Civil War and the American Political Economy
MARCH 23, 2011 by JOSEPH R. STROMBERG
Filed Under : War, Subsidies, Mercantilism
The task before us is to assess in largely material terms the political-economic system arising during and after the American Civil War. Ideological issues existed, certainly, but much evidence suggests that pure idealism had a rather limited run. Antislavery was one of many themes generally serving as the stalking horse for more practical causes. Slavery itself was a colossal background fact constituting, as historian James L. Huston states, the biggest single capital investment in the United States—an enormous material interest uniting millions of people (not just in the South) through ties of interest, commerce, and sentiment. This interest stood athwart the political-economic ambitions of powerful interests in the Northeast.
We may think here of large “forces” at work, each with limits and counter-tendencies. Where slavery is concerned, Americans shirked the job of finding a reasonable solution. Offered one—disunion—some rejected it, after which the blunt instrument of war permitted another solution of sorts. As historian Howard Zinn writes: It was not the moral enormity of slavery but “the antitariff, antibank, anticapitalist aspect of slavery which aroused the united opposition of the only groups in the country with power to make war: the national political leaders and the controllers of the national economy.”
Political scientist Thomas Ferguson believes that the goals of money-driven coalitions explain the greater part of American political history. During the mid-nineteenth century, railroads represented the biggest new business opportunity, provided large-scale government subsidies (state and federal) were available. Northern railroad promoters and land speculators, many based in New England, worked both to get subsidies and remove obstacles. On the removal side, some of them, like John Murray Forbes, donated money to John Brown’s good works in Kansas apparently to put pressure on southern opponents of internal improvements.
The Republican Party platform of May 1860 stated the minimal program of a historical bloc of northeastern financial and manufacturing interests and Midwestern and western farmers. It began on a high note of egalitarian and republican ideology, aired some Free Soil, antislavery grievances, and thudded to rest with some practical matters: protective tariffs, homesteads (good for votes but rather ambiguous), federally funded improvements of rivers and harbors (Great Lakes subsidies), and a Pacific railroad. In addition, the party’s friendliness to central (national) banking was no secret. The Hamiltonian mercantilism of the platform was its central theme, if not quite its only one. Alas for its adherents, they soon found a large bloc of their recent opponents (and potential taxpayers) leaving the Union, beginning with South Carolina in December 1860.
The opposition to northern mercantilism had removed itself from the system. “Why fight to bring it back?” historians Thomas C. Cochran and William Miller ask. Over the Secession Winter of 1860–1861 many northerners asked just that question. Matters were, after all, rather complex. Key New York trading interests were heavily involved with southern cotton—the petroleum of the mid-nineteenth century—and New England manufacturers processed it. If the incoming administration refused to accept secession and used force to retain states allegedly “in rebellion,” war would come. Many agreed that, generally speaking, war was never good for business as a whole. For some months hesitation reigned.
Ready for War
It seems clear that key leaders of the northern “developmental coalition” represented by the Republican Party were ready enough for war, provided other people bore most of the costs. As tax historian Charles Adams writes, “The Wall Street boys and the men of commerce and business were determined to preserve the Union for their economic gains”—a calculation made easier for them after the contrasting U.S. and Confederate tariff schedules were released in early 1861.
With the highest tariff rates at 47 percent (North) and 12 percent (South), a massive shift of English and European trade to Norfolk, Charleston, Mobile, and New Orleans seemed likely. U.S. revenues would plummet, and northern business imagined short-run (or longer) catastrophe. A good many more northern businessmen began to calculate the possible benefits of a war. On cue, hesitating newspapers changed their line. Of course access to the Mississippi River (quite unthreatened in reality), the reluctance of any State apparatus to lose territory, and ideological nationalism played their parts.
War came, and Republican economic operators made the most of it. With so many of their former opponents assembled in another Congress in Montgomery (later Richmond), Republican interest groups conducted what historian Ludwell Johnson calls “a war of economic and political aggrandizement.”
To fund and man the actual military struggle, Congress provided numerous excise taxes, inflationary Greenback currency, bond issues (public debt), an unprecedented income tax, tariffs, and mass conscription. Interestingly, most northern enterprisers doing well off the war (like Mellon, Morgan, Armour, and Gould) paid substitutes and never went near a battle. The costs of the war could indeed be shifted. For interests getting vested under cover of the war, there were also tariffs (dual-use, it seems), banking acts, the Homestead Act (1862), the Contract Labor Law (1864), Pacific (and other) subsidized railroad projects complete with land-jobbing, and of course the inevitable rivers and harbors acts. The resulting concentration of capital, active strikebreaking by federal troops in St. Louis and Louisville, and (fairly typical) 50 percent profit rates on U.S. war contracts round out this pretty picture. Transparent loopholes in the Homestead Act ensured that land speculators and mining, timber, and oil companies got far more land than genuine settlers did. In addition, historian Jeffrey Rogers Hummel notes that the Morrill Act of 1862 granted considerable western land to eastern states partly in support of federal military education (more fodder for organized land-jobbers). Intentionally or otherwise, the Fourteenth Amendment (1868) hastened, as historian Arthur A. Ekirch, Jr., writes, “the triumph of national big business under the gospel of the ‘due process clause.’’’
It follows that a minimal definition of laissez faire as understood by Republicans during and after the war would run as follows: open-ended, active federal assistance for connected businesses through tax money, favorable statutes and legal rulings, and other institutional favors, with no corresponding obligation of these businesses toward society or even the State itself. So assisted, businessmen would make big bucks and accumulate capital, thereby greasing the wheels of progress and development. This was all the common good we need ever expect—a cozy arrangement indeed, despite conflicts and divisions already visible within the Republican machinery.
Historian Clyde Wilson notes that for Republicans “the revolution . . . was the point” and finds it odd that scholars fully informed on wartime and postwar corruption “imply that it mysteriously appeared after Lincoln’s death, and somehow miss the obvious conclusion that it was implicit in the goals of the Lincoln war party.” Lincoln’s first secretary of war, Simon Cameron, Pennsylvania iron manufacturer and Republican political boss, oversaw many a dodgy deal. Lincoln himself knew his associates quite well and joked that at least Cameron “wouldn’t steal a red-hot stove.” Small wonder, then, that Ludwell Johnson finds profiteering and fraud “so pervasive that they seemed to be of the very essence of the Northern war effort.”
Johnson sees northern wartime practice with regard to southern property as a policy of “redeeming the South by stealing it.” Under vague doctrines of “war powers” and the like, the administration quickly moved to confiscate “rebel” property forfeited for withdrawal of “allegiance” owed. In occupied Confederate territory the U.S. government created special tax districts whose funny auctions of “abandoned” property attracted insider bidders with advance information. The New England Emigrant Aid Company—a land company previously active in Kansas, doing business under a philanthropic veneer—set its sights on conquered parts of Florida. Here it would make money while sharing the bounty of New England civilization. Edward Atkinson, an antislavery textile manufacturer from Massachusetts, took an interest in the Florida project, writing to a colleague, “If he [the former slave] refused to work, let him starve and exterminate himself if he will, and so remove the negro question—still we must grow cotton.” (As philanthropy this was perhaps a bit narrow.) And cotton was a hot item—confiscated, stolen, or gotten through trade with the enemy, for which Lincoln personally issued the licenses. Out of $30 million worth of cotton seized under an 1863 law only 10 percent actually reached the U.S. Treasury. Another $70 million in cotton was simply “stolen by Republican appointees,” as Wilson notes.
In any case, the war was not inexpensive. Claudia D. Goldin and Frank D. Lewis estimate direct war costs in terms of expenditures, lost wages, and more at $3,365,846,000 for the North and $3,285,900,000 for the South. In Georgia alone General Sherman guessed that of $100 million in property destroyed by his forces, 80 percent was “simple waste and destruction” and not a matter of military necessity. For the South as a whole, estimated wealth fell between 1861 and 1865 by about 40 percent—not counting the value of slave “property.” Hummel gives a figure of 50,000 for civilian deaths in the South, presumably of all races, genders, and conditions. Of southern white males aged 18 to 45, 18-25 percent had been killed.
Counting Reconstruction as a political continuation of the war, we may now survey the political-economic structure yielded by the struggle. Here the old debate about whether the war retarded or accelerated American industrialization is of little interest. Mere questions of productivity (or output per square worker) matter less than how production was reorganized and who benefited from any changes. In Hummel’s view the wartime illusion of prosperity and full employment cannot survive the fact that wages fell, in real terms, by one-third. In the end, he concludes, the war retarded real growth; indeed, there was a waste of roughly five years’ accumulation of wealth. War contracts had not made up for lost southern markets.
In this new economy railroads were both cause and effect. Organized as much for land speculation as for transportation, subsidized railroads gave early signs of having far exceeded demand; in other words, railroads represented massive overinvestment. Yet subsidized transportation was the key lever of the post-1865 American economy. William Appleman Williams writes that the demand for railroad regulation was not socialist, but merely applied “[Adam] Smith’s argument against mercantilist joint-stock companies to the railroad corporations of their own time.” Railroads particularly required large-scale bureaucratic organization. The modern corporate form served them well, and their short-run success strengthened the corporate form. As Peter N. Carroll and David W. Noble observe, the railroad corporation “patterned itself on the Union army, the first major public bureaucracy.”
Along with increased corporate organization came concentration of capital reinforced by the details of wartime contracts and favored by the tax structure. No less a libertarian than Roy A. Childs, Jr., wrote in 1971 that “much of the concentration of economic power which was apparent during the 1870s was the result of massive state aid immediately before, during, and after the Civil War. . . .” Further, in the decades after the war, this led, as Willis J. Ballinger noted in 1946, to an imbalance in favor of savings invested in fixed capital (“oversaving”). (This spawned from the 1880s forward much discussion of “oversaving” and “overproduction,” with overseas economic empire as a proposed solution.)
A New Industrial Order
Wartime corruption was only a small part of the story. It is more important that, as Richard F. Kaufman observes, the Civil War brought about a “new industrial order . . . composed largely of war profiteers and others who grew rich on government contracts . . . and . . . were able to influence the economic reconstruction.” Further, important and persisting capitalist fortunes arose from wartime contracts: “J. P. Morgan, Philip Armour, Clement Studebaker, John Wanamaker, Cornelius Vanderbilt, and the du Ponts had all been government contractors. Andrew Carnegie got rich speculating in bridge and rail construction while assistant to the Assistant Secretary of War in charge of military transport.” If there indeed were Robber Barons, they got their start in the war.
There were various tensions in the Republican developmental bloc. Some New Englanders, for example, favored lower tariffs and even dared hope that party regulars might steal a little less at a time. According to historian Williams, the Radical wing stood for inflationary currency, high tariffs, and holding the southern states as “a new frontier” for Yankee enterprise.
In political scientist Richard Franklin Bensel’s view, a Republican-led northern developmental coalition of capitalists, financiers, and farmers successfully imposed a single market and commercial code on the entire American federation through neomercantilist activism. The war saw the emergence of a powerful new class of financiers in New York City. After 1865 much of their money went into railroads as they worked to remove Greenback currency from circulation from 1870 on. Here they broke with the Radical Republicans. Bankers preferred to control any expansion of credit and wanted their loans repaid in dollars of equal or greater value than those they had lent. Deflation suited them. The Republican capitalist-and-farmer alliance may have lasted as long as it did only because a generous and expanding pension program for Union veterans partly offset what Midwestern and western farmers lost through high tariffs. (A qualified veteran typically got about a third of the average workingman’s wages for a year. Here was America’s first major welfare program.)
Historian Gabriel Kolko notes rapid expansion and accumulation of capital from 1871 to 1899. Because of recurring upper-class panics over labor organization, “violence was used in America more than in any other country that bothered preserving the façade of democracy”—and the violence was always disproportionate. The Civil War had stimulated manufacturing, railroad investment and building, and mining. Big enterprises rested on family alliances and nepotism. As a result, Kolko writes, the idea of social consensus “wholly obscures the real basis of authority in the United States society since the Civil War—law and the threat of repression.” Alas for the members of the ruling class, they so successfully broke “the possibility of opposition [that] they also destroyed as well, social cohesion and community.”
In a polemic written in 1937, Texas historian Walter Prescott Webb made a case for the West and South against the North. Railroads, built only in the North between 1860 and 1875, killed off southern river traffic. The North enjoyed major bounties: high tariffs, Union army pensions (seven-eighths of which went to the North—a way of spending the “surplus” raised by high tariffs), northern ownership of most industrial patents, and finally, the modern corporation as such—with 200 majors in 1937, all based in the North. This financial-capitalist “feudalism” was sustained by the Supreme Court’s dogma of corporate personhood (1885, 1886, 1889). Anticipating Bensel’s analysis by 50 years, Webb noted how Union army pensions ($8 billion, all told) compensated the West for what it lost on the tariff.
Historian C. Vann Woodward notes that, ground down by tariffs and northern business control of most patents, the South remained trapped as an exporter of raw materials. Along with the famous freight-rate differential (which lasted into the 1940s), these levers worked as effectively as the British Board of Trade in reducing the southern economy to colonial status. As Hummel writes, national banking rules “stifled recovery of the South’s credit markets.” Nor was there cash in small denominations. Here Hummel fills in some gaps in Woodward’s argument. (On the orientation of banking law toward the convenience and profit of northeastern financiers, Bensel’s Yankee Leviathan account reinforces Hummel’s Emancipating Slaves, Enslaving Free Men.) Further, Hummel notes, southerners were taxed to pay interest on the national debt, nearly all of which went to northern parties and to fund Union army pensions—29 percent of the federal budget by the mid-’70s. Here again was a net outflow northward, while the same southerners paid state taxes for Confederate pensions. Not surprisingly, railroad bonds issued by Republican governments in the South during Reconstruction had been “the occasion of most political fraud below the Mason-Dixon line.”
It can be argued that in the end agriculture always pays for industrialization. Bensel is quite clear: “The [American] developmental engine left the southern periphery to shoulder almost the entire cost of industrialization. . . . The periphery was drained while the core prospered.” This means that independence was a serious economic option whose advantages for the South Bensel briefly discusses. But as historian Eugene D. Genovese writes, “Since abolition occurred under Northern guns and under the program of a victorious, predatory outside bourgeoisie, instead of under internal bourgeois auspices, the colonial bondage of the economy was preserved, but the South’s political independence was lost.”
Under Republican auspices the federal government asserted complete primacy over economic regulation, while advancing a big-business bloc allied to its party. This was in the essential Federalist tradition. “Liberal reform” of the 1870s was partly rooted in bourgeois panic over imaginary Paris Communes about to arise on our shores. One result was attempts in the North to disenfranchise “unreliable” voting blocs of workers and immigrants. Here were the beginnings of “de-participation”—the conscious project of removing the people from popular government in favor of permanent bureaucratic management intended to be both effective and inexpensive. Here was America’s answer to Benthamism. Our troubles did not begin (or end) with the Progressive Era.