Northern Economic Advantages and Disadvantages

During the Civil War

Introduction

Before the war, the United States, already one of the world's most prosperous countries, possessed one of the most limited governments. There were only two sources of national revenue: a low tariff and the sale of public lands. These income sources had been more than adequate to cover the minuscule peacetime budgets, which peaked at $74.2 million in 1858. That amount translates into less than 2% of the economy's total output. The national debt stood at a modest $65 million, an amount less than annual outlays (Rawley, 11). Thus, most Americans paid no taxes whatsoever to federal officials directly, and their only regular contact with any representative of the central authority was the U.S. Post Office.

Discussion

The one great blight on the American landscape was black chattel slavery. Although it was finally abolished during the Civil War—a triumph for free institutions that cannot be overrated—in other respects the American polity reversed direction. The war did not merely crush the aspirations of white Southerners for self-determination; it, like all wars, also brought in its train a massive increase in government power. Furthermore, postwar retrenchment failed to return the government's size and scope to prewar levels. Indeed, some argue that the Civil War, rather than the New Deal or some other watershed, marks the decisive turning point in American history with respect to the growth of government (Hummel, 22).

The national debt consequently climbed to $2.8 billion, and the Treasury resorted to $431 million of fiat paper money, popularly known as Greenbacks, the first issued since the Constitution's adoption. The North's money stock approximately doubled, as did the price level. The Confederacy, having to depend still more heavily on paper money to finance the war, suffered a hyperinflation, with prices rising 2,676%.

To harness northern banking to war ...