Explain the social, economic, or political costs of the American Civil War. Your response should be at least one paragraph and written in your own words. Use evidence from the lesson to support your response. Include a specific piece of evidence from the Analyze it portion of your lesson to support your explanation. Include a specific piece of evidence from the Visualize it portion of your lesson to support your explanation. Include a specific piece of evidence from the Experience it portion of your lesson to support your explanation. Based on what you have learned, was the cost of the war higher for the North or the South? Be sure to consider the social, political, and economic effects. Explain, in a paragraph of your own words, which side paid a higher price for the war. Include at least two specific pieces of evidence from the lesson to support your response. Include information from at least two sections of the lesson (Social, Economic, or Political) to support your response.

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fay.mattie · Accepted Answer

The most comprehensive estimates of the economic costs of the war are those developed by Claudia Goldin and Frank Lewis. Their estimates suggest that government expenditures by both governments totaled $3.3 billion; the estimated “value” of human capital lost because of deaths in the war was $2.2 billion; and the Physical destruction was just under $1.5 billion. The total bill for the war came to $7 billion – or roughly two full years of GDP in 1860. What stands out from these numbers is not only the absolute magnitude of the costs, but also the disparity in the burden that these costs represented to the people in the North and the South. On a per capita basis, the costs to the Northern population were about $139 – or just slightly less than a year’s per capita GDP the income of the United States economy in 1860. The per capita burden on Southerners was almost three times that amount.

The Union had a clear advantage in the “economics” of this war. It not only had a population roughly three times the free white population of the Confederacy, it also had the advantage of larger and far more sophisticated market institutions with which to organize its war effort. However, neither side was prepared to raise the revenues required to cover the soaring costs of the war, and it took the better part of a year for each side to “mobilize”. By the spring of 1862 it was apparent that both would have to resort to a combination of taxation, selling bonds (if they could find anyone willing to buy them), and the issuance of various forms of paper money. Figures 2 and 3 present estimates of the revenues collected by each side to “pay” for the war.

The figures present estimates for revenues raised through taxes, revenues raised by issuing treasury notes as fiat currency, i.e. not backed by or convertible into gold but only backed by silver, and revenues from interest-bearing debt that was sold to private buyers. The dotted line indicates the total revenues adjusted for inflation.

The first thing to note is the extent to which both sides were forced to rely on deficit finance to pay for the war. The Union did succeed in increasing tax revenues by enacting a higher tariff, and higher excise taxes, and passing a tax on incomes above $10,000 per year. Even so, tax revenues accounted for only about a quarter of all federal revenues during the war. Confederates were much less successful in their efforts to obtain tax revenues. They inherited a tax system where tariffs had accounted for three-fourths or more of the federal government’s revenues each year. That tax base quickly eroded away as the effectiveness of the Union blockade increased. Over the course of the war, taxes and assorted revenues accounted for less than 10% of total revenue. With limited possibilities of selling bonds, the Confederates were forced to rely on the printing of money as the primary means of paying their bills. The result of that policy was an inflationary spiral that eventually reached a point where prices were more than 9,000 times their level at the beginning of the war. Inflation played a role in the financial struggles of both governments. In the North prices reached a level in 1865 that was roughly twice the level in 1860. Despite the increase in prices, revenues collected by the Union government rose steadily throughout the war. Inflation imposed a significant “tax” on Northern consumers, but it did not seriously affect the war effort.

The same cannot be said of the Confederate mobilization efforts. Figure 4 charts the overall rise in commodity prices; it also portrays the impact of the blockade on imported goods—a situation that weighed heavily on the minds of consumers used to getting a variety of their consumption items from abroad. Finally, we can see that the level of the agricultural prices—which comprised the principal source of income for the rural South—lagged behind the costs of other goods. These developments not only drained the morale of Confederates on the home front, they also crippled the Confederate war effort Measured in 1861 prices, the flow of funds to the Richmond government reached their peak by early 1862, remained fairly stable through the middle of 1863, and then declined steadily thereafter. For all intents and purposes, the Confederacy had been reduced to a barter economy by the time Lee surrendered his army at Appomattox.

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