Civil War Economies

The economic issues that the Union and the Confederacy had to confront were not unique to either government, since they were the same issues that any nation at war must face. Financing the war effort while simultaneously minimizing serious disruptions to civilian economic life was a challenge for both Lincoln and Davis, and the Union had numerous advantages. The United States possessed a much larger population overall, and a higher concentration in urban areas, a much more extensive and developed industrial and transportation infrastructures, and a dramatically more diversified economy. The South was able to overcome its numerical disadvantages, at least for a time, and a concerted effort to capitalize on nascent domestic industries was moderately successful.[1] Financing the war, however, was particularly challenging for the Confederacy, and several factors contributed to this. In the end, the Confederacy’s inability to pay its bills may have been the one insurmountable obstacle that Davis faced.

As Roger Ransom pointed out, “No war in American history strained the economic resources of the economy as the Civil War did.”[2] The South was not impoverished at the start of the war, possessing “30 percent of the national wealth (in the form of real and personal property),” but the southern financial sector was not competitive with its Union counterpart, controlling “only 12 percent of the circulating currency and 21 percent of the banking assets.”[3] Furthermore, despite the Confederacy’s insistence that King Cotton would lead them to certain victory, the Union’s increasingly successful blockade of southern ports helped ensure that profits from any cotton that made it to Europe would be negated in the aggregate by costs associated with running the blockade.[4]

Both governments financed their war machines with the usual combination of taxes, loans (in the form of bonds), and currency issued by the respective treasuries. Although the Union struggled to stay afloat financially after initial military setbacks, creative and controversial economic policies pushed through by the Lincoln administration allowed the government to stabilize the economy.[5] These programs allowed the United States to create a more sustainable mix of the three sources of revenue, keeping inflation and public debt at manageable levels. The Confederacy, by contrast, relied very little on taxation, and was unable to borrow enough to pay its bills. It instead issued an ever-increasing number of Confederate treasury notes that were almost instantly worthless and served only to increase inflation to astronomical levels.[6]

The Union began the war with a much more fully developed economy, one that was responsive and adaptable to the exigencies of the war. It was also blessed with leadership willing to take risks and a populace largely united behind the effort. The South did not enjoy these advantages. The uninspired and reactionary attempts of the Davis administration to right its foundering ship only served to exacerbate the situation, as worthless Confederate money spewed forth from southern printing presses. The Confederate economy was almost entirely dependent on the inflexible plantation system, and southern wealth was tied up in land and slaves instead of in factories and banks. Finally, the states’-rights ideology that fueled secession itself helped ensure that top-down economic policies, such as internal taxes and legal tender treasury notes, would be viewed suspiciously, at best.

[1] Jaime Amanda Martinez, “Chapter 3: ‘The Question of Bread Is a Very Serious One’: Virginia’s Wartime Economy,” in Virginia at War, 1865, eds. William C. Davis & James I. Robertson Jr. (Lexington: University Press of Kentucky, 2012), 41-42,

[2] Roger L. Ransom, “The Economics of the Civil War,” EH.Net Encyclopedia, Economic History Association, February 1, 2010,

[3] James M. McPherson, Battle Cry of Freedom: The Civil War Era, (New York: Oxford University Press, 1988), 437,;idno=heb00677.

[4] David G. Surdam, “King Cotton: Monarch or Pretender? The State of the Market for Raw Cotton on the Eve of the American Civil War,” The Economic History Review 51, no. 1 (February 1998): 113,; Stanley Lebergott, “Through the Blockade: The Profitability and Extent of Cotton Smuggling, 1861-1865,” The Journal of Economic History 41, no. 4 (December 1981): 877,

[5] McPherson, Battle Cry of Freedom, 444-8.

[6] Ransom, “The Economics of the Civil War,” Figures 4 and 5, and Table 4.


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