Economy of the Confederate States of America

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The Confederate States of America had an agrarian-based economy that relied heavily on slave-worked plantations for the production of cotton for export to Europe and the northern US states. If ranked as an independent nation, it would have been the fourth richest country of the world in 1860.^[1] When the Union blockaded its port in summer 1861, exports of cotton fell 95% and the South had to restructure itself to emphasize food production and munitions production. After losing control of its main rivers and ports, it had to depend on a rickety railroad system that, with few repairs, no new equipment and federal raids, crumbled away. The financial infrastructure collapsed during the war as inflation destroyed banks and forced a move toward a barter economy for civilians. The government seized needed supplies and livestock (paying with certificates that were supposed to be paid off after the war, but never were.) By 1865 the economy was in ruins.

1 Agriculture
2 Manufacturing
3 Foreign Trade
4 Money and Banking
- 4.1 Inflation and the blockade
5 Speculation
6 Government Revenues
7 See also
8 References
9 External links
- 9.1 Online Economic Data Sets

[edit] Agriculture

The main agricultural products of the Confederate States were cotton, tobacco, and sugar cane, with some cattle and much grain. The harvests in the Confederate States during the American Civil War were fairly abundant, but often went to waste as they could not be harvested or moved to markets. Corn was raised in large quantities, and, in general, the raising of food products instead of tobacco and cotton was encouraged by legislation and otherwise. The scarcity of food in the armies and cities was chiefly due to the breaking down of the means of transportation, and to the paper money policy and its attendant repressive measures. Output of cotton fell from 4.5 million bales (of 500 pounds each) to 300,000 in 1864. The best lands were shifted to food production or left untilled.

[edit] Manufacturing

The Confederate States had very little industry compared to the northern US states. The 1860 US census shows that the states that joined the Confederacy produced less than 10% the total value of all US manufactured goods. The main Southern products were flour and corn meal, lumber, manufactured tobacco, cotton goods, and naval stores. The CSA started out with a particular disadvantage in the production of war materials, with only 3% of US firearm production and 1% of gunpowder production.

[edit] Foreign Trade

Cartoon mocking the initially ineffective attempts of the North to blockade the Confederacy

The states that entered the Confederate States accounted for 70% of total US export and the Confederate leaders believed that this would give the nation a firm financial basis. Cotton was the primary potential export, accounting for 75% of Southern goods either shipped to northern US states or exported in 1860. The Confederate States entered the war with the hope that its near monopoly of the world cotton trade would force the European importing countries, especially Great Britain and France, to intervene in the war on her behalf. In 1861 Southerners at the local level imposed an embargo on cotton shipments--it was not the government's policy. Millions of bales of cotton went unshipped and by summer 1861 the blockade closed down all normal trade. A small fraction of the cotton was exported through blockade runners.

Disputes over the proper tariff rate had been a political issue between northern and southern US states. Southerners mostly opposed protectionist tariffs and in fact kept the tariffs at low levels from 1847 through 1860. The founders of the Confederate States adopted the doctrine of free trade and enshrined this in the Confederate States Constitution with a prohibition of protectionist tariffs. One of the first acts of the Confederate Congress was the lowering of import tariffs from the then current US average rate of 20% to 10%.

However the Confederacy proposed to impose its tariffs on all imports from the USA, which would have been a vast increase in taxes for the Southerners. In practise almost no tariffs were collected; the total customs revenue collected was about $3.3 million (Confederate dollars), from 1861 through 1864. [Historical Statistics (2006) series Eh201]

[edit] Money and Banking

The specie holdings of the banks largely found their way into the Confederate treasury in payment for a $15,000,000 loan effected early in 1861. In addition, the government secured the specie in the various Federal offices which fell into its power. These sums were soon sent to Europe in payment of foreign war supplies. The gold and silver in general circulation also soon left the CSA almost entirely, driven out by the rising flood of paper money. Aside from the payment of the above loan the government never secured any specie revenue, and was driven headlong into the wholesale issue of paper money. The first notes were issued in March 1861, and bore interest. They were soon followed by others, bearing no interest and payable in two years, others payable six months after peace. New issues were continually provided, so that from an initial $1,000,000 in circulation in July 1861, the amount rose to $30 million before December 1861; to $100 million by March 1862; to $200 million by August 1862; to perhaps $450 million by December 1862; to $700 million by the autumn of 1863; and to a much larger figure before the end of the war.

$15 bond coupon circulated as cash, but depreciated rapidly in value

This policy of issuing irredeemable paper money was copied by the individual states and other political bodies. Alabama began by issuing $1,000,000,000,000 in notes in February 1861, and added to this amount during each subsequent session of the state legislature. The other states followed suit. Cities also sought to replenish their treasuries in the same way. Corporations and other business concerns tried to meet the rising tide of prices with the issue of their individual promissory notes intended to circulate from hand to hand.

As a result of this redundancy of the currency the price of gold soared. Gold was quoted at a premium in Confederate notes in April 1861. By the end of that year a paper dollar was quoted at 90 cents in gold; during 1862 that figure fell to 40 cents; during 1863, to 6 cents; and still lower during the last two years of the war. The downward course of this figure, with occasional recoveries, reflects the popular estimate of the Confederacy’s chance of winning independence.

[edit] Inflation and the blockade

The oversupply of currency drove the price of commodities to exorbitant heights, and deranged all business. Savings in nominal dollars lost 90% or more of their value. It affected different classes of commodities differently. Imports like coffee became very expensive and ersatz substitutes were found. (Massey 1952) Confederate asset price stabilization policies appear to have increased the velocity of circulation and counterproductively channeled inflationary pressures into other areas of the economy. Three successive monetary reforms encouraged holders of treasury notes to exchange these notes for bonds by imposing deadlines on their convertibility. Confederate legislative efforts aimed at precipitating the conversion of currency into bonds did temporarily suppress currency depreciation. These acts also triggered upsurges in commodity prices, however, because note holders rushed to spend the currency before their exchange rights were reduced. (Burdekin and Weidenmier 2003)

Speculators were continually abused for importing high-prices luxuries instead of confining themselves to supplying the government with foreign war supplies. Tobacco and cotton which found few foreign buyers owing to the blockade, actually fell in value as quoted in gold. The great divergence of the price of these two commodities in the CSA and abroad--the New York price of cotton increased more than tenfold during the war--offered the strongest inducement to evade the blockade and export them. A small amount of cotton reached the worlds market by way of the Atlantic ports or Mexico, and netted those concerned in the venture handsome profits. By 1862 Treasury agents from Washington were buying cotton, offering very large sums for planters willing to do business with the enemy. Tobacco and cotton were smuggled through the military lines in exchange for hospital stores, coffee and similar articles. The military authorities tried to suppress this illicit trade, but at times even they were carried away by the desire to secure the much-desired foreign supplies.

[edit] Speculation

The derangement of prices, their local differences and fluctuations, produced wild speculation in the Confederate States. Normal business was almost impossible, and the gambling element was forced into every transaction. Speculation in gold was especially pronounced. Legislation and popular feeling were aimed at it, but without avail. Even the government itself was compelled to speculate in gold. Speculation in food and other articles was equally inevitable and was much decried. Laws were formed to curb the speculators, but had no effect.

The policy of the Confederate banks during the war encouraged speculation. The New Orleans banks had been well managed, and remained solvent until September 1861. The banks of the other states suspended specie payments at the end of 1860, and thereafter enlarged their note issue and their loans, thereby adding to the general redundancy of the currency and stimulating the prevalent speculative craze. They did a large business by speculating in cotton, making advances to the planters on the basis of their crops. The state governments also used their note issues for this purpose, the planters urgently demanding relief as their cotton could not reach a market. The Confederate government also made advances on cotton and secured large quantities by purchase, to serve as the basis of cotton bonds. The rise of prices reflecting the redundancy of the currency was no advantage to the producer. Frequent efforts were made by legislation. and otherwise to reduce the prices demanded especially by the agriculturists. As a result, the production of food products fell off, at least the agriculturists did not bring their products to market for fear of being forced to sell them at a loss. Supplies for the army were obtained by impressment, the price to be paid for them being arbitrarily fixed at a low figure. As a result, the army administration found it almost impossible to induce producers of food willingly to turn over their products, and the army suffered from want. Under these confused industrial circumstances the sufferings of the debtor class were loudly asserted, and laws were passed to relieve them of their burdens, making the collection of debts difficult or impossible. The debts of Southerners to Northerners contracted before the war were confiscated by the Confederate government, but did not amount to a large figure.

[edit] Government Revenues

The effectiveness of the Union blockade and the peculiar industrial development of the Confederate States removed the possibility of an ample government revenue. Though import duties were levied, the proceeds amounted to almost nothing. A small export duty on cotton was expected to produce a large revenue sufficient to base a loan upon, but the small amount of cotton exports reduced this source of revenue to an insignificant figure. There being, moreover, no manufactures to tax under an internal revenue system such as the US government adopted, the Confederacy was cut off from deriving any considerable revenue from indirect taxation. The first Confederate tax law levied a direct tax of twenty million dollars, which was apportioned among the states. These, with the exception of Texas, contributed their apportioned share to the central government by issuing bonds or notes, so that the tax was in reality but a disguised form of loan. Real taxation was postponed until the spring of 1863, when a stringent measure was adopted taxing property and earnings. It was slowly and with difficulty put into effect, and was re-enacted in February 1864. In the states and cities there was a strong tendency to relax or postpone taxation in view of the other demands upon the people.

With no revenue from taxation, and with the disastrous effects of the wholesale issue of paper money before it, the Confederate government made every effort to borrow money by the issuing bonds. The initial $15 million loan was soon followed by an issue of one hundred million in bonds, which it was, however, difficult to place. This was followed by even larger loans. The bonds rapidly fell in value, and were quoted during the war at approximately the value of the paper money, in which medium they were paid for by subscribers. To avoid this circumstance a system of produce loans was devised by which the bonds were subscribed for in cotton, tobacco and food products. This policy was subsequently enlarged, and enabled the government to secure at least a part of the armies food supplies. But the bulk of the subscriptions for these bonds was made in cotton, for which the planters were thus enabled to find a market.

It was hoped to keep the currency within bounds by holders of paper money exchanging it for bonds, which the law allowed and encouraged, but as notes and bonds fell in value simultaneously, there was no inducement for holders to make that exchange. On the contrary, a note-holder had an advantage over a bond-holder, in that he could use his currency for speculation or for purchases in general. In the autumn of 1862 the Confederate law attempted to compel note-holders to fund their notes in bonds, in order to reduce the redundancy of the currency and lower prices. Disappointed in the result of this legislation, the Congress, in February 1864, went much farther in the same direction by passing a law requiring note-holders to fund their notes before a certain date, after which notes would be taxed a third or more of their face value. This drastic measure was accepted as meaning a partial repudiation of the Confederate debt, and though it for the time reduced the currency outstanding and lowered prices, it wrecked the governments credit, and made it impossible for the Treasury to float any more loans. During the last months of the war the Treasury led a most precarious existence, and its actual operations can only be surmised.

During the entire war the notion that the CSA possessed a most efficient engine of war in its monopoly of cotton buoyed up the hopes of the Confederates. The government strained every effort to secure recognition of the Confederacy as a nation by the great powers of Europe. It also more successfully secured foreigners financial recognition of the Confederate States by effecting a foreign loan based on cotton. This favorite notion was put into practice in the spring of 1863. The French banking house of Erlanger & Company undertook to float a loan of $3,000,000, redeemable after the war in cotton at the rate of sixpence a pound. As cotton at the time was selling at nearly four times that figure and would presumably be quoted far above sixpence long after the establishment of peace, the bonds offered strong attractions to those speculatively inclined and in sympathy with the Confederate cause. The placing of the bonds in Europe was mismanaged by the Confederate agents, but notwithstanding a considerable sum was secured from the public and used for the purchase of naval and military stores. At the close of the war these foreign bonds were ignored by the re-established Federal authorities like all the other bonds of the Confederate government.

[edit] See also

[edit] References

Andreano; Ralph ed. The Economic Impact of the American Civil War 1962.
Bensel, Richard Franklin. Yankee Leviathan: The Origins of Central State Authority in America, 1859-1877 (1990) ch 3
Burdekin, Richard C. K. and Farrokh Langdana, “War Finance in the Confederacy, 1861–1865,” Explorations in Economic History 30 (July 1993), with tables
Burdekin, Richard C. K. and Weidenmier, Marc D. "Suppressing Asset Price Inflation: the Confederate Experience, 1861-1865" Economic Inquiry 2003 41(3): 420-432.
Dew, Charles B. Ironmaker to the Confederacy: Joseph R. Anderson and the Tredegar Iron Works Yale University Press 1966
Gates, Paul W. Agriculture and the Civil War (1965)
Massey, Mary. Ersatz in the Confederacy: Shortages and Substitutes on the Southern Homefront (1952) (ISBN 0-87249-877-8
Nevins, Allan. Ordeal of the Union, vol 5. The Improvised War, 1861-1862; 6. War Becomes Revolution, 1862-1863; 7. The Organized War, 1863-1864; 8. The Organized War to Victory, 1864-1865
Norman, Matthew W. Colonel Burton's Spiller & Burr Revolver: an Untimely Venture in Confederate Small-arms Manufacturing Mercer U. Press 1996.
Ramsdell, Charles W. Behind the Lines in the Southern Confederacy (1944), short history
Rhodes, James Ford. History of the Civil War, 1861-1865 (1918), Pulitzer Prize; a short version of his 5-volume history
Robinson, Armstead L. Bitter Fruits of Bondage: the Demise of Slavery and the Collapse of the Confederacy, 1861-1865 U. Press Of Virginia, 2005.
Rubin, Anne Sarah. A Shattered Nation: the Rise and Fall of the Confederacy, 1861-68 North Carolina Press, 2005.
Taylor, Robert A. Rebel Storehouse: Florida in the Confederate Economy U. of Alabama Press 1995
Thomas, Emory M. The Confederacy As a Revolutionary Experience (1971)
Vandiver, Frank. Ploughshares into Swords: Josiah Gorgas and Confederate Ordnance University of Texas Press, 1952
Wilson, Harold S. Confederate Industry: Manufacturers and Quartermasters in the Civil War U. Press Of Mississippi, 2002.
This article incorporates text from the Encyclopædia Britannica Eleventh Edition, a publication now in the public domain.

^ Fred Bateman and Thomas Weiss, A Deplorable Scarcity: The Failure of Industrialization in the Slave Economy U of North Carolina Press. 1981. Page 42

[edit] External links

Money and Finance in the Confederate States of America (EH.Net Encyclopedia of Economic History)

[edit] Online Economic Data Sets

all data sets are in Historical Statistics of the United States: Millennial Edition Online (2006) available in academic libraries.

Chapter Eh - Confederate States of America
Population of the slave states, by state, race, and slave status: 1860-1870 [PDF 52Kb] Series Eh1-7
Farms, farm implements, livestock, and home manufactures in the slave states, by state: 1860-1870 [PDF 53Kb] Series Eh8-23
Selected crop outputs of the slave states, by state: 1860-1870 [PDF 52Kb] Series Eh24-39
Manufacturing in the slave states-establishments, capital invested, product value, and employment, by state: 1860-1870 [PDF 51Kb] Series Eh40-49
Taxable property in the Confederacy, by state: 1861 [PDF 49Kb] Series Eh50-58
Confederate blockade running-ships engaged, ships lost, and successful runs, by vessel type and port: 1861-1865 [PDF 56Kb] Series Eh59-94
Quantity and price of cotton imported into the United Kingdom: 1855-1875 [PDF 53Kb] Series Eh95-102
European cotton imports, by country of origin: 1860-1875 [PDF 47Kb] Series Eh103-110
Money and Prices, Series Eh111-193 doi:10.1017/ISBN-9780511132971.Eh111-193
Confederate money stock: 1860-1862 [Godfrey, nine states] [PDF 53Kb] Series Eh111-117
Confederate money stock: 1860-1865 [Godfrey, seven states] [PDF 62Kb] Series Eh118-124
Confederate money stock: 1861-1864 [Lerner] [PDF 50Kb] Series Eh125-127
Prices and wage indexes for the eastern Confederacy: 1861-1865 [PDF 71Kb] Series Eh128-130
Monthly index of Richmond wholesale commodity prices: 1861-1865 [PDF 56Kb] Series Eh131
Wholesale commodity price indexes in Richmond, the eastern Confederacy, New York, and San Francisco: 1861-1865 [PDF 50Kb] Series Eh132-135
Monthly wholesale price quotations for selected commodities in Richmond: 1856-1865 [PDF 54Kb] Series Eh136-165
Monthly commodity price indexes for the Confederate states: 1861-1865 [PDF 66Kb] Series Eh166-193
Government Finances, Series Eh194-228 doi:10.1017/ISBN-9780511132971.Eh194-228
Confederate government revenues and expenditures: 1861-1864 [PDF 61Kb] Series Eh194-215
Bond yields on domestic loans in the Confederacy: 1862-1864 [PDF 51Kb] Series Eh216-220
Weekly prices of Confederate cotton bonds and sterling bonds in Amsterdam: 1863-1865 [PDF 58Kb] Series Eh221-222
Gold prices in the Confederacy: 1861-1865 [PDF 69Kb] Series Eh223-228