The Economic Effects of the Civil War

Economic effects of the Civil War on the North

With the industrialization and the accumulation of wealth under new businesses after the Civil War gave rise to the United States' first millionaires toward the end of the nineteenth century, such as railroad tycoon Cornelius Vanderbilt, steel tycoon Andrew Carnegie, and oil tycoon John D. Rockefeller.¹

Economic Legislation of the Civil War:

During the era of the Civil War, the Republican party came to dominate the US government, since much of the Democratic support had been in the South. This allowed Congress to pass many laws that would shape the economy during and after the war.

Morrill Tariff Act:

Taking effect in March of 1861, the Morrill Tariff Act imposed taxes on imports coming into the United States. It was able to pass through Congress in part because of the resignation of southern senators who had opposed it, when they left to join in the secession and the formation of the Confederacy. The tariff helped to provide funding for the federal government to drive war industry and continued to drive industry in the years after the war. It also marked the start of a policy of protectionism in American politics that persisted until the twentieth century.

National Banking Act:

The National Banking Act of 1863 established a standard paper currency in the United States as well a system for national banks. It also allowed for the sale of government bonds and securities to help fund the war. The new paper dollars were sometimes called "greenbacks" because the original dollars were printed with only green on the back side. This act had a lasting effect on how the American economy would function for the rest of the nineteenth century, and into the twentieth and twenty-first centuries. After the war, lending from national banks was a catalyst for growing the United States' first big businesses, driving industrialization.

Fig 2: Greenback One Dollar bill, US Bureau of Printing 1862

Infrastructure

In the North, the expansion of infrastructure - particularly railroads - continued in earnest during the Civil War. In 1861, the North had around 22,000 miles of railroad tracks² - a significantly higher amount than existed in the South, which the Union used to its advantage in the war. During Reconstruction, railroads became a way to tie the nation back together.

Pacific Railway Act:

The Pacific Railway Act of 1862 provided economic incentives such as government land grants and bonds for the development of the transcontinental railroad, a major rail line that would connect the central United States to the west. Stretching from Iowa to San Francisco, California, the first transcontinental railroad began construction in 1863 and was finished 1869. Easier access to resources and raw materials from the west served to further drive industrial development in the rest of the United States.

Agricultural Development & The Homestead Act:

With the loss of Southern agriculture and the need to feed a large army, the Union invested into getting up-to-date farming technology into the hands of farmers across the Midwest and western territories so that they could expand agricultural production to fit wartime needs. The drive was so successful that surplus grain production overtook cotton as an export by the end of the war.²

The Homestead Act was passed in 1862 and provided for large areas of land to be claimable by settlers for only a small filing fee and gave ownership of the land to settlers after five years of development. This act encouraged westward expansion of agriculture and settlement that would continue to develop in the years after the war.

Economic Effects of the Civil War on the South

While the North continued to develop industrially and economically during the Civil War, the abolition of slavery and strategic destruction of Southern infrastructure by military campaigns such as General Sherman's March to the Sea had a negative impact on the South's economy. Let's take a closer look at the impacts on two Southern states: Texas and Louisiana.

Economic effects of the Civil War in Texas

There weren't many Civil War battles fought in Texas, but their economy was deeply affected. Early on, a Union blockade cut off Texas's largest harbor, Galveston, from trade. Texas couldn't trade with the North, so it experienced many shortages. The primary source of income was cotton farming, but there wasn't anyone to sell the cotton to. Trade with Mexico offered a little relief, but it wasn't enough to stop Texans from suffering.

Economic effects of the Civil War on Louisiana

After the emancipation of enslaved people, many plantation owners could no longer afford to keep the plantations. That is, if the former owners could get their plantations back from the Union. The plantations were broken up and sold off in smaller portions. Plantation owners turned from slavery to sharecropping. African Americans often couldn't afford to purchase smaller farms, so they had to work for their former enslavers.

Fig 3: Louisiana Plantation

Abolition of Slavery and the Freedmen's Bureau:

Four million slaves in the American south became free as a result of the Civil War and sought to be integrated into the economy. Slavery had been on a trend of expanding until the end of the Civil War, and the impact of the loss of slaves was significant for Southern slave-owners. In total, the South owned around three billion dollars in slaves at the outbreak of the Civil War, which accounted for between 12-15% of all real wealth in the United States.³

During the war, and particularly during the late-war campaigns of General William T. Sherman, the US government not only freed slaves but confiscated land from southerners and began to distribute it to the freed slaves to develop. These wartime policies were followed by the establishment of the Freedmen's Bureau in 1865, an organization created to provide food, shelter, and other necessary supplies to newly freed slaves. The Bureau negotiated contracts between freed slaves and employers, managed confiscated land and rented it to freed slaves with the intention to sell it, and also developed schools.

The promises of the Freedmen's Bureau were short-lived, however, as President Andrew Johnson's policies of reconciliation led to his call that confiscated lands that had been given to freed slaves be returned to their former owners later in 1865. The Bureau was made to oblige, having a very negative impact on the free people who had hoped to own and develop their own land. Afterward, many former slaves had no other opportunities except to work as sharecroppers.

Fig 4: A sharecropper in Little Rock, Arkansas by Ben Shahn, 1935

Where the Freedmen's Bureau had succeeded however was in the creation of public schools. Some 200,000 of the former slaves were able to find opportunities to receive an education through these new schools.² This also led to the first all-black colleges in the United States, such as the Tuskegee Institute which was founded in 1881 by Civil Rights activist Booker T. Washington. His institute - along with other colleges - sought to help African Americans gain trade skills to achieve economic independence.

The "New South":

The economy of the South by necessity grew to be more diverse in the years after the Civil War. The "New South" - a term coined by journalist Henry Grady - saw a drive toward industrialization and away from an economy that was dependent on the export of cash crops. Factories in the American south overtook the states of New England as the center for the United States' textile industry as the northern factories increasingly shifted toward heavy industry, and the South also worked to rebuild their infrastructure. Railroad networks in the southern United States were expanded in order to better tie the southern states' economies to the rest of the nation.

Despite some new development however, the South remained far behind the North in terms of industrial and economic development after the war. Southern economies remained largely agricultural, and the South remained generally poorer. For some time after the Civil War, the average southern man earned only 2/5ths of what the average northerner did, and by 1870, the former Union states of the North controlled 88% of the United States' wealth².