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73-476 AMERICAN ECONOMIC HISTORY: TOPIC 7
XII. The Economic Costs of the Civil War
Dimensions of the War
Largest Land Armies assembled in Human history -- by 1863 the North had
1,000,000 men under arms and the South 650,000.
Direct Costs of the War for North & South
Battles involving over 100,000 men were commonplace and some reached 200,000.
In one day, nearly 5,000 men were killed at Antietam and 20,000 wounded. It
is still the most American soldiers killed in one day.
Total Dead: 360,000 North + 258,000 South = 618,000 with at least 500,000
Direct Cost = All War Spending by Government + Destroyed Physical Capital +
Destroyed Human Capital.
Indirect Costs: Hypothetical (consumption if no War) versus actual
consumption over time discounted by prevailing interest rate. This shows
that the costs for the North were $5.2b and the South $9.5b for a total of $14.7b.
Summary of Direct Costs (From Goldin and Lewis)
Government 2,292 1,011
Draft 11(162,000 men) 20(300,000 men)
Physical Capital Destruction -- 1,487
Destruction: Killed 955 684
: Wounded 365 261
Risk Premiums -256 -178
TOTAL $3.367b $3.285b
GRAND TOTAL $6,652,000,000
Magnitude of Direct Costs: 4 times all government expenditures, 1789 to
1860; 17 times 1860 export earnings; could have purchased all the Slaves at
prevailing market prices, given each family 40 acres and a mule, and still have
$3.5 billion left over.
How was the War Paid For
Confiscation - Mostly by Southern Military
Why Didn't the South Recover From the Civil War
Tax Present Population Directly - Income taxes, excise taxes, tariffs
In the North, about 20% of the cost of War was paid through direct taxes; about
12% in the South.
Tax Present Population Indirectly -- Inflation
Tax Future Population - Bonds and Greenbacks
In the North, about $2.7b in interest bearing bonds were issued along with $450m
in non-interest bearing notes -- the Greenbacks. In the South,
about $2b in bonds were issued -- these were repudiated in the 14th Amendment.
In the North the money supply went from $442m in 1860 to $1,180m in 1865 but
inflation was less than the increase in the money supply (approximately 70%).
In the South there was hyper-inflation. Confederate money was practically worthless.
Paying off the Debt: After the War the North left in place the very high
tariffs passed during the War. The government ran surpluses nearly every year
into the 1890s and the debt quickly declined. Indeed, there were political
problems with calling in the Greenbacks too fast because there was a persistent
deflation from the end of the War into the mid-1890s and many favored inflation.
The Devastation Theory
The South as a Third-World Country
The conventional wisdom was that the South was devastated by the War -- the great
loss of human life, livestock, and physical destruction. But the South was not
depopulated -- the skills and knowledge embodied in the survivors should have been
sufficient (witness West Germany 1946-1954!).
Southern Railroads were rebuilt by 1867.
Southern manufacturing was rebuilt by 1870.
The agricultural output of the South was significantly lower after the War.
About 97% of crop acreage in the South was devoted to cotton, corn, oats, sugar, and
wheat. Using a per-capita crop index devised by Ransom and Sutch where
100 = 1859, the index stood at 39.7 in 1866, 44 in 1868, 64 in 1870, 70 in
1880, and 75 in 1900.
The Effect of Emancipation of the Slaves
Why this decline in agricultural output?
The price of Cotton was high right after the War but then began to decline.
However, it did not fall low enough to explain the decline in output.
The key is the fall in the per acre output of Cotton.
The amount of labor offered by each freedman and his family fell significantly
after the War. Instead of being "driven", the freed slaves behaved rationally
and consumed more leisure time.
The Effect of Disease -- Especially Hookworm
Given the limited technology, it was not easy to substitute capital for labor
in the production of Cotton. Before the War, it is clear that the slaves were
worked nearly to the limit of their economic capacity.
This drop in labor input clearly accounts for part of the decline in per capita
crop output after the War.
Hookworm spread during the Civil War because the assembling of large armies
mixed heretofore isolated (and non-infected) men with infected men thereby spreading
the disease. Sanitation was very poor in the camps. The uneducated rural men
relieved themselves wherever and whenever they felt the need as this was common
practice in the rural South.
In addition, there was a chronic and serious shortage of shoes throughout the
Southern armies meaning many of the soldiers went barefoot. Being barefoot, they
easily fell victim to hookworm infection.
Hookworm produces an apathetic, "lazy", disposition in victims. Infected
children do poorly on standard intelligence tests and may even appear to be mentally
retarded. Hookworm causes people to be thinner and shorter.
It is quite probable that Hookworm infection was as important as Emancipation
in causing the decline in per-capita crop output.
In response to the drop in labor input after the War, the Sharecropping system
arose. The plantations were split into smaller farms. The standard split was
50-50 of the crop. The owner supplied the farm, buildings, equipment, seed, and
provisions, and the sharecropper furnished the labor.
It was a poverty system very similar (but not exact) to the relationship between
a slum-lord and an apartment tenant.
The rapid development of the Railroads after the War, the sharecropping system,
and the collapse of the Southern Banks and financial system, resulted in the
"atomization" of the cotton crop.
This "atomization" also encouraged the development of the "country store" system
which the sharecroppers relied upon. These stores extended credit at usurious rates
and only reinforced the prevailing poverty.
The tremendous economic expansion that occurred from 1865-1914 which saw a
tripling of per-capital real income in the U.S. largely bypassed the South.
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