Themes of the American Civil War

with prices. In the first two years of the war wages rose 20 percent but prices rose by 50 percent. The following year prices rose even faster and the result was the organization of unions and the outbreak of strikes in the winter of 1863–64. By the end of the war prices were perhaps more than two-thirds higher than on the eve of conflict. Meanwhile, federal troops and martial law had been employed to defeat strikers.
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The cause of the price rise was, of course, the emission of paper money.
In part the North shared the experiences of the Confederacy. With the disruption of the export trade, cotton now had to be imported, and a large balance of payments deficit quickly emerged. This put pressure on the currency. Simultaneously the government had the problem of financing the war. Increased taxation was one method, and this was indeed adopted,
but Lincoln’s Secretary of the Treasury, Salmon P. Chase, determined to rely primarily upon the sale of government bonds. (Ultimately about 80 percent of the cost of the war would be funded in this way) Once again the federal government’s experience mirrored that of the Confederacy. Having issued Treasury notes, Chase found that with every military reversal the tendency to hoard specie was strengthened, and by December, the government lacked the funds to redeem its own notes in specie. Hence when the banks suspended specie payments at that time, the government did likewise.
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Released from the obligation to have currency convertible into specie,
Chase was now able, after congressional prompting, to issue Treasury notes that would be acceptable for virtually all public and private debts and which would therefore circulate as legal tender. Hence the birth of the famous
“Greenbacks.” In all, $450,000 in Greenbacks were issued, and this resulted in a doubling of the prewar stock of money in the United States. Almost immediately the Greenbacks fell in value, and with every military reversal further downward pressure was exerted on them (as a result of the fear that the notes would be repudiated in the event of a Confederate victory).
More fundamentally, however, the amount of paper money in circulation had increased far more rapidly than the supply of goods and services in the economy so that there was too much money chasing too few goods, the classic recipe for inflation.
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To this extent the Northern experience paralleled that of the Confederacy.
But the outcomes were entirely different. Whereas in the South the supply of banking capital fell in the Civil War decade by more than 70 percent, the financial network in the North acquired anew maturity and sophistication.
Not only had the government financed the war successfully (if controversially, it had also, through the National Banking Acts of 1863 and placed the banking system on afar more secure basis than ever before. Once again fiscal crisis had been the midwife of change. The banks chartered were required to accept federal supervision and taxation and to meet clearly
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defined specie reserve requirements. Moreover they had to agree only to issue notes against federal bonds. Before long the state banks, whose notes often circulated at rates far below their face value, and who were now increasingly unable to compete with the newer national banks, were under threat and the United States possessed a banking system—and a currency—far more appropriate to the needs of the industrial era.
Thus although the financial changes and innovations of the Civil War era inevitably injured many, the overall impact was probably beneficial to the economic development of the North. Similarly the Union government produced other wartime initiatives. The fiscal crisis gave rise to a revision of the tariff which, although intended to raise revenue, in fact gave considerable protection to American industry. The average rates rose from 19 percent to 47 percent by the conclusion of the war. Lincoln and his party also continued the liberalization of land policy that had been underway in the final antebellum decades, with the passage of the Homestead Act of Although speculators made windfall gains, the Act did promote the establishment of family farms in the West. The federal government continued to offer land grants not only to railroad companies, as it had done before the war, but also to states that established agricultural colleges. Finally, the war saw the introduction of a federal income tax.
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This was a bold economic programme and, partly as a consequence,
large sectors of the Northern economy experienced significant growth rates in the war years. In addition to the direct and intended effects of the federal government’s programme were the unintended consequences of the war:
spiralling inflation, a great shortage of cotton, an army of over a million men to feed and clothe. These together inevitably gave a boost to some Northern industries. The iron industry boomed as a result of inflation, wartime needs and the protection afforded by the tariff. Woolen manufacturing also surged ahead as consumers sought to substitute wool for cotton. In agriculture,
an additional factor was the poor run of European harvests, increasing the demand for American wheat. Despite the absence of many farmers, more was produced than ever before. The number of sheep reared doubled and the trend towards mechanization in agriculture, already visible in the 1850s,
continued in the war years.
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The war years were thus a time of considerable prosperity for many northerners. Stockholders in railroads and telegraph companies enjoyed high dividend yields, and the merger of some companies created oligopolies or monopolies which, whilst small compared to the corporate mammoths of the late nineteenth century, were large enough to cause considerable disquiet among sections of the Northern public. Moreover new industries,
destined to be of enormous importance in the future, like the oil industry,
emerged during the war. In dozens of cities streetcars made their first appearance, again anticipating the changes of the Gilded Age.
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Capitalism and the Civil War
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Thus the war years produced an effect on the Northern economy that contrasted sharply with its impact on the South. However, it is important to compare Northern economic performance not merely with that of the
Confederacy, where the conclusions are scarcely in doubt, but with that of the North, or the entire nation, before and after the war. Here the picture is far less clear. Although Charles Beard was in no doubt that the exigencies of war were critical in the history of Northern capitalism, some historians have accused him of projecting the experiences of World War I, when the
United States boomed, back into the nineteenth century. His claim that the Civil War played a special role is therefore very much open to question.
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For Beard, industrialization was the key concern. Here the data require careful analysis. It is true that agriculture did decline in importance in the national economy in the s but this was as a result of the collapse of
Southern agriculture, not of any absolute, or even relative, decline in the
North. Indeed, in the s agriculture in the North expanded more rapidly
—in terms of total output—than other sectors. In manufacturing, experience varied from industry to industry. Although the woolen industry expanded, cotton manufacturing, not surprisingly, fell back sharply. In some industries prices and profits rose, while production fell. Should this be viewed as a success for capitalists or a failure for capitalism In any event the index of manufacturing productivity was almost static for the war years.
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Moreover, it is important to place the experience of the sin historical perspective. Here it seems that there is little reason to seethe war decade as a watershed. Annual growth in commodity output in the two decades before the war was higher than in the two decades after 1870. When value added in manufacturing is considered, no obvious conclusion emerges. The rate of growth was 7.8 percent for the years 1840–60 but 6 percent for the final three decades of the century. On the other hand the per capita rate was somewhat higher in the latter period, though this may have merely represented a catching up after the war decade. As far as the North’s absolute growth performance is concerned, between 1840 and 1860 per capita income rose at an average annual rate of 1.3 percent for the next two decades the figure was 1.75 percent and for the last two of the century 1.9 percent. In sum, either there was no acceleration in growth after the war or, if the rate of growth did increase, it appears to have been part of a longer process. The data do not therefore give obvious support to the claim that the war has a privileged status in the history of American capitalism.
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It is therefore far more to difficult to draw up an economic balance sheet for the North during the war, and for the United States as a whole, than for the South. Whereas the war years were ruinous for large swathes of Southern agriculture and of little benefit to Southern manufacturing, in the North the processes of industrialization and mechanization continued, though probably without breaking sharply with the past. The change in the American
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banking system and the raising of the tariff walls were of considerable importance but each decade in the late nineteenth century saw developments that were probably of similar significance. In short there is no obvious reason to single out the war experience or the war decade as critical to the successor the development of American capitalism.
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