by Henry McCarl
From 1830 to 1860, the Northern states prospered with the growth of diversified manufacturing as part of the worldwide Industrial Revolution. Immigrants and employment boosted the North’s population and economic prosperity, while the South became the principal provider of raw materials. Southern farms shipped agricultural products, such as cotton, to Northern mills, which sent finished goods back to the South. Railroads displaced canals as a reliable method of shipping not only because of speed of transport, but also because they did not depend on natural water sources.
Southern prosperity, based on cotton production, relied on slave labor. Slaves were considered capital resources, used in the production of raw materials; this became a source of significant friction between the North, which paid its workers wages (normally as little as possible, given an abundant supply of labor) and the South, which “owned” its workers.
Growing concerns among groups in the North regarding the immorality of slavery led to political moves to outlaw slavery. Slaveholding Southerners felt threatened by what they perceived as the destruction of their (human) capital resources. In an attempt to end slavery peacefully, Congressmen drafted many compromises that proposed compensating slave owners for their “property,” but they encountered consistent opposition by abolitionists.
By 1832 most of Europe and Mexico had abolished slavery. There was great international pressure for the United States to follow suit, but the South held fast to states’ rights, a principle that was grounded in the maintenance of their enslaved agricultural workforce. Because they relied on their slaves for their livelihoods, planters supported Congressional representatives who would support the right of self-determination for each state and oppose the annexation of anti-slavery territories. The political complexity of the issue of slavery can be illustrated with the example of Texas statehood.
When Texas asserted its independence from Mexico in 1836, one of the unresolved issues was the practical matter of maintaining slaves on the new cotton plantations in that territory. The national political debate over whether the new territory would be “slave” or “free” delayed Texas’ admission to the United States until 1845. Most Texans did not own slaves; fearing that Texas might vote to abolish slavery, Southern politicians supported admission of Texas as a slave state before anti-slavery forces there could organize a referendum.
Because Antebellum industrial development was concentrated solely in the North, white Southerners maintained their political and economic control in a primarily agricultural South, unaffected by the problems of wage labor. The unwillingness of these opposing sections to reach a compromise ultimately led to the Civil War. The same inflexibility and sectional distrust delayed post-war economic progress in the South and prolonged its economic stagnation and bitterness resulting from Reconstruction.
Banking and Currency
In 1832 President Andrew Jackson, who distrusted centralized monetary control, abolished the original Bank of the United States. As a result, the “Free Banking Era” began, and it was characterized by economic instability that did not end until the 1913 establishment of the Federal Reserve System. State-charted banks proliferated, operating without regulation by federal authorities, laws, or uniform policies.
Each bank issued its own currency. Some financial institutions were relatively safe, depending on how much of their deposits were held as reserves, and their bank notes exchanged at face value. Many were less stable, and their notes exchanged at various discounts to face value, depending on the public’s perception of their reputation.
As with modern currency, numbers were not the only images on paper money. Vignettes, or illustrated scenes, on bank notes depicted mythical gods and goddesses, regional industrial and agricultural scenes, and symbols of capital and economic strength. Just as railroad locomotives and factories provided the themes for many illustrations on Northern bank notes, slaves often provided inspiration for those in the South. Artists depicted slaves as happy, healthy workers, and portrayed overseers and owners as benevolent. Cotton, the commodity with which the South backed its money, also adorned the face of paper money.
Among other societal changes, the 1861 outset of hostilities led to the necessity to change the monetary system. The federal government authorized Federal Demand Notes–the first issue of paper money by the United States since the “Continentals” of the Revolutionary War period. Federal Demand Notes can still be redeemed as currency, although many hold more value as collectibles. The Confederacy issued notes to be “redeemed after a treaty of peace was signed between the CSA and USA.” Confederate notes were, in effect, small denomination loans that paid interest, usually at a yearly rate of six percent, and they were issued on the gamble that the South would prevail.
States often issued notes on the same basis as their respective governments, and local banks continued to issue their own notes, as did a variety of merchants. Working with a limited supply of paper (due to the blockade) and skilled engravers, issuers of paper money in the Confederacy chose vignettes already in the printer’s stock. Lithographs of older engravings were often produced to combat the cost of reproducing the master images. Counterfeit C.S.A., state, and local Southern bank notes circulated during the war. Many were printed in the North, and with the encouragement of the United States, to undermine the value and credibility of Southern currency. Northern counterfeits of Confederate money were superior in quality due to access to printers and appropriate facilities.
The 1863 National Banking Act initiated a significant change in U.S. banking laws, establishing a uniform currency to be issued by nationally chartered banks. Banks were required to purchase U.S. government bonds as backing for National Bank Notes, a clever method to finance the war without raising taxes (This system continues today with some flexibility on whether the bank reserves are held as bonds, currency, or other financial instruments). Although many local banks still issued their own currency, the National Bank Notes were the standard of value from 1863 to 1932.
The financial obligations of the Confederate government died with it. After the war Confederate notes and bonds were worthless as currency and were sometimes even used in homes as wall insulation. Only later would the notes become valuable to collectors.