Costs and Economic Impact of the U.S. Civil War

ECON 480 - Gretchen Syverud

civil_war_soldiers.jpg
Artist depiction of Civil War soldiers


The American Civil War, 1860-1865 was a war between the northern states that formed the Union and the southern states that formed the Confederacy. The Confederacy was fighting for its right to secede from the federal government over conflicts due to slavery, states' rights and economic sanctions. The Confederacy army under Jefferson Davis suffered staggering losses to the Union army under Ulysses S. Grant as a result of the significant advantages the North enjoyed in population size, manufacturing power, and transportation capacity (Hassler). After five years of brother fighting against brother, the Union prevailed, the nation was again one and the 13th amendment abolished slavery once and for all (Hassler).

This WikiSpace seeks to identify and examine the costs of this war. Raw data concerning physical and human capital losses are from Goldin and Lewis' 1975 study entitled, "The Economic Costs of the American Civil War: Estimates and Implications." A visual breakdown of these losses are outlined in Table 1, below.

Table 1
The Costs of the Civil War
(Millions of 1860 Dollars)

South
North
Total
Direct Costs:



Government Expenditures
1,032
2,302
3,334
Physical Destruction
1,487

1,487
Loss of Human Capital
767
1,064
1,831




Total Direct Costs of the War
3,286
3,366
6,652
Per capita
376
148
212
Indirect Costs:



Total Decline in Consumption
6,190
1,149
7,339
Less:



Effect of Emancipation
1,960


Effect of Cotton Prices
1,670






Total Indirect Costs of The War
2,560
1,149
3,709
Per capita
293
51
118
Total Costs of the War
5,846
4,515
10,361
Per capita
670
199
330




Population in 1860 (Million)
8.73
27.71
31.43
Source: Ransom, (1998: 51, Table 3-1); Goldin and Lewis. (1975; 1978)



Northern Economy

The Northern economy suffered significantly less than the Southern economy but this does not imply it did not suffer greatly. As the Union (Northern) army was federally sponsored, the U.S. government ended up spending $3.3 billion (in 1860 dollars) on Northerners’ pensions and other veterans’ benefits for former Federal soldiers (Faust). The North may have incurred some physical capital losses as well, but this is less well documented. Even recent research has come up with a dearth of data on such significant events as Morgan’s raid on southern Indiana and Ohio or Lee’s march to Gettysburg, which would have revealed at least some damage to local infrastructure and land value (Atack and Passell 361). It is safe to assume, then, the estimated costs to the North are incomplete due to lack of information and thus underestimate the damages experienced.


Southern Economy

The South was in shambles after the conclusion of the Civil War, both literally and figuratively. Nearly every factor of production had been exhausted or rendered less valuable, devastating the productivity of the Southern economy in one fell swoop. Its labor market was fundamentally and irreversibly different due to the Emancipation Proclamation, which freed all slaves in the Confederate States (the South) that refused to return to Union control by January 1863, about halfway through the war (Crowther 651). Being forced to pay former slaves a competitive wage and relinquish control over gang-labor increased costs for farmers while simultaneously decreasing productivity. Freed slaves also worked less hours a day, exacerbating the loss of profits. In complement to the slavery system, the South lost significant value in its main industry: agriculture. As a result of most fighting taking place in the South, Southern farmers suffered most of the physical capital losses (Atack and Passell 361). This was especially debilitating to the Southern economy because Southern land was valued for its fertility and ability to produce crops, thus making up most peoples’ primary source of income. The South’s agrarian business model made it very susceptible to the “rape and pillage” wartime practice that a militia will employ to destroy all infrastructure and physical sources of wealth of the opposing side. Evidence of this lies in the burned homes, slaughtered farm animals, ruined crops, broken bridges, and neglected roads left in the wake of the Union army (Faust). Official Senate estimates put these losses at $1.1 billion, which excludes lost slave property and includes expected depreciation of land values (Atack and Passell 361).
railroad_bridge
Railroad bridge over the James River near Richmond, VA. 1865.

sc_after_civil_war
Charleston, South Carolina, after a bombardment. 1865.





















Opportunity Costs

Perhaps the most comprehensive measure of economic losses, though, is found in the opportunity costs. This is also the hardest to quantify. Goldin and Lewis have come close nonetheless. They look specifically at levels of observed consumption postbellum contrasted with estimated levels of hypothetical consumption had there been no war as an indicator of the health of each region’s economy (Ransom). This study finds that the discounted value of lost consumption was $6.2 billion for the South and $1.15 billion for the North, suggesting the postwar rebound was much quicker for the North, possibly reflecting the muted losses in comparison (Ransom). These data, however, come with the caveat that it accounts for consumption lost for any reason – which inevitability includes the decline in output due to a demand deficit for cotton and the dramatic change in the labor supply after emancipation (Ransom).


In Perspective


The explicit cost of the war (not including opportunity costs or monies paid to repair damages due to war) -- $6.6 billion -- could have purchased:
  1. Freedom of all the slaves in the US
  2. A 40 acre farm and a mule to each slave family, AND
  3. $3.5 billion for reparations to ex-slaves
(As valued in 1865 dollars)
OR
  1. $206 per American, approximately twice the average annual per capita consumption pre-war -- about $375 per person in the South and $150 per person in the North, to account for population differences (Atack and Passell 362, Calore)

As valued in 2010 dollars: Approximately $75 billion (Calore)

The human losses are just as devastating. More than a million men were killed or wounded (Atack and Passell 361). This makes the Civil War the most deadly war the US ever fought, surpassing World War I, World War II, the Vietnam War and the Korean War combined (Calore). To quantify these losses in monetary values, Goldin and Lewis, the premier experts on the costs of the U.S. Civil War, use the discounted present value of expected future income over each individual’s anticipated working life or the cost of a handicap as a reduction in earnings and life expectancy to approximate human capital losses (Atack and Passell 362). This produces the largest single cost of the war at $2.3 billion.

Though these data are the most accurate to date, they still cannot measure human capital losses in terms of "pain and suffering" or "loss of companionship" (Atack and Passell 362). These losses are abstract and as yet impossible to quantify.


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Sources for above charts: Chambers, Peckham

Works Cited
Atack, Jeremy, and Peter Passell. A New Economic View of American History. 2nd ed. New York, NY: W. W. Norton, 1994. Print.
Calore, Paul. "What the American Civil War Cost." What It Costs. What It Costs, LLC., 2010. Web. 12 Oct 2010. <http://historical.whatitcosts.com/facts-us-civil-war.htm>.
Chambers, II, John W. ed. in chief, The Oxford Companion to American Military History. Oxford University Press.
Crowther, Edward R. “Emancipation Proclamation”. in Encyclopedia of the American Civil War. Heidler, David S. and Heidler, Jeanne T. 2000. Print.

Faust, Particia. Historical Times Encyclopedia of the Civil War. Harper Collins, 1986. Print.

Hassler, Warren W. "American Civil War." Encyclopedia Britannica. Chicago, IL: Encyclopedia Britannica, Inc., Web. <http://www.britannica.com/EBchecked/topic/19407/American-Civil-War>.

Peckham, Howard H. The Toll of Independence: Engagements & Battle Casualties of the American Revolution. Chicago: University of Chicago Press, 1974. Print.

Ransom, Roger L. "The Economics of the Civil War." EH.net. Economic History Association, 01 Feb 2010. Web. 12 Oct 2010. <http://eh.net/encyclopedia/article/ransom.civil.war.us>.