The Economics of the Civil War

In 1805 there were just over one million slaves worth about $300 million; fifty-five years later there were four million slaves worth close to $3 billion. In the 11 states that eventually formed the Confederacy, four out of ten people were slaves in 1860, and these people accounted for more than half the agricultural labor in those states. In the cotton regions the importance of slave labor was even greater. The value of capital invested in slaves roughly equaled the total value of all farmland and farm buildings in the South.

.. Looking at Figure 1, it is hardly surprising that Southern slaveowners in 1860 were optimistic about the economic future of their region. They were, after all, in the midst of an unparalleled rise in the value of their slave assets.

.. The Northern states also had a huge economic stake in slavery and the cotton trade. The first half of the nineteenth century witnessed an enormous increase in the production of short-staple cotton in the South, and most of that cotton was exported to Great Britain and Europe. Figure 2 charts the growth of cotton exports from 1815 to 1860. By the mid 1830s, cotton shipments accounted for more than half the value of all exports from the United States. Note that there is a marked similarity between the trends in the export of cotton and the rising value of the slave population depicted in Figure 1. There could be little doubt that the prosperity of the slave economy rested on its ability to produce cotton more efficiently than any other region of the world.

.. The income generated by this “export sector” was a major impetus for growth not only in the South, but in the rest of the economy as well. Douglass North, in his pioneering study of the antebellum U.S. economy, examined the flows of trade within the United States to demonstrate how all regions benefited from the South’s concentration on cotton production (North 1961). Northern merchants gained from Southern demands for shipping cotton to markets abroad, and from the demand by Southerners for Northern and imported consumption goods. The low price of raw cotton produced by slave labor in the American South enabled textile manufacturers — both in the United States and in Britain — to expand production and provide benefits to consumers through a declining cost of textile products. As manufacturing of all kinds expanded at home and abroad, the need for food in cities created markets for foodstuffs that could be produced in the areas north of the Ohio River. And the primary force at work was the economic stimulus from the export of Southern Cotton. When James Hammond exclaimed in 1859 that “Cotton is King!” no one rose to dispute the point.

.. One “economic” solution to the slave problem would be for those who objected to slavery to “buy out” the economic interest of Southern slaveholders. Under such a scheme, the federal government would purchase slaves. A major problem here was that the costs of such a scheme would have been enormous. Claudia Goldin estimates that the cost of having the government buy all the slaves in the United States in 1860, would be about $2.7 billion (1973: 85, Table 1). Obviously, such a large sum could not be paid all at once. Yet even if the payments were spread over 25 years, the annual costs of such a scheme would involve a tripling of federal government outlays (Ransom and Sutch 1990: 39-42)! The costs could be reduced substantially if instead of freeing all the slaves at once, children were left in bondage until the age of 18 or 21 (Goldin 1973:85). Yet there would remain the problem of how even those reduced costs could be distributed among various groups in the population. The cost of any “compensated” emancipation scheme was so high that even those who wished to eliminate slavery were unwilling to pay for a “buyout” of those who owned slaves.

.. Beard and Hacker focused on the narrow economic aspects of these changes, interpreting them as the efforts of an emerging class of industrial capitalists to gain control of economic policy. More recently, historians have taken a broader view of the situation, arguing that the sectional splits on these economic issues reflected sweeping economic and social changes in the Northern and Western states that were not experienced by people in the South. The term most historians have used to describe these changes is a “market revolution.”

.. In 1860 6.1 million people — roughly one out of five persons in the United States — lived in an urban county. A glance at either the map or Table 2 reveals the enormous difference in urban development in the South compared to the Northern states. More than two-thirds of all urban counties were in the Northeast and West; those two regions accounted for nearly 80 percent of the urban population of the country. By contrast, less than 7 percent of people in the 11 Southern states of Table 2 lived in urban counties.

.. In the South, the picture was very different. Cotton cultivation with slave labor did not require local financial services or nearby manufacturing activities that might generate urban activities. The 11 states of the Confederacy had only 51 urban counties and they were widely scattered throughout the region. Western agriculture with its emphasis on foodstuffs encouraged urban activity near to the source of production. These centers were not necessarily large; indeed, the West had roughly the same number of large and mid-sized cities as the South. However there were far more small towns scattered throughout settled regions of Ohio, Indiana, Illinois, Wisconsin and Michigan than in the Southern landscape.

.. Settlement of western lands had always been a major bone of contention for slave and free-labor farms. The manner in which the federal government distributed land to people could have a major impact on the nature of farming in a region. Northerners wanted to encourage the settlement of farms which would depend primarily on family labor by offering cheap land in small parcels. Southerners feared that such a policy would make it more difficult to keep areas open for settlement by slaveholders who wanted to establish large plantations. This all came to a head with the “Homestead Act” of 1860 that would provide 160 acres of free land for anyone who wanted to settle and farm the land. Northern and western congressmen strongly favored the bill in the House of Representatives but the measure received only a single vote from slave states’ representatives. The bill passed, but President Buchanan vetoed it.

.. Southerners, with their emphasis on staple agriculture and need to buy goods produced outside the South, strongly objected to the imposition of duties on imported goods. Manufacturers in the Northeast, on the other hand, supported a high tariff as protection against cheap British imports. People in the West were caught in the middle of this controversy. Like the agricultural South they disliked the idea of a high “protective” tariff that raised the cost of imports. However the tariff was also the main source of federal revenue at this time, and Westerners needed government funds for the transportation improvements they supported in Congress.

.. In 1834 President Andrew Jackson created a major furor when he vetoed a bill to recharter the Second Bank of the United States. Jackson’s veto ushered in a period of that was termed “free banking” in the United States, where the chartering and regulation of banks was left entirely in the hands of state governments. Banks were a relatively new economic institution at this point in time, and opinions were sharply divided over the degree to which the federal government should regulate banks. In the Northeast, where over 60 percent of all banks were located, there was strong support by 1860 for the creation of a system of banks that would be chartered and regulated by the federal government. But in the South, which had little need for local banking services, there was little enthusiasm for such a proposal.

.. They see the economic conflict of North and South, in the words of Richard Brown, as “the conflict of a modernizing society”

.. James McPherson, argues that Southerners were correct when they claimed that the revolutionary program sweeping through the North threatened their way of life

.. Most writers argue that the decision for war on Lincoln’s part was not based primarily on economic grounds. However, Gerald Gunderson points out that if, as many historians argue, Northern Republicans were intent on controlling the spread of slavery, then a war to keep the South in the Union might have made sense. Gunderson compares the “costs” of the war (which we discuss below) with the cost of “compensated” emancipation and notes that the two are roughly the same order of magnitude — 2.5 to 3.7 billion dollars (1974: 940-42). Thus, going to war made as much “economic sense” as buying out the slaveholders.

.. the only way that the North could ensure that their program to contain slavery could be “enforced” would be if the South were kept in the Union. Allowing the South to leave the Union would mean that the North could no longer control the expansion of slavery anywhere in the Western Hemisphere

Killer Politicians

What rulers crave most is deniability. But with the murder of the Saudi journalist Jamal Khashoggi by his own government, the poisoning of former Russian spies living in the United Kingdom, and whispers that the head of Interpol, Meng Hongwei, may have been executed in China, the curtain has been slipping more than usual of late. In Riyadh, Moscow, and even Beijing, the political class is scrambling to cover up its lethal ways.

Andrew Jackson, was a cold-blooded murderer, slaveowner, and ethnic cleanser of native Americans. For Harry Truman, the atomic bombing of Hiroshima spared him the likely high cost of invading Japan. But the second atomic bombing, of Nagasaki, was utterly indefensible and took place through sheer bureaucratic momentum: the bombing apparently occurred without Truman’s explicit order.

.. Since 1947, the deniability of presidential murder has been facilitated by the CIA, which has served as a secret army (and sometime death squad) for American presidents. The CIA has been a party to murders and mayhem in all parts of the world, with almost no oversight or accountability for its countless assassinations. It is possible, though not definitively proved, that the CIA even assassinated UN Secretary-General Dag Hammarskjöld.

.. Many mass killings by presidents have involved the conventional military. Lyndon Johnson escalated US military intervention in Vietnam on the pretext of a North Vietnamese attack in the Gulf of Tonkin that never happened. Richard Nixon went further: by carpet-bombing Vietnam, Cambodia, and Laos, he sought to instill in the Soviet Union the fear that he was an irrational leader capable of anything. (Nixon’s willingness to implement his “madman theory” is perhaps the self-fulfilling proof of his madness.) In the end, the Johnson-Nixon American war in Indochina cost millions of innocent lives. There was never a true accounting, and perhaps the opposite: plenty of precedents for later mass killings by US forces.

.. The mass killings in Iraq under George W. Bush are of course better known, because the US-led war there was made for TV. A supposedly civilized country engaged in “shock and awe” to overthrow another country’s government on utterly false pretenses. Hundreds of thousands of Iraqi civilians died as a result.

Barack Obama was widely attacked by the right for being too soft, yet he, too, notched up quite a death toll. His administration repeatedly approved drone attacks that killed not only terrorists, but also innocents and US citizens who opposed America’s bloody wars in Muslim countries. He signed the presidential finding authorizing the CIA to cooperate with Saudi Arabia in overthrowing the Syrian government. That “covert” operation (hardly discussed in the polite pages of the New York Times) led to an ongoing civil war that has resulted in hundreds of thousands of civilian deaths and millions displaced from their homes. He used NATO airstrikes to overthrow Libya’s Muammar el-Qaddafi, resulting in a failed state and ongoing violence.

.. Under Trump, the US has abetted Saudi Arabia’s mass murder (including of children) in Yemen by selling it bombs and advanced weapons with almost no awareness, oversight, or accountability by the Congress or the public. Murder committed out of view of the media is almost no longer murder at all.

When the curtain slips, as with the Khashoggi killing, we briefly see the world as it is. A Washington Post columnist is lured to a brutal death and dismembered by America’s close “ally.” The American-Israeli-Saudi big lie that Iran is at the center of global terrorism, a claim refuted by the data, is briefly threatened by the embarrassing disclosure of Khashoggi’s grisly end. Crown Prince Mohammed bin Salman, who ostensibly ordered the operation, is put in charge of the “investigation” of the case; the Saudis duly cashier a few senior officials; and Trump, a master of non-stop lies, parrots official Saudi tall tales about a rogue operation.

A few government and business leaders have postponed visits to Saudi Arabia. The list of announced withdrawals from a glitzy investment conference is a who’s who of America’s military-industrial complex: top Wall Street bankers, CEOs of major media companies, and senior officials of military contractors, such as Airbus’s defense chief.

.. Political scientists should test the following hypothesis: countries led by presidents (as in the US) and non-constitutional monarchs (as in Saudi Arabia), rather than by parliaments and prime ministers, are especially vulnerable to murderous politics. Parliaments provide no guarantees of restraint, but one-man rule in foreign policy, as in the US and Saudi Arabia, almost guarantees massive bloodletting.

Planet Money: Episode 761: The Bank War

Banks and governments have been fighting each other for hundreds of years, but never more dramatically than during the showdown between President Andrew Jackson and Nicholas Biddle, the president of the Second Bank of the United States.

Jackson was a populist, who rode to victory on promises to wrest control of the country from the East Coast elite. He was angry at the power structure, and he was furious at the banks. To him, they were the phantom controllers of the economy, issuing spurious scripts that often vanished with the banks when they collapsed.

Biddle was pretty much the opposite of Jackson, raised in the one of the country’s earliest aristocratic families. He was a poetical kid and a classics scholar, who started Princeton when he was 17. He believed in banks and he believed that a well run bank would serve the nation and create stability.

In the 1830s their two views of the nation collided, with disastrous and long-ranging results.

Big Banks on the Loose

This is crony capitalism on steroids.

Crony capitalism, simply defined, is when government officials favor friends (cronies) over others; or when the rich and powerful use their wealth and influence to gain access to governmental officials and opportunities that are not available to the average citizen. In 1832 President Andrew Jackson struck down a crony cabal that controlled the Second Bank of the United States. When he killed the American central bank, Jackson terminated a remarkably unethical arrangement, approved by Congress, that gave state-chartered banks rights superior to those of ordinary citizens and exempted the Bank’s foreign shareholders from taxes.

.. Past and current corporate and financial titans such as J.P. Morgan, Andrew Carnegie, John D. Rockefeller, Warren Buffett, and Jeff Bezos provide leading examples of crony capitalism—men who used personal relationships with politicians to enrich themselves and their businesses. The decidedly liberal Buffett, for example, reared as the son of a decidedly conservative congressman from Omaha, grew up in Washington’s Fairfax Hotel, where he learned firsthand how to work the political world to gain advantages in business.

.. Many states sharply limited banks and actually required “double liability” for bank shareholders, meaning if the bank faced financial trouble its shareholders would have to match the par value of their investment with new cash. Owning a bank was a privilege and a grave responsibility to the community.

.. When banks began to convert to stock corporations, notes researcher and former Federal Reserve counsel Walker Todd, risk-taking behavior among bank officials changed dramatically; they took on more and more risk—and the public eventually was forced to bail them out in times of financial panic.

.. Prior to 1970, the Wall Street partnership structure ensured that bankers had plenty of skin in the game—essentially their full net worth was on the line every day. Requiring that Wall Street’s top executives, bankers, and traders again have a significant portion of their wealth at risk would provide much-needed accountability and reinforce the soundness and safety of the financial system. It would also unleash the power of the U.S. economy.

.. Many of these large banks have low or negative risk-adjusted returns on capital, compared with small banks—what might be called Main Street banks, lacking access to Washington pooh-bahs—that tend to be more cautious, more profitable, and more stable in terms of equity returns.

.. The most stable and consistently profitable U.S. banks are the super community banks that are important lenders to Main Street. They range between $1 and $10 billion in assets, and are the least benefited by crony capitalism.