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Saturday, March 18, 2006

Tariffs, Blockades, and Inflation: The Economics of the Civil War

A Clear Application of Market-Based Economics to Civil War Issues

In concise and clear prose Professors Mark Thornton and Robert Ekelund use basic economics to explain the causes, outcome, and consequences of the Civil War. Employing Public Choice theory—a subdiscipline of economics that focuses on how public officials and government bureaucracies make decisions—Thornton and Ekelund attempt to revise many standard accounts of the war. Although their economic analysis sometimes comes across as simplistic, they nevertheless add an important and overlooked perspective on the causes and consequences of the bloodiest war in U.S. history.

Perhaps the most controversial claim in Tariffs, Blockades, and Inflation is that the tariff (as opposed to slavery itself) may have been far more important in causing the Civil War than many historians assume. The protective tariff hurt the long-run economic performance of the nation as a whole, and it was undoubtedly a major regional divide between North and South. Northern manufacturers benefited most from a protective tariff, while Southern planters and farmers, who paid higher prices for the manufactured goods they purchased from either Britain or the North, suffered most. Given that Lincoln wanted to raise tariffs, Thornton and Ekelund argue, his election signaled the possibility of a protectionist regime that might have reduced the value of Southern plantations and slaves by some $700 million. Southerners could probably have blocked Lincoln’s attempt to raise tariffs if they had stayed in the Union, but Thornton and Ekelund argue that “tariff uncertainty” made secession an appealing option. Rather than risk higher tariffs, why not simply leave the Union?

Thornton and Ekelund also highlight the impact of the Union blockade, which ironically led Southern blockade runners to import highly valued luxury items rather than wartime necessities. Thornton and Ekelund argue that the blockade changed relative prices within the Confederacy so that it became more profitable to import easily transportable luxuries (such as silk textiles) and less profitable to import bulky necessities (such as iron and machinery). Profit-oriented blockade runners thus focused on luxuries even as Confederate civilians and soldiers suffered grievous shortages of basic necessities. The “Rhett Butler” effect, as Thornton and Ekelund call it, had a host of unintended consequences. It lowered Confederate morale and led to widespread condemnation of “unpatriotic” blockade runners and speculators. Such public sentiment, in turn, led to counterproductive government policies (such as price controls) that made shortages even worse.

The final chapters show the consequences of government intervention in both the North and the South. Thornton and Ekelund, for example, analyze inflation as a form of taxation. By raising money from the printing press, the North and South alike created a ruinous inflation that misallocated resources and severely damaged morale. The inflation problem was especially severe in the South, which could not impose direct taxes or borrow money to the same extent as the North. The focus on inflation ties in nicely with the argument that the Civil War hindered rather than helped economic growth. This point is especially persuasive and important, if only because some historians still believe that war is essentially good for a capitalist economy.

In many respects Tariffs, Blockades, and Inflation is an appealing book. The explanations of economic theory are clear and helpful, and the book is generally evenhanded in its willingness to blame both Northerners and Southerners for enacting bad economic policy. Yet the book is somewhat uneven. Its brief and readable format—and its tendency to summarize secondary works rather than delve into nineteenth-century sources—sometimes oversimplifies complicated political debates. The book’s brevity also means that some arguments are not fully fleshed out. To cite one example, Thornton and Ekelund claim that a less inflationary policy in the South would have forced policymakers “to rely on more decentralized and defensive military strategy.” This is a big point that cries out for further evidence and elaboration.

So, too, does their idea that “tariff uncertainty” was an important motivation for Southern secession. Tariff uncertainty had always existed in the antebellum decades. Why, then, did Southerners leave the Union in 1861 and not in 1842, when the Whigs passed a protectionist tariff? Or why did most Southerners reject secession when South Carolina attempted to nullify the tariff in the early 1830s? How rational is it to fight a war, which would leave 620,000 men dead, over tariffs that might or might not be enacted?

If Tariffs, Blockades, and Inflation may leave readers wanting more, it nevertheless is a clear application of market-based economics to the Civil War issues. Readers will find it a helpful introduction to the literature that Thornton and Ekelund cite in their useful bibliographic essay.