by Rich Lowry
With Ark in tow, the South deluded itself that King Cotton, feeding the maw of factories in the North and in England, could force surrender to his regal will. “The slave-holding South is now the controlling power of the world,” South Carolina senator Hammond maintained, betraying more Southern patriotism than strategic sense. “The North without us would be a motherless calf, bleating about, and die of mange and starvation.”
There is no doubt that the South was the Saudi Arabia of cotton. At a low cost, it produced more cotton than anyplace else on the planet, about two-thirds of the world’s crop, accounting for $277 million of the South’s $577 million gross farm income by one estimate. Exports went from 83 million pounds in 1815 to roughly 1.8 billion in 1860, with three-quarters of the crop shipped to England. Although never enough to be decisive, the Confederacy had its share of sympathizers in New York (deeply involved in the transatlantic cotton trade) and in England (where so many depended on textile mills for their livelihood) on purely commercial grounds. The abolitionist Wendell Phillips complained in late 1860 of the self-interested sentiment for appeasement in the North: “The saddest thing in the Union meetings of last year was the constant presence, in all of them, of the clink of coin—the whir of spindles—the dust of trade. You would have imagined it was an insurrection of pedlers against honest men.”
The newly elected Lincoln arrived in February 1861 in a Washington rife with proposals for sectional compromise. (Lincoln didn’t always make a good first impression. The ambassador from Holland sniffed after a fancy dinner with the president-elect and other diplomats that “his conversation consists of vulgar anecdotes at which he himself laughs uproariously.”) William E. Dodge, a “merchant prince” of New York who had relinquished his suite at Willard’s hotel for the Lincolns, gave voice to the instinct toward accommodation. He warned Lincoln of the economic consequences of violent conflict. “The whole nation shall be plunged into bankruptcy,” he told him, and “grass shall grow in the streets of our commercial cities.” Lincoln replied that he would defend the Constitution, “let the grass grow where it may.”
The grass didn’t grow, at least not in the North. It was already too far ahead. In 1860, the South contributed only about a tenth of the country’s manufacturing. The North’s industrial sector was already more mechanized than Britain’s. Most foreign trade passed through Northern ports. The North had much more railroad mileage. Six of ten Northern workers were in nonagricultural occupations; less than 20 percent of Southern workers were. Pennsylvania produced 580,000 tons of pig iron, far more than the entire Confederacy. Financially, the South lagged as badly.
When Southerners quit Congress, they gave Republicans carte blanche to pass their domestic agenda, which had previously foundered on sectional splits. The departed Southerners wrote themselves a new constitution that pointedly banned spending on internal improvements and import duties to protect industry, although these provisions did nothing to restrain the Confederate government’s actual intervention in the private economy during the war. Granted a free hand, congressional Republicans effected a program to make old Henry Clay proud.
A restless ambition undergirded the Republican vision. They wanted to see America grow, spreading its system of enterprise and free labor across the continent, to the benefit of all regardless of class and to the ultimate end of realizing the country’s inchoate greatness. Historian Walter McDougall calls the goal “a free-labor empire challenging British supremacy.” Congressional Republicans laid the foundation with legislation on improvements, banks, the tariff, and the development of the West—“all calculated,” in the words of Louis Hacker in his economic history of the United States, “to widen and defend the domestic market and lower production costs.”
They voted to create an artery to the West Coast with the Pacific Railroad Acts. Already in 1820, people were talking of a transcontinental railroad. The contention wasn’t constitutional but sectional. Whenever a route was proposed through one section, it aroused enough opposition in the other to shut it down. Congress now simply selected a path in the North. Congress created the Union Pacific, the first time it had chartered a corporation since the ill-fated Second Bank of the United States. The Union Pacific started from Omaha, while the Central Pacific began from Sacramento, California, and headed East. The government showered the two companies with millions of acres of federal land and millions in government bonds.
Congress had set the table for a movable feast of corruption. The alternative, though, was no transcontinental railroad at all, at least not anytime soon. Heather Cox Richardson recounts the case for the railroad in her valuable history of Civil War economic legislation. By definition, such a project couldn’t be backed by one state, and it ran through Western territories directly controlled by Congress. Purely private financing almost certainly couldn’t have been found for it. Besides the sheer size and cost, the project struck out across unsecured land vulnerable to attack by hostile Indians.
Without the railroad, getting to California was an adventure, sometimes a death-defying one. James A. McDougall was a transplant to California via Illinois who eventually became a congressman and senator from his adopted state. According to a former colleague in Illinois, he once got lost in the mountains traveling from Illinois to San Francisco and almost starved. He arrived at his destination “in rags, clothed partly in skins, without money, and not having seen a barber or razor for months. He went to the best hotel in the city, and was at first refused admittance.”
Easing the transit would open the West to enterprising Easterners. It would encourage free farmers to settle in the prairie and give them a market back east. It would draw the West closer, lest California get detached by centrifugal forces pulling the country apart. It would facilitate trade with Asia. Finally, it would secure access to the West’s newly discovered gold at a time when the country urgently needed the specie. Such was the faith in the ample riches to be had that one newspaper reported that Indians out west shot gold bullets from their guns.
Republicans regularized the nation’s banking to finance the war. The country had a financial system appropriate to “an agrarian economy tributary to foreign markets,” as Richard Franklin Bensel writes in his brilliant history of this period, Yankee Leviathan. When London sneezed, the American financial system tended to get a cold. Obviously, the North lacked the financial architecture for fighting a war of national survival.
At the outset, currency in the West collapsed because it had been backed extensively by Southern state bonds; in Wisconsin, rioters targeted Milwaukee’s banks. In late 1861, the government couldn’t raise the funds it needed for the war. The banks suspended specie payments and the government abandoned the gold standard for domestic transactions. By the end of 1861, almost all the mercantile houses in New York had gone bust, with only 16 out of 913 still solvent. It was around this time that President Lincoln met with General Montgomery Meigs and lamented, among other things, that “Chase has no money and he tells me he can raise no more.” Then Lincoln summed up the situation in his memorably despairing phrase, “The bottom is out of the tub.”
Under extreme duress, Congress acted. The Legal Tender Act authorized the Treasury to issue notes, printed with green ink, hence known as “greenbacks,” that were legal tender for all public and private debts. Subsequently, Congress taxed the motley notes that were issued by state banks and circulated as currency to push them out of the way. In a step toward a more uniform system, it authorized charters for “national” banks that could issue their own notes, but had to meet a variety of standards for soundness. The number of national banks rose, while the number of state banks collapsed from roughly 1,500 to 300 in the two-year period from 1863 to 1865. It was the advent of a version of the national banking system that had been so bitterly opposed by Jacksonians.
Republicans passed a sweeping protective tariff. In a letter before the Republican convention in May 1860, Lincoln h
ad assured Edward Wallace, who wanted to publicize Lincoln’s position on the tariff, that “In the days of Henry Clay, I was a Henry-Clay-tariff-man; and my views have undergone no material change on that subject.” The Republicans championed higher tariffs in 1860 with an eye to the electorally significant industrial states of Pennsylvania and New Jersey, although it was ticklish because the party didn’t want to offend its new Democratic enlistees who might not be enamored of its economics.
One of Lincoln’s awkward moments on his way to Washington after winning the election came in Pittsburgh, where he addressed the issue in front of a rain-soaked crowd of five thousand, in vague and halting terms: “The tariff bill now before Congress may or may not pass at the present session. I confess I do not understand the precise provisions of this bill, and I do not know whether it can be passed by the present Congress or not.” He went on in this vein for a while before concluding that he hoped “that all sections may share in common the benefits of a just and equitable tariff.” A week later, at Harrisburg, he (charitably) called his earlier remarks “rather carefully worded.”
The bill Lincoln danced around was the Morrill Tariff, which was passed by Congress and signed into law by President Buchanan shortly before he took office. Sponsored by Representative Justin Morrill of Vermont, it spread its duties widely across all sectors of the economy to avoid unfairly burdening any one group of consumers. Republicans justified the tariff as an exercise in nationalism that would help laborers by creating a strong domestic economy. “Men of Missouri, men of Michigan,” intoned Pennsylvania Congressman James Campbell, “men from all the iron-bearing States, men of the whole land, will you not unite with us in developing the vast resources of the country?” Like St. Augustine praying for chastity, supporters of the tariff said they wanted to be free-traders—but not yet. Campbell maintained that free trade is “the object to which society is tending,” yet isn’t appropriate “in a new and poor country”: “foreign competition would stifle in their bud all those things which it requires in order to prosper—capital, skillful workmen, experienced overseers, easy communication, and a good market; in fact, all the conditions which time alone can give. A transition, consequently, is indispensable; and to preach free trade to a country which does not enjoy all these advantages, is nearly as equitable as to propose that a child contend with a grown man.”
The government also needed the revenue. Congress created an income tax during the war, although reluctantly since Republicans were wary of interfering with private wealth creation. The tax paled as a source of funds. During the war, tariffs brought in about $300 million, income taxes about $50 million.
Lincoln repeatedly signed increases in tariffs. Rates on dutiable imports were almost 50 percent by the end of the war. American industry, increasingly technologically proficient, needed protection less than ever before, but the duties did their work. They were a boon to the iron and steel industries, and by the end of the war, basically locked out some foreign goods.
Republicans passed a land-grant college bill. Morrill had been agitating for one for years. He wanted to promote wide access to a college education emphasizing practical instruction. Opposition emanated from the West, which worried about giving Western acreage to states back East, and the South, which attacked the bill as an unconstitutional outrage, “one of the most monstrous, iniquitous and dangerous measures which have been submitted to Congress,” in the words of Senator Clement Claiborne Clay Jr., of Alabama. Morrill persisted. Maneuvering around the hostile chairman of the House public lands committee, another Alabaman named Williamson R. W. Cobb who had the “humor of a buffoon and the manner of a tin-peddler” in Morrill’s estimation, he got the bill to President Buchanan’s desk in 1859. Buchanan vetoed it.
Three years later, Lincoln signed the act into law. States received thirty thousand acres of federal land per congressman and senator to sell and use the proceeds to fund colleges focusing on agriculture and mechanics. Horace Greeley hailed it as promising a “wide and lasting good.” It would advance knowledge “of the sciences which underlie and control the chief processes of Productive Labor.”
Finally, Republicans passed the Homestead Act. There had long been proposals to give parcels of federal land to farmers to work. But they were controversial and created cross-currents within both the Whig and Democratic parties. Lincoln wasn’t all that interested in homestead legislation since he had never particularly wanted to promote agriculture. As a good Whig back in Illinois, he had favored selling the public lands and spending the proceeds on improvements. Originally, some Southerners favored a homestead law. Andrew Johnson of Tennessee, Lincoln’s vice president and successor, was a longtime and persistent supporter. After the Kansas-Nebraska Act, though, the push for a homestead law became caught up in the fight over the character of Westward expansion.
Southerners denounced the proposal as a threat to their political power, yet another tool in the hands of those hoping to exclude slavery from the West and flood it with free farmers. One Virginia congressman attacked it as leading to “the propagation of northern sentiment and the multiplication of northern representatives here and in the Senate.” Virginia senator James Mason inveighed against the proposal in 1860, alleging Northern intent to win for itself “command and control of the destinies of the continent.” He called it “a political engine and a potent one” against the South, “part of this ‘measure of empire’ ” to connect, as belonging indissolubly to it, the whole slavery question with the homestead policy.
In the 1850s, Southern senators repeatedly killed homestead bills and President Buchanan vetoed one bill that made it to his desk.
Republicans took up the cause. It was another way to demonstrate that they favored the interests of free working people and of immigrants against the Slave Power. The party’s 1860 platform endorsed the legislation. Lincoln himself didn’t publicly address the homestead issue until after the election. “I have to say that in so far as the Government lands can be disposed of,” he said in an 1861 speech to German working men in Cincinnati, on his way to Washington, “I am in favor of cutting up the wild lands into parcels, so that every poor man may have a home.”
In making their case, Republicans attacked land speculators who bought large tracts of land from the federal government and then sold them at profit to the little guy. They believed the Homestead Act would break up land monopolies and boost the agricultural potential of the country and therefore the entire economy. It would devote public lands to “the purpose for which their Creator designed them—the assignment of a limited quantity to each head of a family, for the purpose of cultivation and subsistence,” in the words of Wisconsin Republican representative John Fox Potter. The act passed in 1862 and gave 160 acres to farmers to improve and to own after five years. Horace Greeley exulted: “Young men! Poor men! Widows! resolve to have a home of your own!”
This was an extraordinary bout of congressional activism, at the same time as the exigencies of war inevitably enhanced the powers of the Northern state. Still, as Richard Franklin Bensel points out, the industrial and agricultural sectors ran free of government controls. The labor force, although tapped for manpower for the war, was relatively unmolested. The government became entangled with the financial system, but that system was also becoming more modern, sophisticated, and free of European influence. Given its vitality and wealth, the North could wage the war without subjecting itself to heavy-handed command-and-control policies. Compared to the overmatched Confederacy, it was a laissez-faire haven.
The Southern political economy came to depend on bureaucratic control and government expropriation. An extensive conscription law effectively subjected the entire labor force to centralized direction. The government had the discretionary power to exempt certain occupations and to detail men to civil duties deemed necessary; private concerns, therefore, depended on the government for workers. Despite the constitution, the gov
ernment subsidized the construction of railroads and by the end of the war assumed control of them and, by extension, the supply of raw materials. A government bureau undertook the operation of mines. Under the pressure of events, the Confederate government occupied the commanding heights of Southern industry.
It “impressed” property from manufacturers, farmers, and railroads to supply the military. In other words, it forced its owners into exchanging the goods for a price. The system led to wide-ranging price controls. One Confederate congressman complained of the government agents who were “as thick as locusts in Egypt.” Under pressure from the Union blockade, the government eventually prohibited the importation of luxuries and took control of a vast array of exports. It imposed a more progressive income tax than the North did, and stifled commerce with various onerous taxes. It distributed the revenues of a tax on slave overseers to states for relief payments; nearly 40 percent of families in Alabama were on relief in 1864, according to Bensel.
In short, the Confederates pioneered a program of a kind of war socialism back when Woodrow Wilson—the progressive president who would run the country’s economy on a similar basis during World War I—was still in knee-pants. The Southern stance wasn’t opposition to government per se, but opposition to those social and economic forces in the North that threatened the slave system. “One of the great ironies of American political development,” Bensel writes, “is that a central state as well organized and powerful as the Confederacy did not emerge until the New Deal and subsequent mobilization for World War II.”