-growing regions of the South.
South Economy Before War
There are indications that during the last decade before the Civil War slave ownership
became increasingly concentrated in fewer and fewer hands. As soil erosion and
exhaustion diminished the availability of cotton land, scarcity and heavy demand forced
the price of land and slaves to rise beyond the reach of most, and in newer cottongrowing regions, yeomen farmers were pushed off the land as planters expanded their
holdings. In Louisiana, for example, nearly half of all rural white families owned no land.
During the 1850s, the percentage of the total white population owning slaves declined
significantly. By 1860, the proportion of whites holding slaves had fallen from about
one-third to one-fourth. As slave and land ownership grew more concentrated, a
growing number of whites were forced by economic pressure to leave the land and
move to urban centers.
panic of 1857
Date: 1857
From: Disasters, Accidents, and Crises in American History.
Place: United States
Date: August 1857–mid-1860
Type: Financial collapse, resulting in suspension of specie payments by banks
Description: The failure of the Ohio Life Insurance and Trust Company produced a run
on the banks, leading to specie suspension on October 13, 1857. The panic produced a
mild recession that lasted until the middle of 1859.
Cause: Banks had overextended loans, induced by an inflation originating in the gold
discoveries of California and trade buoyed by the Crimean War. The end of the war in
1856 cut foreign demand for goods. Defaults on loans resulted, pushing banks into
liquidity problems, which in turn triggered panic among depositors.
Impact: The panic highlighted the growing problems of industrial society manifested by
unemployment demonstrations and emboldened the South, which weathered the panic
unscathed, to contemplate secession from the Union. The ensuing depression injected
economic issues into political discussions, helping the Republican Party win the election
of 1860.
A sharp banking panic and subsequent economic downturn disrupted the United States
just prior to the Civil War. In the ups and downs of the economy in the 19th century, the
panic of 1857 was a comparatively tame affair with limited impact on commercial
activity. Yet the recession did bring labor difficulties to the fore, as demonstrations by
the unemployed troubled the nation for several months, a harbinger of more serious
outbursts during the 1837 financial panic and depression. The financial problems of
1857 did not deflect the debate concerning slavery but in fact reinforced sectional
cleavages. Southerners grew more suspicious of northern banking practices and more
confident in the ability of the cotton crop to weather any storm. Northerners
increasingly came to believe that a slave power worked conspiratorially to block
legislation favorable to their region.
The economy had roared back to life after the 1837 financial panic and depression, as
railroad investment, new business connections, and overseas trade expanded. By the
mid-1850s, a national transportation network was taking shape, farmers became
increasingly commercial and abandoned subsistence agriculture, and cotton became
king of international commerce. However, no national bank controlled the nation's
money supply; instead, each state government adopted its own banking system. A key
development during the period was the discovery of gold in California in 1848.
Shipments of the precious metal to the East increased bank reserves and underwrote an
expansion of credit, a situation that grew inflationary. Prices rose 32 percent in the
United States from 1848 to 1854. The expansion of the money supply led to speculation
in cotton, western lands, and railroads. A correction seemed probable.
The reversal might have occurred in 1854, when banks experienced a sharp contraction,
but these pressures soon passed and the future seemed prosperous. An international
dispute had given the economy a helpful boost. France and Great Britain went to war
against Russia in the Crimea, spurring a rise in American food exports. The enhanced
demand for American goods buoyed agricultural development in the Great Lakes states
and stimulated railroad construction. The conclusion of the Crimean War in 1856,
however, reduced this demand for American products, setting the stage for the panic of
1857.
Prospects for a prosperous 1857 seemed good. Yet demand from Europe slumped in the
spring, alarming bankers, who foresaw problems for debt repayment. As this worry
grew, a large and reputedly trustworthy bank, the Ohio Life Insurance and Trust
Company, failed on August 24, 1857. Company officials blamed the collapse on
excessive speculation in currency in the west. The bankruptcy alarmed bankers, who
began to call in notes and pile up specie, or hard money, in their vaults. Doubts spread
that banks would be able to pay specie to depositors and note holders. These concerns
were magnified by other events, such as the floundering of a clipper ship off the coast of
South America. The vessel had been bound for New York City with a cargo of gold, which
was lost. This mishap denied an injection of gold into New York banks, a step that might
have eased the fears of note holders. In late September, a panic developed as
depositors stormed banks to get their money in specie. The drain was so intense that
bankers announced suspension of specie payment on October 13. The remedy worked;
banks resumed specie payment by December 12. "It was a fast panic," a North Carolina
editor remarked, "and therefore in entire keeping with this fast age."
The immediate impact of the panic was negligible. Most banks did not fail, partly
because stronger state banks aided the weaker ones. The nation had suffered a liquidity
crisis (insufficient specie reserves to cover customer demands), a situation exacerbated
by a rampant distrust of banks generally. When a financial institution went bankrupt in
the 19th century, individual depositors could lose all their money. There were no
guarantees for the security of depositors' holdings when a bank fell into insolvency. This
financial risk induced a "dog-eat-dog" mentality when rumors spread about troubles in
the banks.
The broader economy experienced greater trouble than the financial sector as a
recession developed, lasting until the middle of 1859. Unemployment perhaps reached
10 percent in 1858, with some industries hurt more than others. Land sales in the
western states plummeted, railroad construction in the North stalled for two years,
iron-making suffered, and Great Lakes farmers endured depressed prices because of the
lack of foreign demand. The cotton-rich South escaped most of these effects, as demand
soared; King Cotton had entered its glory years. Railroad construction in the South
charts the region's good fortune. In 1858 and 1859, the South led the country in the
construction of track mileage for the first time. By the middle of 1859, the worst of the
recession has passed. Spring crop failures in Europe produced an enhanced demand for
American grains in 1860, regenerating growth. But as the expansion was taking shape,
the secession of southern states at the end of 1860 plunged the nation back into
recession.
The immediate effects of the panic of 1857 were limited. It produced no great change in
banking legislation, and it did not induce any changes in productive activity. The
unemployment demonstrations caused some concern, but they were not severe enough
to trigger policy remedies from state or federal governments. But the panic did fan the
looming sectional crisis: Because cotton had fared so well during the financial downturn,
southern leaders were convinced that a secession movement could succeed. In the
North, the panic revived concerns about the economy. The financial crisis of the 1837–
42 had favored the Democrats, who sharply criticized banks. In 1857 and 1858,
however, cures for the depression were found in Republican nostrums, which centered
around a higher tariff, lowered land prices, and federal spending on internal
improvements. These ideas helped Republicans to win Pennsylvania and New Jersey,
key states in the presidential race of 1860. Thus the panic of 1857 abetted the rise of
the Republican Party and contributed to the coming of the Civil War.
industrial development during the Civil War
From: Encyclopedia of American History: Civil War and Reconstruction, 1856 to 1869, Revised
Edition (Volume V).
Historians Charles Beard and Mary Beard, writing in the 1920s, described the Civil War
as "The Second American Revolution." They believed that the Civil War started the
United States on the path to industrialization, a development that transformed the face
of American society. This may be an overstatement—the forces that gave rise to
industrialization were already present in the United States before the war started.
However, it is certainly the case that the Civil War sped up the move toward
industrialization while solidifying the North's dominance in American manufacturing.
In a wartime economy, some industries suffer while others prosper. The North's largest
industry at the start of the war was cotton textiles, but manufacturers of cotton goods
saw a 74 percent decline in business during the war due to the loss of Southern raw
material and Southern customers. Shoe manufacturers were also negatively affected by
the loss of the Southern market, although to a lesser extent because military contracts
made up for much of the shortfall. The profits of the coal and iron industries dropped
precipitously in the first two years of the war before finally rebounding in 1863 and
1864.
Not all Northern industries struggled, however. War-related businesses naturally did
well throughout the war. These included the manufacturers of gunpowder and firearms,
wool clothing, leather, copper, and packaged foods. The strength of these industries
allowed the North to produce 13 percent more goods in 1864 than the entire nation had
produced in 1860. For the entire course of the war, there was actually a slight drop in
national output, likely because more than one-third of the workforce was in the army. A
burst of productivity in the 1870s made up for the shortfall, and by 1880 America's level
of production stood almost exactly where it would have if the Civil War had never
happened.
Although the Civil War did not cause tremendous growth in the Northern economy, it
did accelerate the process of industrialization. The transportation industry underwent a
boom during the war. The four years of the war saw the construction of twice as many
merchant boats as had been built in the four years before the war. At the same time,
railroad traffic doubled, and thousands of new miles of track were built. These boats
and railroads would be utilized to move goods between markets in the postwar era and
would therefore play an important part in the industrialized economy.
The demands of the Union army also helped to speed up the move toward
mechanization and the factory system. For example, the need for millions of army
uniforms transformed the clothing industry. The sewing machine had been invented in
the 1850s, and the number of sewing machines in use in the North doubled between
1860 and 1865. As clothing production became increasingly mechanized, it also became
standardized. The War Department provided manufacturers with a set of graduated
measurements for soldiers, thus creating the concept of "sizes" for uniforms and, after
the war, civilian clothes.
By compelling large numbers of Northern businessmen to expand transportation
networks, invest in machinery, and adopt standardization, the Civil War helped hasten
the onset of the industrial era in the North. In part, this was possible because the North
had the capital resources and labor necessary to make such changes. The South, on the
other hand, enjoyed no such advantages. More than 90 percent of the nation's
manufacturing capacity in 1860 was located in the North. The South had some modern
manufacturing facilities, notably the Tredegar Iron Works in Virginia, but they were few
in number. The North also had the majority of the nation's capital in 1860. What capital
the South did have was tied up in land and slaves and could not easily be converted into
the equipment needed for manufacturing.
Given the scarcity of privately held factories in the South, the Confederate government
was compelled to go into the manufacturing business for itself. By 1863, publicly owned
firms were producing virtually every manufactured good needed to wage war—ships,
guns, bullets, blankets, wagons, and uniforms. However, when the war ended and the
Confederate government collapsed, these industries disappeared, and the South was
once again left with almost no manufacturing capacity. Meanwhile, over the course of
the war and Reconstruction, a major redistribution of wealth took place. The South had
30 percent of the nation's wealth in 1860 but only 12 percent in 1870. The war had also
caused the collapse of the Southern banking system. With no factories, no capital, and
no source of credit, Southern businessmen could hardly hope to develop any sort of
manufacturing capacity in the postwar era. While there were some Southern leaders
who called for an industrialized "New South," this was not an easily realized possibility,
although cotton textile mills flourished in several Southern states by the 1880s.
The Civil War, then, did not spark a revolution. However, as Northern manufacturers
struggled to be profitable and to respond to the needs of the Union army, they made
choices that accelerated the pace of industrialization. They built more railroads,
invested heavily in the new machinery that had been developed in the 1840s and 1850s,
and utilized standardization with increasing frequency. Meanwhile, wealth flowed from
South to North, creating an imbalance that would exist long after Reconstruction had
ended. These trends would, in the late 19th century, culminate in an economy
dominated by manufacturing and by the North.