The Civil War in American Economic History1 Roger L. Ransom University of California, Riverside

Roger Ransom The Civil War in American Economic History -1-

The Civil War in American Economic History1

Roger L. Ransom

University of California, Riverside

The Civil War was the deadliest war in American history, and it is widely regarded by

historians as a pivotal turning point in the history of the United States. Yet economic historians

have been reluctant to join the debates over the causes and impact of the war. “Except for those

with an interest in the economics of war,” wrote Ross Robertson in his 1955 textbook A History

of the American Economy, the four years of conflict [1861-65] has had little attraction for the

economic historians”. His textbook presents an analysis of the development of the American

economy that stops at 1860 and then picks up the story in 1865 with the comment that “persistent,

fundamental forces were at work to forge the economic system and not even the catastrophe of

internecine strife could greatly affect the outcome”2

Despite this longstanding diffidence towards wars, there is much about the “economics” of

the American Civil War that is of considerable interest to economic historians. As historian

Richard Brown observed, “without attempting to prove that modernization ‘caused’ the Civil War,

one may argue that it was very much the conflict of a modernizing society.”3 Most attempts to

explain the causes of this modern war involve references to the economic tensions created by the

incompatibilities between an industrializing North and the Slave South. Historians of the conflict

agree that the outcome of the war depended as much on the ability of the two sides to mobilize

their economic resources as it did on the skill of their generals. When it was over, the war effort

had bankrupted the Confederacy and left a financial burden on the United States Government that

lasted well into the twentieth century. The Northern victory freed four and half million African

American slaves and restructured the institutional landscape of the United States economy.

1 This essay is a manuscript currently under revision to appear as a chapter in the Oxford Handbook of American

Economic History to be published by Oxford University Press in 2014. Please do not quote or reproduce this

material without permission of the author. 2 Ross M. Robertson, History of the American Economy, 2 ed. (New York: Harcourt Brace and World, 1955), 245-

47. 3 Richard D. Brown, Modernization: The Transformation of American Life, 1600-1865 (New York: Hill and Wang,

1976), 161.


This essay will argue that the Civil war was very much an “economic” war. We will

examine four issues that economic historians have raised with regard to the “economics” of the

Civil War: First we will take up the issue of how “economics of slavery” is the key to

understanding why political compromises over the expansion of slavery were doomed to failure.

Next we will investigate the “economic cost” of the war to the North and the South and examine

how economic factors played a crucial role in determining who won the war. Our third issue will

examine the enormous impact that emancipating of four million slaves had on the American

economy. Finally, we will consider the how economic historians view the legacy of the Civil War

today.

The Economics of Slavery and the Failure of Compromise

In 1790 there were 700,000 slaves in the United States. Not everyone was happy about

this situation, but there was never any doubt that the property rights of slaveholders in the new

republic would be upheld in the Constitution. The best that opponents of slavery could hope for

would be to limit the growth of slavery. The Land Ordinance of 1787 had prohibited slavery in

the unsettled territory north of the Ohio River, and the Constitution had a clause that would allow

Congress to abolish the importation of slaves into the United States after 1809. The Founding

Fathers carefully created a delicate economic and political balance between slave and free

interests. If that balance could be maintained, the slave problem would hopefully melt away.

Unfortunately, the status quo of 1790 could not be maintained. The introduction of the

cotton gin in the early 1790s allowed growers of short staple cotton to sell their crop to a rapidly

expanding international market. The acquisition of the Louisiana Purchase in 1803 provided new

areas of settlement west of the Mississippi River, thereby reopening the question of whether or not

slavery should be allowed in the new territories. In 1819 Missouri petitioned Congress to be

admitted as slave state. After a raucous debate in Congress a compromise was reached that drew

an imaginary line westward from the Mississippi River to the Rocky Mountains. Slavery would

not be allowed north of the line; slave settlements were allowed south of the line. This worked

well enough until 1850, when the admission of California necessitated a new compromise that

historian David Potter referred to as the “armistice” of 1850.4 While each of these attempts at

4 David Potter, The Impending Crisis: 1848-1861 (New York: Harper Torchbooks, 1976). For more on the political

turmoil dealing with the Compromise of 1850 see Michael Holt, The Political Crisis of the 1850's (New York:


compromise defused a crisis, in the long run they made the slave problem worse by implicitly

encouraging the continued westward expansion of slavery. By 1860 the slave population of the

United States had grown to 4.5 million, worth an estimated $3 billion. The economic tentacles of

the slave system had spread into every aspect of life in the South. Gerald Gunderson estimates

that one-fourth of the income accruing to all whites in the slave states could be attributed to slave

labor in 1859.5 The capital invested in slaves by planters represented nearly half of all wealth

reported to the census in the five cotton-growing states of the Old South in 1859.6

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,

in other words, are economic assets. In 1958 Alfred Conrad and John Meyer pointed out that if

the value of children born to slaves was added to the other outputs slaves produced, then slavery

was, in fact, quite profitable.7 Five decades of research have not seriously challenged the results

obtained from Conrad and Meyer’s “asset pricing model” of slavery.8

W.W. Norton, 1978), William J. Jr. Cooper, The South and the Politics of Slavery: 1828-1856 (Baton Rouge:

Louisiana State University Press, 1978), Roger L. Ransom, Conflict and Compromise: The Political Economy of

Slavery, Emancipation, and the American Civil War (New York: Cambridge University Press, 1989), chapters 1-

2, and Marc Egnal, Clash of Extremes: The Economic Origins of the Civil War (New York: Hill and Wang, 2009). 5 Gerald Gunderson, "The Origin of the American Civil War," Journal of Economic History 34, December (1974):

922. 6 Roger L. Ransom and Richard Sutch, "Capitalists without Capital: The Burden of Slavery and the Impact of

Emancipation," Agricultural History 62, Fall (1988). 7 Alfred H. Conrad and John R. Meyer, "The Economics of Slavery in the Ante Bellum South," Journal of Political

Economy 66, April (1958). 8 See, for example Robert Fogel and Stanley Engerman, "The Economics of Slavery," in The Reinterpretation of

American Economic History, ed. Robert Fogel and Stanley Engerman (New York: Harper & Row, 1971), Gavin

Wright, The Political Economy of the Cotton South: Households, Markets, and Wealth in the Nineteenth Century

(New York: W.W. Norton, 1978), Ibid, Slavery and American Economic Development, Walter Lynwood Fleming

Lectures in Southern History (Baton Rouge: Louisiana State University Press, 2006), Ransom, Conflict and

Compromise, Jeremy Atack and Peter Passell, A New Economic View of American History from Colonial Times

to 1940, Second ed. (New York: W.W. Norton, 1994), Chapters 12 and 13, and James L. 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).


The asset pricing model not only implied that slavery was very profitable; Conrad and

Meyer also suggested that it also showed that the continual westward expansion of slavery to virgin

land was necessary to sustain the system. The increased productivity of slaves in the West

provided a market for planters in the East to sell slaves to western planters. Cliometricians

welcomed the idea that slaves were assets as well as people, however they challenged the idea that

western expansion was a necessary condition for slave profitability. There was an ample supply

of unsettled land in the “old” South that would have been used for cotton production, and without

the expansion of cotton production in the west, cotton prices might have been higher, thus

increasing the return to seaboard planters.9 The logic of those arguing that the South did not need

more land is impeccable, however the observed dynamics of territorial expansion by Southern

slaveholders suggest that both economic and political motives were driving westward movement.

Southern planters believed that western settlement was not only a question of economic gains; it

was a necessary means of maintaining a territorial and political balance between slave and free

states.10

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, which shows the average level of wealth per free person reported for each county

of the United States in 1859. Virtually all of the Southern counties reported an average per capita

wealth of $1,500; in the areas where slaves were located the reported per capita wealth usually

exceeded $5,000 – a princely sum in those days. No other sections of the country reported

anywhere near these levels of wealth per capita. This concentration of wealth was a highly visible

reminder of the concentration of power – economic and political – in the hands of a small number

of very powerful men. Northerners referred to these men as the “Slave Power;” a sinister group

9 For more on the issue of western land and the profitability of slavery see Atack and Passell, A New Economic View,

302-4 Peter Passell and Gavin Wright, "The Effects of Pre-Civil War Territorial Expansion on the Price of

Slaves," Journal of Political Economy 80, November/December 1972 (1972), Susan Previant Lee, The Westward

Movement of the Cotton Economy, 1840-1860: Perceived Interests and Economic Interests (New York: Arno

Press, 1975), and Laurence J. Kotlikoff and Sebastian E. Pinera, "The Old South's Stake in the Inter-Regional

Movement of Slaves," Journal of Economic History 37, June 1977 (1977). 10 Ransom, Conflict and Compromise, 53-60.


who manipulated the national government to their own advantage. Southerners referred to their

staple crop as: “King Cotton”.11

Map 1: Per Capita Wealth by County in the United States, 1859

Source: Roger L. Ransom and Richard Sutch, "Conflicting Visions: The American Civil War as a

Revolutionary Conflict," Research in Economic History 20 (2001)

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, which shows the average level of wealth per free person reported for each county

of the United States in 1859. Virtually all of the Southern counties reported an average per capita

wealth of $1,500; in the areas where slaves were located the reported per capita wealth usually

11 See Eric Foner, Politics and Ideology in the Age of the Civil War (New York: Oxford University Press, 1980),

Huston, Calculating the Value of the Union, and Roger L. Ransom and Richard Sutch, "Conflicting Visions: The

American Civil War as a Revolutionary Conflict," Research in Economic History 20 (2001).


exceeded $5,000 – a princely sum in those days. No other sections of the country reported

anywhere near these levels of wealth per capita. This concentration of wealth was a highly visible

reminder of the concentration of power – economic and political – in the hands of a small number

of very powerful men. Northerners referred to these men as the “Slave Power;” a sinister group

who manipulated the national government to their own advantage. Southerners referred to their

staple crop as: “King Cotton”.12

By itself, the accumulation of slave wealth goes a long way towards explaining why the

South might be willing to take extreme measures – including secession and even war – to protect

their property. However, so long as their slave property was not threatened, Southerners also had

powerful incentives to remain in an economic system that was earning them huge rewards. The

returns to cotton growing involved a complex system of regional and international specialization

that stretched from the Mississippi River across the Atlantic Ocean to the cotton mills of Great

Britain. In 1961 Douglass North presented an economic model of antebellum economic growth

of the United States which highlighted the role of slavery and cotton.13 North argued that 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 resembled 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 was 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 by the 1850s – to the rest of the

world. This system of export driven growth was so successful that by 1859 the United States was

one of the richest economies in the world. All three regions of the United States had strong

economic incentives to keep the system intact.

12 See Eric Foner, Politics and Ideology in the Age of the Civil War (New York: Oxford University Press, 1980),

Huston, Calculating the Value of the Union, and Ransom and Sutch, "Conflicting Visions.” 13 Douglass C. North, The Economic Growth of the United States, 1790-1860 (Englewood Cliffs: Prentice Hall, 1961).


Map 2: Urban Counties in the United States, 1859

Source: Roger L. Ransom and Richard Sutch, "Conflicting Visions: The American Civil War as a

Revolutionary Conflict," Research in Economic History 20 (2001)

In addition to affirming the profitability of slavery, economic historians became interested

in the dynamics of growth and development within each region. The westward expansion of cotton

cultivation increased Southern income, however the social and economic structure of Southern

society remained that of a rural economy based on slave plantations together with small, largely

self-sufficient, farms. In the Northern states, on the other hand, economic growth brought dramatic

social and economic changes. Perhaps the most obvious manifestation of these changes was the

growth of towns and cities. Map 2 shows the counties in the United States having an urban

population of at least 1,500 in 1860. The concentration of towns and cities in New England and

the Mid-Atlantic States, together with the southwestern edge of the Great Lakes, is a sharp contrast

to the absence of urban areas south of the Ohio River. Urbanization in the North and West led to

the formation of the Republican Party, whose platform championed state-financed internal


improvements, cheap western land, and the formation of a more centralized federal banking

system. The foundation for these proposals was a political economy that embraced an ideology of

free labor that opposed the expansion of slavery; a concept that was anathema to the slave owners

in the South. 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. Recent economic interpretations of war emphasize the extent to which the North –

with its rapid economic and social change – might be seen as the “aggressor” in this dispute by

pressing an agenda of revolutionary change upon the South.14

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 consequences of the

slave power set free to exercise its nefarious influence as an independent nation that would control

the Atlantic Coast from Baltimore to the southern tip of Texas. By 1860 the demographic and

economic development 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 their program of political economy that would cater to 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 were concerned that an

independent slave south would remain a continual source of tension between the two regions. 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. Southerners believed the only way they could make slave

property secure would be to leave the Union.15

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

14 The argument of the text is based on James M. McPherson, "Antebellum Southern Exceptionalism: A New Look

at an Old Question," Civil War History 29, September (1983), Richard F. Bensel, Yankee Leviathan: The Origins

of Central State Authority in America, 1859-1877 (New York: Cambridge University Press, 1990), Marc Egnal,

"The Beards Were Right: Parties in the North, 1840-1860," Civil War History 47, March (2001), and Ransom and

Sutch, "Conflicting Visions". 15 See Bensel, Yankee Leviathan, Chapter 2, James L. Huston, "Property Rights in Slavery and the Coming of the

Civil War," Journal of Southern History 65, May (1999); and Huston, Calculating the Value of the Union.


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”.16 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, remained the 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.”17 The inability of lawmakers to deal with 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”.18

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

Three million men – or about 10% of the population of the United States in 1860 and nearly

half of all men aged 15-30 – fought in either the Union or Confederate Army. No one knows

exactly how many of these men died in battle; for many years the accepted estimate of “battle

deaths” was 624,000 men. This figure was largely based the work of Thomas Livermore, a retired

Union officer who studied battle reports and lists of units serving in the war.19 Even with the

efforts of many historians, Livermore’s estimates remain little more than educated guesses.20 J.

David Hacker uses data from the Integrated Public Use Microdata Series [IPUMS] samples of the

16 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), 69-70. 17 Paul Leister Ford, ed. The Writings of Thomas Jefferson, vol. 12(New York: G.P. Putnam's and Sons, 1893), 159. 18 Huston, Calculating the Value of the Union, 234. 19 Thomas L. Livermore, Numbers and Losses in the Civil War in America 1861-1865 (Boston & New York, 1901). 20 Roger L. Ransom, The Confederate States of America: What Might Have Been (New York: W.W. Norton, 2005),

Appendix 1.


1860 and 1870 censuses to construct estimates of what he calls the “excess deaths” during the Civil

War decade.21 Hacker’s research suggests that between 700,000 and 800,000 men may have died

by 1870 as a result of the war. Why so many more? Hacker’s methodology is a more complete

way of capturing cases of all the men who died prematurely in the Civil War decade. Neither

method is perfect; however, both suggest a level of mortality among Civil War soldiers that

exceeds anything approached in previous or subsequent American Wars.

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.”22

Economic mobilization would play a major role in determining who would win the war, but 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 consisted of just over 16,000 officers and men,

and the U. S. Navy had fewer than 50 commissioned vessels ready for action in 1861. The war

would not begin in earnest until the spring of 1862 when the Union launched simultaneous

invasions of Tennessee and Virginia. Both invasions fell short of their goals so the two sides

settled into a prolonged struggle that taxed the resources of governments on both sides.

The most complete estimates of the costs of the Civil War are those constructed by Claudia

Goldin and Frank Lewis.23 Table 1 presents their estimates of what they call the “direct costs” of

the Civil War. An additional $220 millon has been included to account for the increased estimate

of deaths using the Census technique developed by Hacker.

21 J. David Hacker, "A Census Based Count the Civil War Dead," Civil War History LVII, 4 (2011). 22 Mark Wilson, The Busines of Civil War: Military Mobilization and the State, 1861-1865 (Baltimore: The Johns

Hopkins Press, 2006), 1. 23 Claudia Goldin and Frank Lewis, "The Economic Costs of the American Civil War: Estimates and Implications,"

Journal of Economic History 35, June (1975).


Table 1

Goldin and Lewis Estimates of the Direct Cost of the War

Millions of 1860 Dollars

South North Total

Government Expenditures 1,032 2,302 3,334

Physical Destruction 1,487 1,487

Loss of Human Capital 767 1,064 1,831

Adjustment for Added Deaths* 92 128 220

Total Direct Costs of the War 3,378 3,494

6,6872

Per capita 387 154 219

Notes: * Adjustment for J. Hacker’s estimate of 750,000 deaths in the war.

Source: Claudia Goldin and Frank Lewis, "The Economic Costs of the American Civil

War: Estimates and Implications," Journal of Economic History 35, June (1975)

According to Goldin and Lewis, the “direct cost” of the war in 1860 dollars totaled just under $7

billion. While these figures are only approximate, they provide us with an order of magnitude of

the economic effort required to wage the war. What stands out, in addition to the absolute size of

the bill, is the huge disparity in the burden these costs represented to the people of the North and

the South. On a per capita basis, the direct costs to the Northern population were around $150 –

a figure roughly equal to the estimated per capita GNP of the United States economy of 1860. The

per capita burden on Southerners was more than twice that amount. The estimates of direct costs

do not, of course, reflect the full economic impact of the war. Goldin and Lewis present estimates

of the “indirect” costs” – including the impact of emancipation and the estimated value of

consumption lost after the war which would bring the total bill to just under $15 billion dollars.

While their estimates of direct costs of the war have been accepted by most writers, their estimates

of the indirect costs are much more problematical and probably an upper bound estimate of the

economic impact of the war.24

24 Estimating the indirect costs of the war involves computing the “opportunity costs” lost because of the war. These

must be determined based on a counterfactual world after 1865. Goldin and Lewis base their opportunity costs

on an assumption that that there was no war, and that the South continued their antebellum growth path. For a

discussion of the problems posed by these assumptions, see Roger L. Ransom, "The Economic Consequences of

the American Civil War," in The Political Economy of War and Peace, ed. Murray Wolfson (Norwell, MA:

Kluwer Academic Publishers, 1998), and Peter Temin, "The Post-Bellum Recovery of the South and the Cost of


Sources for Figure 1: . Data are from Series Ea-584 (Total Revenue), Ea-652

(Notes) and Ea-587 (Interest Bearing Debt). The estimates for the real value

of total revenue was calculated using the David Solar Index of Prices; in

ibid, vol. 3, Series Cc-2.

the Civil War.," Journal of Economic History 36, December (1976) and Temin, "Reply to Goldin and Lewis,"

Journal of Economic History 38, June 1978 (1978). Goldin and Frank Lewis, replied to Temin’s comment in "The

Post-Bellum Recovery of the South and the Cost of the Civil War: Comment," Journal of Economic History 38,

June (1978).


The mobilization of so many 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

became clear that the governments had no way to pay for the procurement of supplies to equip

their armies. In the decade prior to the Civil War 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 shortage of funds 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 paid no interest and 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. The

remaining funds were obtained by selling bonds to the public. Between 1861 and 1865 Northerners

bought nearly $2 billion dollars in treasury notes.

This rapid influx of notes and bonds came with a cost; consumer prices doubled over the

period of the war, and the national debt soared to $2.3 billion. The real value of revenues is shown

with the dotted line. 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 this burden was exacerbated for the working class by the failure of 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.

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. The issue of so much long-term debt

and the creation of a national banking system were significant institutional changes in the financial

system that affected economic performance long after the war.


Source for Figure 2: The data for sources of Confederate States government revenues are taken from

Roger L. Ransom, "Confederate States of America," in Historical Statistics of the United

States, Earliest Times to the Present: Millennial Edition, ed. Richard Sutch and Susan

Carter (New York: Cambridge University Press, 2006), Series Eh-194 through Eh-209.

The data were presented in eight intervals spanning April of 1862 through October 1864.

The data in Figure 2 have been adjusted to reflect flows based for the months in each period.

The estimates of real revenues was constructed using the price index for “All

Commodities” in Figure 3.


The estimates for Confederate finances are much less complete and far more chaotic than

for the Union. Figure 2 presents the best estimates we have for revenues, constructed by Richard

Burdekin and Farrokh Langdana.25 The first thing to notice is the difficulty that the Richmond

government encountered in their efforts to levy taxes to pay for the war. Confederate tax revenues

relied primarily on a customs duty of 12.5 percent and a “war tax” of 0.5 percent on property. Both

of these laws were not enacted until August of 1861. In April 1863 the government imposed a

“tax-in-kind’ equal to 10 percent of agricultural output. The absence of a well-developed securities

market in the South meant that the Confederates had to rely on selling bonds in either London or

Amsterdam for a considerable portion of their debt issue. The printing of so much money and

issuing debt on such a huge scale touched off a runaway inflation that meant the “real” value of

revenues for mid-1864 and later are not a very reliable measure of the real income of the

government. The Confederate government – like its citizens – could no longer rely on money to

obtain goods and services by the end of 1863.26

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 that averaged over 10 percent per

month! Between Bull Run and Gettysburg, the inflationary pressures could be largely attributed

to the huge influx of funds 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 [ and ]. 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 Confederate dollars were worthless and people had

resorted to engaging in barter transactions or using Union dollars (if they could be found) to

conduct their transactions.

25 Richard C.K. Burdekin and Farrokh K. Langdana, "War Finance in the Southern Confederacy," Explorations in

Economic History 30, July (1993). 26 See Goldin and Lewis, "Economic Costs," Burdekin and Langdana, "War Finance," and Ransom, "Confederate

States of America."


Source for Figure 3: Roger L. Ransom, "Confederate States of America," in Historical Statistics of

the United States, Earliest Times to the Present: Millennial Edition, ed. Richard Sutch and

Susan Carter (New York: Cambridge University Press, 2006), Series Eh-166 (All

Commodities); Eh-167(Agricultural Products);Eh-169 (Food Prices); Eh 170 (Imported

Goods)

A final way that economic factors 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 some doubt among historians

whether or not the blockade was a major factor in the Union victory. The popular impression is

that the blockade got more effective as time went on. Michael Bonner and Peter McCord use the

data on blockade running collected by Marcus Price to suggest that the success of steam-powered

Confederate blockade-runners actually increased over time. They conclude that the blockade “was


not a major factor in Confederate collapse and defeat.”27 David Surdam claims that the blockade

seriously interdicted the coastal trade, which put added pressure on the South’s inadequate rail

network. He concludes that the Union blockade may have been worth the effort.28 The final

element in the blockade debate involves the psychological impact on the civilian population caused

by the interruption of imported goods. Figure 3 includes an index for imported goods, which

includes salt, coffee and tea. The marked increase in the index suggests that the blockade made

these popular items of household consumption difficult to obtain. The blockade also prevented

exports from leaving Southern ports. The index of agricultural goods in Figure 3 stays well below

the average level of prices, suggesting that 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.”29

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 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 reorganized.

Slavery was gone, however the freed slaves were still available with labor to plant the

cotton crop. A more pressing problem was the absence of credit. A report on “conditions in the

South” written in 1867, 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

27 Michael Bonner and Peter McCord, "Reassessment of the Union Blockade's Effectiveness in the Civil War," The

North Carolina Historical Review LXXXVIII, 4 (2011): 398. For a summary of Marcus Price’s data see Ransom,

"Confeddrate States of America," Series Eh 59-94. 28 David G. Surdam, Northern Naval Superiority and the Economics of the American Civil War (Columbia, SC:

University of South Carolina Press, 2001). 29 Lance E. Davis and Stanley L. Engerman, Naval Blockades in Peace and War (New York: Cambridge University

Press, 2006), 158.


much general good could be done with so little capital at so small a risk.”30 Without the collateral

to obtain credit, 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 freedom, it dramatically reduced the

supply of labor available to plant cotton, and 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.31

From a situation where tenancy was extremely rare, the South became an agricultural

economy characterized by tenant farms. By 1870 the number of small family operated farms had

more than doubled. 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 nor the planters would have chosen sharecropping.

Freedmen would surely have preferred to own and operate their own farm. However, a

combination of virulent racism and a lack of capital effectively blocked the sale of land to

freedmen. In an economy that was starved for money, sharecropping had the added advantage that

it required little if any cash.32

30 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), 6-7. 31 On the demise of the plantation immediately after the war, see Roger L. Ransom and Richard Sutch, One Kind of

Freedom: The Economic Consequences of Emancipation, Second ed. (New York: Cambridge University Press,

2001), Chapters 3-5. 32 The rise of sharecropping in the post-bellum South has drawn attention from both cliometricians and historians. In

addition to the discussion of tenure in One Kind of Freedom, the text draws upon the following works: Joseph

Reid, "Sharecropping as an Understandable Market Response," Journal of Economic History 33 (1973), Harold

D. Woodman, "Sequel to Slavery: The New History Views the Postbellum South," Journal of Southern History

64, November 1977 (1977), Jonathan M. Wiener, Social Origins of the New South: Alabama, 1865-1885, vol. 7,

Journal of Interdisciplinary History (1978), Steven Hahn, The Roots of Southern Populism: Yeoman Farmers

and the Transformation of the Georgia Upcountry, 1850-1860 (New York: Oxford University Press, 1983), and

Roger L. Ransom and Richard Sutch, "Growth and Welfare in the American South in the Nineteenth Century,"

in Market Institutions and Economic Progress in the New South 1865-1900, ed. Gary Walton and James Shepherd

(New York: Academic Press, 1981).


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. Figure 4 presents estimates of

agricultural output per capita for 1857 and 1879. Per capita output for all farms fell by about 20

percent; the loss of output to white farmers declined by 35 percent; most of which was absorbed

by the slave-owning families who no longer received the surplus produced by slave labor. Per

capita output on farms that had not owned slaves may even have risen slightly after the war. The

one group who clearly gained from emancipation was the ex-slaves, whose per capital output rose

by 45 percent. This gain for blacks is the flip side of the loss of exploited slave income to the

planter.33

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.

33 Ransom and Sutch, "Growth and Welfare".


Source for Figure 4: Roger L. Ransom and Richard Sutch, "Growth and Welfare in the American South in the

Nineteenth Century," in Market Institutions and Economic Progress in the New South 1865-1900, ed. Gary

Walton and James Shepherd (New York: Academic Press, 1981).

The Economic Legacy of the Civil War

The most obvious legacy of the Civil War was the death and injuries to the men who fought

in the war. To account for the “economic value” of these deaths and injuries we included an

estimate of $2.0 billion in Table 2 to account for “human capital” lost in the war. The federal

government made some attempt to help lessen the burden of those who survived the war by

establishing a system of pensions for Union veterans. Pensions were a significant political issue

throughout the last three decades of the nineteenth century. Although they started as a program to

aid wounded veterans, Civil War pensions eventually provided income for elderly Union

veterans.34

Pension expenses, which by the end of the century would become the largest category of

non-military outlays of the government, were not the only economic challenge facing the federal

government. Wartime expenditures left the United States with a national debt of $2.3 billion

dollars. The efforts of post-war Republican administrations to reduce the National Debt were very

successful; by 1890 government bonds held by the public had fallen to less that to less than a

billion dollars. By 1879 the United States Treasury was able to resume international gold

payments.35

While the policies of the postwar governments succeeded in lowering the debt and

stabilizing the international payments, they necessitated substantial adjustments in domestic

economy. Figure 5 presents a visual depiction of prices and GDP from 1840 to 1879. The period

of the war and the postwar adjustment is highlighted. During that period, the wartime inflation is

immediately apparent, as are the deflationary policies of the postwar government. What also

stands out is a decline in nominal GDP immediately after the war that was so severe that nominal

34 See Theda Skocpol, Protecting Soldiers and Mothers: The Political Origins of Social Policy in the United States

(Belknap Press of Harvard University Press, 1992), and Ann Shola Orloff, The Politics of Pensions: A

Comparative Analysis of Britian, Canada, and the United States, 1880-1940 (Madison: University of Wisconsin

Press, 1993). 35 For more on the history of financial turmoil after the war see Ransom, Conflict and Compromise, Chapter 8; Atack

and Passell, A New Economic View, Chapter 18; and Richard F. Bensel, The Political Economy of American

Industrialization, 1877-1900 (New York: Cambridge University Press, 2000), Chapter 6.


GDP in 1879 was essentially the same as it had been at the end of the war. While historians dwell

on the difficulties of dealing with rapidly changing prices following the war, Cliometricians

suggest that, notwithstanding the turmoil of prices and the destruction of the war, real GDP

managed to stay on its antebellum path of growth – and after 1879 the pace of economic growth

accelerated. As Douglass North noted in his study of the antebellum economy, the war “was only

a pause in the economic expansion which was already deeply rooted in American society”.36

Sources for Figure 5: Sutch, Richard, and Susan Carter, eds. Historical Statistics of the United States, Earliest Times

to the Present: Millennial Edition. 5 vols. (New York: Cambridge University Press, 2006). Real GDP: Series

Ca-9; Nominal GDP: Series Ca-10; The price index is the GDP deflator; Series Ca-13.

36 North, Economic Growth, 215.


The increase in real income that is so evident in Figure 5 implies that many people were

“better off” in 1879 that they were at the end of the war, but not everyone appreciated this at the

time. People have a tendency to make an assessment of their economic welfare based on current,

not constant, prices. The years after the Civil War witnessed the longest price deflation in

American history. These changes brought forth particularly strong protests by farmers decrying

the fall in the price of their crops; coupled with a perceived increase in transportation costs; and

complaints about difficulties paying their mortgage debt and a rising incidence of foreclosures. As

Jeremy Atack and Peter Pasell point out, “Whether farmers’ complaints were real or imagined,

there is no doubt that their anger was very real, and had a profound effect on the politics and

economic institutions of the late nineteenth century”37 The same could be said of wage earners,

whether in industry or in the country side, who had a hard time believing that they were better off

as they saw the monetary value of their wages remain virtually constant for two decades after the

war. Not surprisingly, a variety of groups joined forces to urge a more expansionist monetary

policy on the part of the government. The tangle of lines in the box of Figure 5 helps to explain

why the Populist Party was one of the most successful attempts to form a “third” party in American

history.

So far we have emphasized the downside impact of the Civil War. For the victors, at least,

there was also a clear upside. The secession of Southern states offered a “window” of opportunity

for Northern Republicans to pass the ambitious program of political economy mentioned above.

“The second session of the 37th Congress (1861-62),” claims James McPherson, “was one of the

most productive in American history”38. In March, 1861 Congress enacted a set of laws that

included: establishment of a system of national banks that were chartered by the federal

government; passage of the Homestead Act giving 160 acres of public land to settlers in the West;

a Pacific Railway Act that provided land grants to subsidize construction of the first

transcontinental railroad; and passage of the Morrill Act that provided federal land grants for

public colleges in Universities.

37 Atack and Passell, A New Economic View, 424. For more on the farmers’ unrest see Douglass C. North, Growth

and Welfare in the American Past: A New Economic History (Englewood Cliffs: Prentice Hall, 1966), Anne

Mayhew, "A Reappraisal of the Causes of Farm Protest in the United States, 1870-1900," Journal of Economic

History 32, June 1972 (1972); and Bensel, Yankee Leviathan. 38 James M. McPherson, Battle Cry of Freedom: The Civil War Era (New York: Oxford University Press, 1988), 450.


Charles and Mary Beard called the Civil War a “Second American Revolution”; Louis

Hacker Hacker argued that the conflict represented a necessary step towards what he termed the

“triumph of American Capitalism”39. In the 1960s critics such as Thomas Cochran and Stanley

Engerman complained that what had become known as the “Hacker Beard Thesis” misinterpreted

the pattern of antebellum American economic development and overstated the role of the war in

promoting industrialization. If anything, they claimed, the war retarded, not accelerated, American

industrialization.40 Earlier in this essay we argued that the situation was more complicated than

either Hacker-Beard or their critics suggested. Our interpretation stresses that the war was a clash

of two “Revolutions”; the market revolution in the North and the reactionary effort of the

Southerners to break away from those changes. This is more than just a restatement of Hacker and

Beard. The Northern Victory meant that Abraham Lincoln – and a somewhat reluctant Congress

– could gradually move towards a solution to the persistent problem that had eluded antebellum

politicians: the elimination of slavery within the United States. “By doing that,” writes James

Huston, “the Thirteenth Amendment legitimized the destruction of $3 billion worth of property

and reduced the slave power from national prominence to a landlord entity that had only regional

influence” 41

We are back where we began. The Civil War was fought over economic issues surrounding

the persistence of slavery in a market society. The enormity of the investment in slavery meant

that the problems associated with the South’s peculiar institution could not be resolved without a

war. The cost of that war was far greater than anyone imagined when it began, and the economic

legacy of the war lived long after the war ended. For all that, there was a light at the end of the

tunnel: the crowning achievement of the Northern victory was the Thirteenth Amendment, which

gave the United States what Lincoln asked for in the Gettysburg Address: A new birth of freedom.

39 Charles Beard and Mary Beard, The Rise of American Civilization, 2 vols., vol. 1 (New York: Macmillan, 1927),

Louis M. Hacker, The Triumph of American Capitalism: The Development of Forces in American History to the

End of the Nineteenth Century (New York: Columbia University Press, 1940), Hacker, The Course of American

Growth and Development (New York: John Wiley, 1971). 40 Thomas C. Cochran, "Did the Civil War Retard Industrialization?," Mississippi Valley Historical Review 48,

September 1961 (1961), Stanley L. Engerman, "The Economic Impact of the Civil War," Explorations in

Entrepreneurial History 2nd Series 3, Spring (1966). 41 Huston, Calculating the Value of the Union.


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The Civil War in American Economic History1 Roger L. Ransom University of California, Riverside

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