Economic tensions began to ignite the flames that burst into the Civil War as early as 1816. In the aftermath of the War of 1812 Great Britain was left with a large stockpile of manufactured goods. Since such a large number of these items were on hand, Britain was able to lower its prices of them. This action would prove to be very detrimental to the United States. As a developing industrial power, the young nation could not even attempt to compete with Great Britain’s prices. America did not have stores of manufactured goods that it could sell at reduced rates. Though people in the United States may have relied on these products for daily living, there was no reason for them to pay the exorbitant prices of the American manufactures. Thus, they would revert to importing these items from Britain. Anticipating this blow to industrialization, James Madison and Henry Clay devised the American System. Among other statutes, it called for a high protective tariff on all goods imported from Britain. Such a tariff would make it more expensive for Americans to purchase British goods and would subsequently compel them to pay U.S. prices. While Northerners hailed the Tariff of 1816 as a success, Southerners began to devise plans for secession. Southerners, entrenched in a slave-centered economy, were frustrated with the proposed legislation that would only benefit Northern manufacturers and began to feel that a union with such a people would only serve to topple their existing way of life. Northerners were angry with the Southern planters’ resistance to change and met their calls for secession with stalwart force.
In Louis Hacker’s “Revolutionary America,” he writes, “The Civil War was nothing less than a conflict between two different systems of economic production” (Stampp, 102). This interpretation of the war is grounded in several relevant developments occurring in the period. While the North transformed into an industrial society, the South remained a region composed of slaves and ruled by the planter elite.
In the years leading up to the war, and during the war itself, the North became a hotbed of industrial activity. One sector of the Northern states that especially benefitted from the growth of manufacturing was agriculture. In the 1850s and 1860s, inventors were perfecting labor-saving materials and factories were turning such tools out at impressive rates. Farmers were using plows, corn planters, two horse cultivators, mowers and reapers, and steam driven threshing machines to cultivate their lands with alacrity and ease. New machinery, in conjunction with improved production techniques, benefitted not only farmers but also other inhabitants of the Northern states.
The canal built at Sault Sainte Marie, Michigan played a significant role in the industrialization of the United States. This waterway granted Northerners access to the unlimited supply of iron-ore from the Lake Superior ranges. Miners could transport the iron-ore to other parts of the nation at low costs. One city in high demand of Lake Superior’s resources was Pittsburgh. In the mid-nineteenth century, Pittsburgh began to specialize in ironworks and started to produce necessary components of warships and locomotives.
The South, on the other hand, continued to believe that “Cotton was King.” In fact, cotton production reached its peak as late as 1860 with planters producing a total of 5,198,077 bales that year (Catton, 404). Southern pride rested on this ability to produce enormous quantities of cotton. This process required the utilization of slave labor – another pillar upon which Southern pride rested. For the Confederates, cotton production and slave labor not only formed the basis of an economic structure, but also formed the backbone of the Southern way of life. Thomas Jefferson illustrated this point perfectly when he said, “Those who labor in the earth are the chosen people of God” (McPherson, 98). He expressed the view shared by most Southerners when comparing their way of life to that of the North. They felt that the Southern plantation society imbued them with a sense of refinement that was nonexistent in the North.
Living in the nation with such a mindset, the Southerners refused to embrace industrialization and prided themselves on their absence from this trend. This however, was a foolish mistake on the part of the Southern aristocrats. Since the South did not have the means of production, planters were forced to rely on the Northerners and the British for most of their needs. Nearly all of the ships used to transport cotton that returned with manufactured goods were built and owned by either Northern or British companies. In addition, on their return trips from Europe, these ships usually docked in Northern ports on account of the greater volume of trade that existed there. Though they saw themselves as superior to the Northern traders, Southerners would not have been able to prosper without the help of Northern industry.
Southerners tended to see the situation in a different man
ner. In an editorial published in the Vicksburg Daily Whig in 1860 one Southerner wrote, “By mere supineness, the people of the south have permitted the Yankees to monopolize the carrying trade, with its immense profits” (Stampp, 88). Though the Southerners may have felt that the Northern traders took advantage of them, the reality was that the Northerners assisted them in every way possible. It seems as though it was the Southerners who took advantage of the Northerners. They relied on the North for all of their manufacturing needs but refused to grant them any political concessions that were related to monetary issues. Southerners’ ignorance of their economic situation and reluctance to change only grew stronger with the Panic of 1857.
Whereas Southerners escaped unscathed from the Panic of 1857 and the depression that followed, Northerners suffered rough economic setbacks. In the South, the prices of corn and tobacco fell only for a short period of time before returning to their pre-depression levels. In the North, people who had saved money withdrew it from the banks and people who had not saved money defaulted on their loans. People with jobs lost them and people without jobs lived in even worse conditions. The North was hit harder than the South not because of its inability to manage its finances properly but, on the contrary, because it was overly involved with its finances. Since the Northerners welcomed trade and industrialization they had more at stake when the financial markets began to rumble.
Walking with their heads held high after the financial crisis, Southern leaders refused to welcome any legislation that might enable the North to recover from the depression. Northern Republicans advocated for a higher tariff on British Imports. A higher tariff would reinvigorate American industry and provide jobs to the numerous people suffering from unemployment. The South sternly opposed such a tariff. They had no desire to pay higher prices for goods in order to help Northerners. They were also not in favor of the Homestead Act, the Pacific Railroad Act, and the Land Grant College Act. All of these acts were designed to generate revenue, provide employment, and increase the living standards of Americans. Southerners viewed these potential bills as economic burdens and unnecessary wants. Since the South would not directly benefit from any of these acts, it refused to throw its support behind them.
The South did not want the North to benefit at its expense. The North felt the same way about the South. A writer for the Boston Herald warned in 1860, “Should the South succeed in carrying out her designs, she will immediately form commercial alliances with European countries who will readily acquiesce in any arrangement which will help English manufacturing at the expense of New England” (Stampp, 91). For the North, the prospect of disunion meant the potential failure of industrialization. The prospect of returning to hardships similar to those wrought by the depression of 1857-58 frightened many Northerners. Like the Southerners, they felt that they had worked hard to ensure the triumph of their economic system and they did not want to watch it crumble to the ground. In Philip Shaw Paludan’s “Industrial Workers and the Costs of War” he describes the industrial workers’ concerns about the impending doom. He also notes that more industrial laborers fought in the Civil War than any other group of people (besides professional soldiers). Similar to the Southerners, the Northerners viewed manufacturing and trade not only as the base of their economic system but also as their way of life.
The impetus of the war stems from a variety of economic influences. These influences continued to have a major impact on the war throughout the entire struggle. From beginning to end, these economic factors molded and shaped every aspect of the Civil War.
Contrary to Northern fears, the Civil War did not bring about the demise of industrialization. Instead, it provided a boost of energy to manufacturing that allowed it to flourish. The war called for the new machines and production techniques that manufacturers were implementing in factories throughout the North. As the war transformed from rumor to reality, the North found itself able to produce everything it needed for the conflict. For example, one result of the war was an increase in rail traffic. This additional congestion served as the impetus for the construction of a larger railroad network. Rails, locomotives, and cars were necessary in order to begin work on this new venture and the Union was able to furnish these materials. In addition to the iron workers, Midwestern farmers were able to meet rising demand. Though they lost the Southern market with the onset of the war, they gained a tremendous amount of business from the North. They provided the grain, meat, leather, and wool that people could not live without.
The South’s reluctance to assimilate into an industrial society brought about the failure of its economy by the end of the war. However, this is not to say that Southerners did not try to engage in an industrial revolution of their own. In fact, the conflict forced them to try their luck at industrialization. Since the North was producing all of its goods for itself, the South knew that if it wanted to survive the fighting it would have to make an attempt to do the same.
The South quickly discovered that it was incorrect in thinking “Cotton was King.” In hopes to attain recognition from Britain and France, the Confederacy withheld cotton from Europe. Instead of forcing the British and the French into submission, they succeeded in pushing them farther away and creating greater economic problems for themselves. Europe was able to survive without Southern cotton because it was able to rely on shipments of wool from the Union. By the time the Confederates realized the folly of their ways, the Union naval blockade was in effect. With no other options remaining, Southern farmers shifted their efforts to food production. Soon after, the Confederates established salt malls, powder mills, textile mills, processing plants, armories, arsenals, shipyards, and iron works. Though no match for Yankee manufacturers, Confederate manufacturers put forth a valiant effort. The Tredegar Iron Works, for example, in Richmond, V.A., was well known for its production capabilities. The South did not prove to be completely inept in the realm of manufacturing. It did, however, prove to be incompetent at managing the resources that manufacturing brought forth.
Though Southerners were successful in implementing industrialization in their lands, they had neither the means nor the resources to maintain it throughout the war. The Confederates added no additional tracks to their railroad during the conflict. When a part of the track became damaged, Southerners simply took a piece of track from another area of the railroad and replaced the ruined area with it. The South could not keep up with the Federals’ attacks on both their ironworks and their railroads. They had no other option but to take iron from other areas of the track. This practice, however, proved detrimental to the soldiers who were starving and naked on the battlefields because the railroad was unable to deliver supplies to them. In November 1861, Jefferson Davis proposed completion of the rail system between Danville, V.A. and Greensboro, N.C. A 40 mile gap existed between these two cities and Davis felt that it would be essential to close the breach. It wasn’t until May 1864 that this project was completed.
The Confederacy also lacked a sound currency. Credit resources were limited and an efficient system of taxation was nonexistent. Southerners had resisted taxes since the revolution and were not about to accept them now. When the Davis administration imposed a 10% “tax in kind” on farm produce, Southerners began to disapprove of the president and, as a result, lost confidence in their government. To finance the war, the South had $500,000 on loan from Alabama, $100,000,000 from a domestic lender, and $389, 267 in bullion (in addition to the tax in kind) (Catton, 413). Since they had such a scarcity of funds to pay for the fighting, Southerners became increasingly reliant upon printing press-money. This money, however, was not backed by gold and led to rampant inflation. In 1864, a lady’s bonnet cost $250, a cup of coffee cost $5, and hotels collected payment from their customers in the morning in order to keep up with the inflation (Catton, 408-9). Bakers produced bread in three sizes in order to ensure that people could purchase even a scant amount. The situation in the South was dire, but it could do nothing to ameliorate its monetary policy.
The Union not only surpassed the Confederacy in manufacturing, but it also surpassed the Confederacy in its ability to manage the resources and funds generated by such industrialization. The Northerners’ organizational skill, combined with their willingness to contribute to the common good, ensured the success of their fiscal policies. The North was also fortunate to have more resources at its disposal (such as the canal at Sault Sainte Marie) than the South. Northern resources manifested themselves not only in the form of materials but also in the form of people. During the war more than 800,000 Europeans immigrated to the United States and bolstered the industrial labor force (Catton, 395). In his Ordeal by Fire: The Civil War and Reconstruction, James McPherson asserts, “The South failed to establish a substantial urban middle class and skilled-labor population to generate a diversified economy producing a wide variety of goods and services” (Stampp, 105). The North certainly did not fall prey to such a failure. The influx of immigrants into Northern cities allowed the urban middle class and skilled-labor population to flourish.
The North capitalized on the increased cash flows generated by industry. Almost immediately after the South seceded from the Union, Northerners imposed a higher tariff on British imports. In 1862, the North passed the Homestead Act which granted 160 acres of land to any person over 21 years of age (or who could claim that he was the head of a family) for a small fee. The Pacific Railway Act of 1862 called for the construction of the first transcontinental railroad. The Morrill Land Grant Act of 1862 offered federal support to state agricultural colleges. Though excise taxes already existed on liquor, tobacco, and other items, the Union decided to implement more taxes to finance the war effort. The government levied taxes on manufacturers, professionals, railroads, banks, and insurance companies. An income tax also existed in the North. Tax revenue poured in $300 million to the Federal treasury (Catton, 396). The National Banking Act of 1863 established a national currency. The Union put all of these measures into practice because it knew that without a solid financial base the burdens of war would crush it.
Northern foresight extended far beyond the implementation of revenue-generating acts and taxes. Though the nation was flourishing by 1862, President Lincoln feared that it would buckle under the overwhelming costs of warfare. Industry was booming, but the Union was not in a perfect financial situation. During the first year of the war, Secretary of the Treasury Samuel Chase had no choice but to borrow money at a 7.3% interest rate. It was also in this first year of combat that the government suspended specie payments, thus devaluing the currency. Instead of simply implementing policy and expecting the economy to mend itself, Lincoln was proactive in his approach to fiscal matters. The government sought out the services of Jay Cooke, a successful Philadelphia banker, to assist it with its financial planning. Cooke helped Chase sell $500 million worth of federal bonds to the Northerners (Catton, 413). He continued to serve as an invaluable asset to the Union throughout the Civil War.
Through the help of such outlets as Jay Cooke and the monetary laws, the Union was able to support itself throughout the war. The North extended and repaired its railroad at a rapid rate. The railroad was vital to the Union not only because it allowed for the efficient transport of goods, but also because it allowed generals to maneuver troops between the eastern and western fronts at ease. With the funds pouring into the treasury, the North was also able to bolster its navy. In 1862, for example, it paid John Ericsson $275,000 to construct a new ship (McPherson, 375). The Union was also able to supply 40% of the wheat and flour used in Great Britain (Catton, 395). The shrewd economic practices of the North enabled it to provide for itself throughout the Civil War.
The war was not simply a competition designed to see which side would collapse before the other. On the contrary, it was an active struggle between two nations seeking to attain victory. Both the North and the South manipulated their economies in order to be able to support the soldiers on active duty. They disagreed over economic policies while they were together and formed their own financial structures while they were apart. It is essential to note that economic matters fuelled combat as well. The Union and the Confederacy sought to bring about one another’s demise by focusing their attacks on each other’s economic foundations.
Southerners sought to weaken the North’s economy from the start of the conflict. Southern traders owed between $200 – 400 million in debt to the North. Instead of repaying the North at the beginning of the conflict and making a clean break with it, Confederates decided to repudiate all of their debts (Stampp, 100). They knew they needed to strike the North in its heart if they wanted to achieve success.
Both the North and the South made repeated attempts to cripple each other’s means of transportation. As Union soldiers marched through Confederate territory, they bent rails in order to render Southern trains useless. When they realized that Confederates were able to easily reshape the rails and return them to use, the Federals started to twist the rails in such a manner that made them irreparable. Northern soldiers knew that the South had neither the means nor the resources to rebuild ruined tracks. They were well aware that they would benefit from the South’s economic misfortune. The Confederacy employed the same strategy as the Union but did not receive similar results. The North was able to reconstruct and repair its railroads almost as quickly as the South destroyed them.
In addition to attacking the railroad, Northern soldiers laid siege to the South’s sea routes. Beginning in 1861, the Union imposed a naval blockade on the Confederacy. According to naval historian Bern Anderson, “The Union army’s major victories did not occur until the South was suffering from shortages imposed by the Union blockade” (Surdam, 3). The North knew that it needed to gain an economic victory in order to attain a total victory. Thus, Federals sought to disrupt Confederate trade. As with the railroad, the Union knew that a domino effect would occur if they interrupted Southern trade. This is exactly what happened soon after the North enacted the blockade. It raised transportation costs, forced Southerners to import goods through less convenient ports, increased the prices of necessary goods, and led to shortages. These problems spiraled into larger, less manageable ones. Shortages in pork and beef forced the
Confederacy to horde such food and to search for alternative sources of meat. The blockade also forced Southerners to rely on their inept railroad network. Should problems arise with the railroad, however, the South had no way to remedy them.
The South’s difficulty in repairing its rail system was heightened by the Federals’ attacks on Southern factories. Before they fled from the armory in Harpers Ferry, W.V., Federal authorities set the building ablaze. The armory contained the only machines in the South for manufacturing rifles. Though some were saved and moved to Richmond (the new industrial center of the South), this act dealt a striking blow to the Confederacy’s war efforts. Northerners were not unique for acting in such a manner. At the start of the war, secessionists seized military supplies in Federal arsenals throughout the South. By attacking each other at the cores of their economic constructs, the Northerners and the Southerners were able to procure sizable victories.
Whenever a situation is centered on economics, corruption follows in close pursuit. It is evident that finances served as a driving force for the Civil War. It is not evident, however, that many of these finances were manipulated just as much by profiteers as they were by prideful Federals and Confederates.
Corruption ran rampant in Northern manufacturing and retarded the Union’s war efforts. Instead of using genuine wool to produce such items as blankets, uniforms, and shoes, many textile manufacturers made use of a cheaper material called “shoddy.” Composed of recycled wool, this inadequate material wore to shreds after only a few weeks of use. Other textile manufacturers crafted shoes composed of cardboard. Such schemes existed in the realms of arms production and horse selling as well. In one case, a contractor sold outdated carbines to the government for $22 each. In actuality, these carbines were probably worth $2 each (Catton, 403). In another case, someone sold 485 horses to the Union for $58,200. These horses were spavined and disease-ridden (Catton, 403). The North was not only fighting a war centered on economics with the confederacy but also with the bandits in its own backyard.
Profiteering also manifested itself in many Union soldiers and would-be soldiers. Some Federals sought to gain as much as possible from the war. Soldiers behind the battle lines at Bull Run bribed ambulance drivers with whiskey to take them back to Washington. Many soldiers wreaked havoc upon the towns they entered while marching through the Confederacy. They looted homes, burned public buildings, and “smashed anything they could find” (McPherson, 571). Soldiers-to-be engaged in several forms of corruption surrounding the draft. Some bribed doctors in order to obtain false affidavits while others searched for bounty hunters in order to obtain high bounties. Bounty brokers researched which states were offering the most lucrative bounties and relayed this information to bounty jumpers. These bounty jumpers made their livings by enlisting in the army in one state, deserting, and then enlisting in the army in another state. These actions supported the Confederacy more than anything else.
Corruption was also prevalent in the South, especially within the railroad industry. Railroads charged the government less than they charged private business. However, businesses took priority when it came to actual usage of the railroads. Railroad operators wanted to earn profits and they knew that they would be better off doing so through the private sector. They were unhappy that the Confederacy chose to pay its bills in treasury notes and bonds. Aside from arriving late, these forms of payment often did not account for rising inflation. The railroads also did not enjoy the added responsibility of having to care for government items that might be damaged during transport. The government was more of a liability than an asset to the railroads. Like Northern profiteers, those operating the Confederacy’s railroads were more interested in earning money than in assisting with the war effort. They took advantage of the economic situation and added insult to injury in the South.
Economic factors played a pivotal role in the events enveloping the Civil War. The South, steeped in its planter traditions, and the North, pushed forward by industrialization, were unable to agree on fiscal policies during their union. When the Southern states seceded they repudiated their debts and left the Northern half of the country scrambling to protect its manufacturing interests. The North succeeded in shielding its industries from the blows wrought forth by disunion. In fact, aside from corruption, the North experienced economic prosperity throughout the war. The South, on the hand, was unable to prevent the total collapse of its economy. Though it did engage in industrialization when the war started, it did not have the resources necessary to maintain a self sufficient manufacturing society. Profiteering only made matters worse for the financially inept nation. The financially proactive North emerged victorious from the Civil War while the financially passive South emerged crushed by the conflict.
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