Book: Civil War macroeconomics

I have read many books about the American Civil War, starting as a child. I have visited the Gettysburg battlefield on bicycle, which gives an up-close view of the killing fields. I have watched media presentations about the Civil War, from “Gone With The Wind” to “Roots” to Ken Burns’ series.

But somehow, it never occurred to me to wonder about the Macroeconomics of the Civil War.

Yes, we learned in school that the North was more industrialized than the South. But we never learned the details about how the governments raised the money to fight the incredibly expensive war.

I have just finished reading “Ways and Means: Lincoln and His Cabinet and the Financing of the Civil War,” by Roger Lowenstein. This book is either very boring or very interesting, depending on your perspective.

Before the war started, the U.S. did not have a currency. Banks printed paper notes that could be exchanged for gold at the bank. This led to a chaotic system. Banks sometimes failed and wouldn’t redeem their notes. Notes from a bank in one region wouldn’t be redeemable at a different bank in a different region.

To make a very long story very short, the North had to raise $2 million per day to finance the war. The price of gold was $20.60 per ounce in 1860. At today’s gold price of $1716 per ounce, that would be the equivalent of about $170 million per day.

The only source of revenue was tariffs since there was no taxation. This was an impossibly huge amount at the time.

The Union issued paper “legal tender” for the first time. It issued bonds that were sold to individuals as well as large investors and foreigners. It eventually began an income tax (which was repealed after the war). There was significant inflation during the war in the North but it wasn’t ruinous. The economy was strong and grew during the war. The government started many important projects, including the National Bank system, transcontinental railroad, the Homestead Act, land grant colleges and many more.

While the Union never created a central bank, the National Bank system, which were the only banks allowed to issue “legal tender” notes, gradually displaced the state banks that issued their own local notes.

Meanwhile, the Union blockaded the South, which had little manufacturing and relied on imports for armaments and replacement parts for what machinery they did have. But the blockade runners weren’t interested in heavy shipments. They focused on light, expensive luxuries like ribbons. Southern manufacturing plants shut down entirely for want of repairs and also because the few skilled mechanics were drafted into the Confederate Army.


Year     Gold Price
1859	$20.67
1860	$20.67
1861	$20.67
1862	$27.35
1863	$31.23
1864	$47.02 High point of Union inflation as battles were lost.
1865	$30.22
1866	$28.26
1867	$27.86
1868	$27.95
1869	$25.11
1870	$22.88
1871	$22.59
1872	$23.19
1873	$22.74
1874	$23.09
1875	$23.54
1876	$22.30
1877	$21.25

The Confederacy made the fatal error at the start of the war to refuse to ship their cotton to Europe in the hopes that England and France would put an end to the war to keep their fabric mills operating. This removed the only source of revenue for the South. They printed paper money and ended up with hyperinflation and widespread starvation. The Confederacy also sold bonds to loyal Confederates but these were worthless after the war, wiping out capital.

Jefferson Davis said that the war was lost more in the financial arena than it was on the battlefield.

Of course, the history of the Civil War is very complex. These are just a few highlights of the book, which itself has a narrow focus on macroeconomics.

Our familiar system of income taxation and central banking didn’t arrive until decades after the Civil War.

Wendy

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Congress also put a tax on alcohol to help fund the war. This tax is the reason kerosene became the lamp fuel of choice. After whale oil “burning fluid” called camphine was the accepted fuel. It was a blend of turpentine and alcohol. The tax made camphine uncompetitive. So kerosene took over.

The price of gold was $20.60 per ounce in 1860. At today’s gold price of $1716 per ounce,

So in 160 years it has managed to not quite keep up with inflation. Good to know.

Of course at least it’s worth something.

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Of course at least it’s worth something.

That wont matter if a buyer gets out low.

The problem though with my saying that is a group of people will say, “I wont sell”. The bigger problem with that most of those waiting are old enough to kick off all too soon.

Not my thing owning any gold.

<So in 160 years gold has managed to not quite keep up with inflation. Good to know. >

Let’s see.

The price of gold was $20.60 per ounce in 1860. Today’s gold price is $1716 per ounce.

According to https://westegg.com/inflation/
What cost $20.60 in 1865 would cost $377.65 in 2021.

According to https://www.officialdata.org/us/inflation/1865?amount=20

$20 in 1865 is worth $363.57 today. Pretty close agreement.

So gold has risen much, much faster than inflation. 1716/363 = 4.7

Gold has risen almost 5 times as fast as inflation.

Not exactly the “barbarous relic” you thought, eh?

Wendy

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The tax made camphine uncompetitive. So kerosene took over.

A tax killed a business? Who would have thought…

It did spawn another that evade it… for a while…

The Captain
small governments need less taxes

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**Years      CAGR**
**Gold**
 1860     20.60
 2022   1716.00
  162     2.77%

**Inflation**
 1865     20.00
 2022    363.57
  157     1.86%

2.77% / 1.86% = 1.48

Gold has risen almost 5 times as fast as inflation.

No, just 1.48 times.

The Captain

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Gold has risen almost 5 times as fast as inflation.

I know, right? That $20 gold piece I bought in 1860 is worth so much today!

Actually, I bought one every decade since and they were all about the same price. Then I made the mistake of buying one in 1980 :cry:

Pete

I’m not sure if I buy your inflation calculator. In 1870 labors made $300 a year, Migrant Worker as of Jul 9, 2022, the average annual pay in California is $46,476 a year.
An acre of farmland went for $3 in the Midwest in 1880
In 1925, My grandfather was offered a track of land in Laguna Beach for $20 an acre.
Gasoline in 1936 was 10 cents a gallon
In 1900 housekeepers made $9 a month / Room and board included. It would take a housekeeper 2 and a quarter months to buy an ounce of gold…
In 1935, an oz of gold would buy 300gal of gas.

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Thanks. I had to look.

https://www.officialdata.org/us/inflation/1865?amount=20

dcy42001

The Confederacy made the fatal error at the start of the war to refuse to ship their cotton to Europe in the hopes that England and France would put an end to the war to keep their fabric mills operating.

Could you supply more background? If so, why did the Union have to establish a blockade, and what were the interdicted goods?

DB2

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The macroeconomics leading to the Civil War grew from the macroeconomics of slavery. In “The Half Has Never Been Told” historian Edward Baptist describes Antebellum macroeconomics.

From the book description:
"As historian Edward Baptist reveals in The Half Has Never Been Told, slavery and its expansion were central to the evolution and modernization of our nation in the 18th and 19th centuries, catapulting the US into a modern, industrial and capitalist economy.

It was through slavery and slavery alone that the United States achieved a virtual monopoly on the production of cotton, the key raw material of the Industrial Revolution, and was transformed into a global power rivaled only by England.

During America’s formative years, Baptist explains, our chief form of innovation was slavery, and ways to make slavery increasingly profitable. Through forced migration, quotas, and torture, slave owners extracted continual increases in efficiency from their slaves making competition with American cotton fields near impossible. Financial innovations and banks, meanwhile, helped feed credit to the cotton plantations, spurring on economic expansion and confirming for enslavers and their political leaders that their livelihood, and the American economy, depended on cotton."

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Could you supply more background? If so, why did the Union have to establish a blockade, and what were the interdicted goods?

Initially the Confederacy blocked shipping cotton to England because they thought it would force England to recognize the Confederacy. By the time the Confederacy realized their mistake (oops, we need that money), it gave the U.S. time to scramble for ships and place an embargo AND for England to look elsewhere for cotton (Egypt, India & Brazil).

With the exception of Paul Morphy, apparently the Confederacy was unable to see a couple moves ahead on the board.

AW

https://www.essentialcivilwarcurriculum.com/cotton.html#:~:t….

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An inflation calculator over that period of time is meaningless.

People live longer now. People have super computers and TVs etc…

People work totally differently. While you can say the food was better, was it? People do not get food poisoning nearly as much today…etc…

If you need care now? Compared to what?

If you want to travel now?

There is a huge dose of deflation in other words in the time period.

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It’s increased about 2.8% a year over 122 years.

<With the exception of Paul Morphy, apparently the Confederacy was unable to see a couple moves ahead on the board.>

Actually, Judah Benjamin recommended selling the cotton at the beginning of the war, or at least shipping and storing it in England until it could be sold…but he was ignored.

Wendy

During America’s formative years, Baptist explains, our chief form of innovation was slavery, and ways to make slavery increasingly profitable.

I saw the construction of the replica of the schooner Amistad in the Mystic Seaport Museum Shipyard in 2000. https://www.google.com/search?q=construction+of+the+replica+…

The Captain

1839
July 02
Mutiny on the Amistad

Early in the morning, enslaved Africans on the Cuban schooner Amistad rise up against their captors, killing two crewmembers and seizing control of the ship, which had been transporting them to a life of slavery on a sugar plantation at Puerto Principe, Cuba.

On March 9, 1841, the Supreme Court ruled, with only one dissent, that the Africans had been illegally enslaved and had thus exercised a natural right to fight for their freedom. In November, with the financial assistance of their abolitionist allies, the Amistad Africans departed America aboard the Gentleman on a voyage back to West Africa.

https://www.history.com/this-day-in-history/mutiny-on-the-am…

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Assuming that’s an accurate paraphrase, Baptist loses my respect and interest right there.

You see, I was unaware that America’s formative years were prior to 2000 BC. And slavery is an innovation that goes at least that far back. Further, it was practiced on every inhabited continent at least that far back.

Calling it an American innovation from, at most, 700 years ago, is either incredibly ignorant or incredibly dishonest.

Of course Baptist is not saying that slavery itself is new. Slavery is probably at least as old as human civilization.

Baptist shows through detailed analysis of documents and interviews from the time, that the innovations of the industrial revolution included not just the factories that made cloth, or the financial systems that provided capital, but also the plantation slave system of the US south. The plantation slave system and its integration with the rest of the industrial revolution are the innovations. Bankers in New York and London, where slave-owning was illegal, would issue mortgages to enslavers with the slaves as collateral. In the same sense that we say if you have a mortgage the bank owns your house, the banks owned the slaves. Of course, the bank doesn’t own your house, it’s more complex than that, and the NY and London bankers didn’t own the slaves, that would be illegal. But they did finance and profit from slavery, and their capital fueled the growth and hideous innovations of the plantation slave system, while at the same time, plantation slavery drove the US economy. Forbes has an article on how the US’s first bond market was backed by slaves. https://www.forbes.com/sites/pedrodacosta/2019/09/01/america…

It was all a single antebellum macroeconomic system.

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It would take a housekeeper 2 and a quarter months to buy an ounce of gold…

In 1935, It would take a housekeeper 2 and a quarter months to buy an ounce of gold…

In 1935, an oz of gold would buy a new Colt revolver.

Today it still does:

Gold: $1,717.70 USD
https://www.apmex.com/gold-price

New Colt revolver:
$1,785.00
https://www.omahaoutdoors.com/colt-python-6-rd-357-magnum-st…

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The tax made camphine uncompetitive. So kerosene took over.

The power to tax is the power to destroy*!*