Civil War Research Paper, Houston Yates

Economic and Industrial Advantages of the American Civil War

Economic and Industrial Advantages of the American Civil War:

The Union and the Confederacy

Houston Yates

University of Utah

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Economic and Industrial Advantages of the American Civil War:

The Union and the Confederacy

I would like to examine the economic advantages, the economic disadvantages, and

differing industries that the American Civil War-era governments, Union and Confederate,

possessed during the war which occurred from 1861-1865. I want to uncover, if any, economic

ramifications that directly led to the ultimate outcome of the war: the Union’s victory over the

Confederates. In this examination, I will discuss the differing economies of the North and the

South by looking at factor endowments of the regions that led to the differing economies, how

factor and resource endowments of the North led to the creation of patents in northern regions as

well as a reliance on labor from non-adult males, the use of railroads to expand and diversify

industries within both governments, and the legislation that the North enacted that fueled their

victory over the South. A fairly large economic and military factor led to the downfall of the

South as most of the war occurred and was fought within Southern regions of the United States.

Northern occupation of the southern states during the war led to the destruction of plantations,

towns, and military factors. There were several non-economic attributes that led to the Union’s

victory, but I will argue that the Union’s advancement in industrialization and infrastructure was

superior compared to the Confederates; this is one of the first American wars where the

expedient manufacturing and transportation of war-time goods became a rather large factor due

to the Industrial Revolution, and the evidence I will present shows that the economic policy and

industrialization that occurred, prior and during the Civil War, gave an ultimate advantage to the

North during the course of the American Civil War.

The Foundations of the Northern and Southern Economies

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The South

Factor endowments, mainly soil and climate, created differing comparative advantages

between the North and the South. As the South had better climate and soil compared to the North

that “made it possible to grow cotton virtually anywhere in the United States south of Virginia

and Kentucky” (Atack & Passell 300), “the South chose to specialize in the production of export

staples, particularly cotton but, to a lesser extent, sugar, rice, and tobacco” (317). With the

amount of demand the South was receiving from the Northern states and Europe for cotton, the

South had almost no immediate need to venture into other profitable industries because the South

“possessed abundant resources and was blessed by expanding demand from the outside” (322).

In order to take advantage of the climate, soil, and resources, Southerners employed plantations

that used effective scaled economies with the aid of slave labor; “the capital value of slaves (a

measure of their expected future net revenues) in 1860 at $2.7 billion—almost three times as

much as invested in all manufacturing activities in America at the time” (356). As Engerman and

Sokoloff explain, factor endowments that give a geographical area a more temperate climate and

fertile soil generally lead to more elite favored institutions; “It (the South) lagged behind the

North, however, both before and after the Civil War, in evolving a set of political institutions that

were conducive to broad participation in the commercial economy” (15). Southern institutions

were molded to expand southern cash crops, mainly cotton; “the planter elite” created

“noneconomic barriers to industrialization, including social, political, and legal barriers” by

raising “entry costs and discouraging competition for resources” (Atack & Passell 317). Atack

and Passell cite these barriers by stating “in 1860 the South produced less than one-fifth the

value of manufactures per capita as the Middle Atlantic states and only one-eighth that of New

England” (317). In addition to these barriers, Southern cities were created as “commercial

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centers, not manufacturing centers” (317). Southern cities “failed to provide a nucleus for urban

growth and a market for most manufacturers” (317).

The North

The North, unlike the South, was not well endowed with favorable geographical qualities;

the North boasted a colder climate and soil that was more suitable for wheat. The North’s

territory was not endowed with the ability to produce the cash crops, like tobacco and cotton,

which the South was able to produce; this made the North “economically dependent” (355) on

the South as a source of cotton. The North had an abundance of land, which was less expensive

than Southern land due to the less desirable factor endowments of the area; this made land

widely available to “the great majority of adult men” (Engerman & Sokoloff 14). Ordinary men

could acquire land and establish their own family-based farms that went against the “European-

style organization of agriculture based on concentrated ownership of land” (14). Engerman and

Sokoloff state “the large landholdings unraveled because even men of rather ordinary means

could set up independent farms when land was cheap and scale economies were absent” (14).

This demonstrates the economic opportunity that is more open and equal, as opposed to the

Southern plantation farming system. As the Northern farmers had to cope with less desirable

farming conditions and decreasing labor due to the war, this sparked Northerners to rely on

technological ingenuity; “In the North the constraint of family labor made mechanization

necessary for farmers who wanted to expand their profits and acreage. The expansion of this

industry played an important role in the development of metalworking and mechanical skills.”

(Atack & Passell 318). As these mechanical skills were refined, this allowed the North to invest

in technology, production techniques, and manufacturing; manufacturing of raw materials

allowed the North to pursue more trading with other countries.

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New England and Northeastern Industrial Growth. Continuing Engerman and

Sokoloff’s theory of factor endowments, the United States was not only “primed with rich

supplies of natural resources and an educated populace, but its institutions provided considerable

freedom for individual enterprise” (Sokoloff 819). Sokoloff states that there was a dramatic

increase of “inventive activity” during the time period of 1790 to 1846 as “patents far outpaced

population, with the per capita number rising nearly 500 percent” (819). Several regions

experienced this inventive growth, but the regions of Southern New England and New York “had

attained levels of patents per capita that were higher than any reached by their counterparts

throughout the era” during the time period of 1805-1811 as patents per capita increased “by 806

and 469 percent respectively over the previous decade” (827).

This now begs the question as to why and how the regions of Southern New England and

New York were able to sustain and ultimately increase inventive activity during this time period.

Sokoloff explains there was certainly a “breakthrough in knowledge” during this time period, but

the underlying circumstance may have been the stimulated change in market demand coinciding

with a suspension of foreign trade (827). Further inspection of the effect of foreign trade

suspension on the regions of Southern New England and New York indicate that these regions

were better off than other regions due to resource endowments that were present in these areas.

“Their resource endowments had prepared them better for the growth in domestic manufacturing

and enterprise” as Southern New England and New York were contained major cities of high

population density. Largely populated cities in these regions, such as New York and Boston,

were “conducive to high rates of inventive activity, such as information flows and entrepreneurs”

(828). Southern New England and New York were gifted with unique conditions and

circumstances that made inventive growth and sustainability possible; “evidence reveals that all

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the world was not Philadelphia, New York, or even Boston” (828). During this time period, it is

hard to find another area of the world that contains so many densely populated and growing

cities. To further this notion, these metropolitan cities within these regions had extremely close

proximity to each other. In order to sustain inventive and industrial growth, demand must be met

through the distribution and transportation of goods. Adding to the close proximity of these cities

and their markets within the regions, “an association between patenting and low costs of

transportation to major markets is one pattern that stands out” (830). If we look at the map below

(darker shades indicate more inventive activity), navigable waterways allowed the sustainability

and growth of inventive activity within the New England region (832).

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As I previously stated by using Sokoloff’s evidence, it is difficult to find another region

in the world that contained densely populated cities within a proximately close region. Inventive

activity, along with the resource endowments of information flow and entrepreneurs, enabled the

New England region to economically prosper before the American Civil War occurred. The

suspension of foreign trade during the 1805-1811 placed a seemingly heavy burden within the

New England region; it is difficult to argue that any other region, especially any region in the

South, could have undertaken such a daunting circumstance, let alone experience economic

growth and sustainability. The given resource endowments in New England allowed the region

to tackle the suspension foreign trade as this happenstance proved that the New England region,

and the surrounding Northern regions, were able to achieve manufacturing and industrial self-

sustainable. This economic self-sustainability was well established before the American Civil

War ever occurred; this foundation of industrial and manufacturing know-how certainly enabled

the Union to have a superior wartime advantage over the Confederate South.

Northern Labor. As there was an absence of slave labor in the northern regions of

America, agricultural labor was limited to families where the men were the most productive

laborers. Women and children on these farms had relatively low levels of productivity if we

compare the levels of adult male productivity; low productivity of women and children did not

translate to efficient farming. As industrialization started to take shape in the North before the

American Civil War, “it was fueled by abundant and relatively cheap female and child labor”

(Goldin & Sokoloff 15). Goldin and Sokoloff also offer some insight as to why the South were

so reluctant to accept industrialization compared to the North; “the South may have had a large

pool of unskilled labor, but it has no group whose relative productivity was low within the

region” (15). As slaves were relatively productive workers, it was more profitable to coerce them

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to work on plantations rather than factories. While the men in the North worked on farms,

women and children “left home to work in factories for relatively brief periods of time” (15); this

shift of early industrialization started to occur during 1820 to 1850. Goldin and Sokoloff present

evidence that indicates a sectorial industry shift of non-adult males during this industrial

expansion; “for the states of the Northeast, about 45% of the industrial labor force was

comprised of non-adult males in 1832, but by 1850 this figure had been reduced to about 33%”

(17). This statistic supports the claim that individual firms, during this period, were more likely

to hire cheaper labor, women and children, as opposed to hiring expensive adult male labor, and

industrialization does attract cheaper, less productive labor. By 1860, “the value of

manufacturing output in the North greatly exceeded that in the South, and ratio of manufacturing

and mining to agricultural output for the non-South was 8.7 times that for the South” (25).

I believe there is an underlying importance to this phenomenon that drastically affected

the outcome of the war. As women and children became more invested in the market economy of

the North, the North was able to recruit more men for the Union armies; the North gave

themselves an equal playing field with the South as southern labor was mainly composed of

slave labor. If the women and children labor shift had never occurred in the North, there might

have potentially been less men to fight the war for the North, and potentially less manufactured

wartime goods and machinery to wage the war with the South.

Northern Legislation, Railroad, and Self-Sufficiency of the South

Due to the differing economics industries between the North and the South, politicians

did not always see eye to eye on economic legislation; the North wanted to expand the country

and diversify economic industries while the South wanted to protect their agricultural industry.

Before the American Civil War, “the North had been forced to forgo or compromise several of

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its national economic policy objectives because of Southern opposition” due to the

overwhelming seats held by the South in the Senate; these policies were later enacted when “the

Southern states seceded and the legislators resigned their seats in Congress” (“Civil War,

Economic Impact of (Issue)”). When the South seceded from the North, the North was able to

enact their own legislation without experiencing opposition from the ex-southern legislators;

“southern secession released the logjam in Congress on economic legislation, such as tariffs,

railroad grants, the use of foreign contract labor and more liberal land policy, that was seen as

inimical to southern interests (Atack & Passell 372). The North passed four pieces of legislation

after the South seceded.

Northern Legislation

The Morrill Tariff of 1861 “raised rates to 20 percent on average, ending more than thirty

years of declining rates” (“Civil War, Economic Impact of (Issue)”); this tariff decreased foreign

competition that allowed for more American made goods to be purchased. As the North was

characterized as “an eastern industrial sector powered by immigrant labor and a western area of

family farms”, the South was dependent and “economically oriented more toward Europe”

(Atack & Passell 355); increasing the price of trading with Europe was not advantageous for the

South. The Transcontinental Railroad Act funded the creation of three railroads that sought to

connect the east coast to the San Francisco Bay (“Civil War, Economic Impact of (Issue)”). The

Morrill Land Grant Act of 1862 “established agricultural and mechanical colleges of allotting

each state that remained in the Union 30,000 acres of land for each member of Congress” (“Civil

War, Economic Impact of (Issue)”). I could see as to why this would not necessarily be

advantageous to the South; if land that could be used for plantations were to be replaced with

colleges, this could potentially hinder the South’s ability to expand their cotton and slave

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productivity. Investing more in education, rather than farming, could also potentially be

wasteful; little education is needed to run plantations and farming in general and this could create

unemployment in the South as manufacturing factories were in a small supply. The National

Bank Act of 1863 “created a set of standards for the banking system” (“Civil War, Economic

Impact of (Issue)”). The Homestead Act of 1862 “provided 160 acres in western territories free

to anyone who settled on it for five years and declared their intention to become a citizen”

(“Civil War, Economic Impact of (Issue)”). These legislative acts set the stage for economic

development for America, and greatly pushed the further industrialization of the North during

and after the American Civil War.

Railroad and Southern Self-Sufficiency

With the North having established a foundation of economic stability through

industrialization, the next step was to expand their foundation through westward expansion by

creating railroads. The previously mentioned economic legislation allowed northern states “to

sponsor canal construction and rail construction subsidies” (Atack & Passell 372); railroad

construction gave the north a massive military advantage by gaining the ability to quickly

transport men and supplies over long distances.

Southern transportation mainly consisted of waterways through rivers for agricultural

transportation; “before the war southern planters had shown little interest in developing an

infrastructure beyond the minimum necessary to facilitate the export of their cotton—some

modest river and port improvements, for example—but little support for banks, railroads, and

market towns serving local needs” (376). Southern plantation owners had little interest for

infrastructure for two main reasons. First, waterways and rivers served their cotton transportation

needs; secondly, “most large cotton plantations, for instance, were self-sufficient in food where

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the emphasis was upon corn and hogs” (304). Plantation self-sufficiency and viable access to

waterways allowed the south to focus the majority of their investment elsewhere without needing

to invest heavily in infrastructure.

The emphasis for railroads between the North and the South can be seen within the 1860

Census of the United States:

As the American Civil War commenced in 1861, this census of total mileage of railroads

was conducted in 1850, eleven years before the Civil War commenced. These mileage statistics

gives an indication of railroad investment and completion before the Civil War started. New

England, Middle Atlantic, and Interior regions in this table would encompass the Union while

Southern Atlantic and Gulf would encompass the Confederacy. If we combine the total mileage

of railroad for the North (Union), the rough estimation was around 6,585 miles of railroad; the

North’s investment for their railroads was an estimation of around $254.3 million. As for the

southern regions in 1850, the estimate total mileage of railroad was roughly 2,004 miles; the

South’s estimated investment in railroads was around $42.2 million. The North’s mileage of

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railroad lines more than triples the South’s railroads according to these estimates; the North

invested a little more than six times more than the South in railroad construction costs. Using

these estimates, we can infer that it may have been cheaper to construct railroad lines in the

South as compared to the North; as this looks to be the case, the South either relied more heavily

on waterways as their main means of transportation and used railroads as a secondary means of

transportation when waterways were not an efficient method of transportation. The focus of

investment for the South was mainly gauged towards slave trade and agriculture. Regardless of

the higher cost of construction and investment, the North was willing to construct and invest

more heavily in railroads due to their industrialized nature. The construction and investment of

infrastructure helped to sustain and foster the North’s foundation of manufacturing.

Costs of the American Civil War

The American Civil War was the deadliest war in American history. The death toll is

estimated to be around 620,000 men; an estimated 360,000 men were lost fighting for the North

and an estimated 258,000 died fighting for the South. Atack and Passell state “more than a

million people died or were wounded in the conflict” (361). Both the North and the South found

it difficult to gather volunteers to enter their armies, so they both resorted to the draft in order to

attain sufficient numbers for their armies; “one result of this policy was the substitution of rural

soldiers for urban draftees, which aggravated the growing labor scarcity in American agriculture,

hastening mechanization” (361). Atack and Passel also cite the economic loss that is associated

with death; “a life, for example, can be valued at the discounted present value of expected future

income over the individual’s anticipated working life” (362). The death toll was certainly not the

only cost during the American Civil War. The destruction of physical capital incurred a heavy

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cost to primarily the South during the Civil War. Atack and Passell give an explanation as to why

this occurred:

Most of the capital losses, though, were suffered in the South, where most of the fighting

took place. The Union army deliberately pursued a policy of destroying the

Confederacy’s economic capacity to sustain its military by exploiting the data collected

in the census of manufactures and agriculture for 1860. This represents possibly the first

strategic military use of economic data. (361)

Government expenditures during the Civil War were estimated in the vicinity of $2.29

billion for the North and $1.01 billion for the South. Estimated cost projections of the Civil War

suggest the Union invested a substantial amount into physical capital and infrastructure, but they

also sought to destroy physical capital of the South. It is estimated, by Goldin and Lewis, the

South’s value of physical capital decreased by $1.487 billion (in 1860 dollars); the Union already

wanted to establish a capable manufacturing industry, and the destruction of the South’s capital

would only advance the Union (308).

Conclusion

By relying too heavily on one source of industry, the South’s economy became their own

worst enemy; specializing within agriculture and the slave trade were not conducive to waging a

war with a very industrialized and established northern Union. If we follow the logic of

Engerman and Sokoloff and their theory of factor endowments, the Confederate South relied on

their economics strengths of an agriculturally based industry too heavily while the North was

forced to economically diversity in order to economically survive. This economic diversification

played to the North’s advantage by possessing the economic advantage and potential of waging a

war while the South placed “all their eggs in one basket” and committing themselves to an

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agriculturally based economy. Factor endowments, in the South, created more unequal

institutions compared to Northern institutions; the Southern hierarchy and elitists had greater

control over institutions that made agriculture more advantageous for profit accumulation. This

made industrialization difficult to achieve in the South, and the resource endowments were not

present in the South to make industrialization a viable and profitable option. The evidence and

research that I have shown within this inspection ultimately show that the North was well

prepared to wage a war before the Civil War because they industrialized and diversified their

economic industries while expanding westward; “by destroying not only slavery but also

slaveocracy, the war shifted the balance of political power to northern industrialists and spurred

American industrialization” (Atack & Passell 363).

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Bibliography

1. Atack, J., & Passell, P. (1994). A new economic view of American history: From colonial

times to 1940. (2nd ed., p. 300, 304, 317, 318, 322, 355, 356, 361, 362, 363, 372, 376).

New York, New York: Norton.

2. "Civil War, Economic Impact of (Issue)." Gale Encyclopedia of U.S. Economic History.

1999. Retrieved March 10, 2015 from

Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3406400171.html

3. Goldin, C., & Lewis, F. (1974). The economic cost of the American Civil War: Estimates

and implications (p. 308). Princeton, N.J.: Research Program in Economic Development,

Woodrow Wilson School, Princeton University.

4. Goldin. C., & Sokoloff, K. (1981). The Relative Productivity Hypothesis of

Industrialization the American Case, 1820-1850 (p. 15, 17, 25). Cambridge, Mass.:

National Bureau of Economic Research.

5. Sokoloff, K. (2002). Factor Endowments, Inequality, and Paths of Development Among

New World Economics (p. 14, 15). Cambridge, Mass.: National Bureau of Economic

Research.

6. Sokoloff, K. (1988). Inventive activity in early industrial America: Evidence from patent

records, 1790-1846 (4th ed., Vol. 48, p. 819, 827, 828, 830, 832,). Cambridge, MA:

National Bureau of Economic Research.

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Documents

Civil War Research Paper, Houston Yates