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ARTICLE

The Civil War and Political Nationalization

JANUARY 01, 1982 by CLARENCE B. CARSON

Dr. Carson has written and taught extensively, specializing in American intellectual history. He is the author of several books and a frequent contributor to The Freeman and other scholarly journals.

The Civil War was a watershed in American economic history. During the war, and the Reconstruction of the South which followed, the stage was set for major economic develop ments. The political nationalization which occurred provided the framework for large-scale economic development. A nation-wide rail transportation network was soon formed. Interstate commerce grew rapidly, and some businesses became nationwide in scope. Foreign investment and domestic accumulation provided the capital for large industries.

It would be a mistake, however, to attribute these developments to the warfare itself. At least, that is not my meaning. Warfare is destructive of capital, of materials, and of manpower. It has been shown, too, that the most immediate impact of the Civil War was a decline in the growth of production of consumer goods, and that it took several years before the rate of growth that had been going on before the war was achieved again. Certainly, the devastation and political disruptions within the South were anything but conducive to economic development.

Rather, my point has to do with the control and disposition of political power. The secession of the South brought a new political party, the Republican party, to power. The victory of the North and the policies followed during Reconstruction consolidated the Republican party in power for several decades. Involved in this development was a basic shift of political power from the South to the Northeast and Midwest. Most important, it meant a change in the ends for which the power of the United States government was to be used.

The Gilded Age

An understanding of the shift in the role of government in the economy is critical to the interpretation of the period which historians have long called the Gilded Age. But by whatever name it may be called, the period from 1870 to 1910, or thereabouts, left a distinctive mark on America. It was the age of the great entrepreneurs, of John D. Rockefeller, Jay Gould, Philip Armour, Le-land Stanford, Andrew Carnegie, James J. Hill, Jim Fiske, Collis P. Huntington, Cornelius Vanderbilt, J. P. Morgan, and many others. It was an age of spectacular economic developments: of great rail systems thrust across the plains, over the mountains, and to the Pacific, of the emergence of large industrial corporations, of the growth of large cities as manufacturing and commercial centers, and of the opening up of millions of acres of land to farming and ranching.

These dramatic developments provided the substance, such as existed, for a number of myths, some of which have been given generic names, such as the Robber Barons myth, the Horatio Alger myth, and so on. Probably, the most persistent myth is the one that the economic thrust in the latter part of the nineteenth century was simply a result of freedom. This position was force fully stated by Vernon L. Parring-ton in these words:


It was an abundant harvest of those freedoms that America had long been struggling to achieve, and it was making ready the ground for later harvests that would be less to its liking. Freedom had become individualism, and individualism had become the inalienable right to pre- empt, to exploit, to squander . . . . From the sober restraints of aristocracy, the old inhibitions of Puritanism, the niggardliness of an exacting domestic economy, it swung far back in reaction, and with the discovery of limitless opportunities for exploitation it allowed itself to get drunk. Figures of earth, they followed after their own dreams. Some were builders with grandiose plans in their pockets; others were wreckers with no plans at all. It was an anarchistic world of strong, capable men, selfish, unenlightened, amoral—an excellent exam-pie of what human nature will do with undisciplined freedom.[1]

The other side of the coin of this myth of unlimited economic freedom was that it provided a justification for government regulation, restriction, and control of the economy. Freedom must be curbed, obviously, if it produces such results as Parrington and other mythmakers describe. Freedom is nothing short of a destructive menace by their interpretation.

There is a profound misunderstanding of the free market and free enterprise entangled in this myth. What some, at least, of the myth-makers are leaving out of account is that government was intervening in the economy during these years, and doing so to a significant and sometimes determinate extent. There are two distinct types of government intervention. One is when government grants favors to some kinds of economic development, promotes some industries, grants class privileges, and aids and abets in the establishment of monopolies. The other type is government regulation and restriction of economic undertakings.

Both types of intervention are interferences with the market. Each produces its own kinds of distortions, favors some and disadvantages others. That some businessmen, for example, may seek and get government privileges should not be taken to mean that such things are in accord with freedom. That much of the intervention between 1860 and 1900 was of the first type means as surely that there was intervention and distortion as it would if the second type had prevailed.

Curbing Intervention

The main political thrust of the first half of the nineteenth century was to get the United States government out of involvement with or intervention in the economy. There were two main elements behind this thrust. One was that many of the intellectual and political leaders favored a free market in principle. The other was that the South (or slave states, as they became known, in cluding not only those states which would eventually be a part of the Confederacy but also Maryland, Delaware, Kentucky, and Missouri) both generally opposed intervention by the United States government in the economy and favored a free market. The South was the major exporting region during this era, favored the development of international trade, and looked toward Europe both as a market for its goods and as a source of imports.

And, the South dominated national politics from 1800 to 1860, or, at least, Southerners did. Southerners served in the Presidency for approximately 41 years from 1801 to 1861. There were only two Chief Justices of the Supreme Court from 1801 to 1864, John Marshall of Virginia and Roger Taney of Maryland. Southerners served as Speaker of the House of Representatives for ap proximately 49 years between 1801-1861.

Southern Dominance

How or why the South should have been so dominant politically is not readily apparent. From the outset, the South had a minority. If disfranchised blacks had not been counted in the census, their minority status would have been even more pronounced. It was the prominence of the South in one political party that enabled Southerners to exercise their dominant political role. The Jeffersonian Republican party and the Jacksonian Democratic party, which succeeded it, were in control of the government for all but a few years from 1801 to 1861. While both these parties, if they be considered distinct from one another, had a national following, their greatest strength was in the South. So it was that Southerners maintained their leverage over the government during these years.

So it was, too, that the opposition to using the power of the general government to develop a nationally integrated economy triumphed during the era before the Civil War. Both the Jeffersonians and Jackson-ians were basically states’ rights parties. Both generally opposed government intervention and favored free trade and free markets. Jefferson’s party had been born out of opposition to what might be called the economic nationalism of Hamilton’s policies. Jackson’s party was shaped in opposition to the National Republicans and Whigs, at least in part, in opposition to Henry Clay’s “American System” and John Quincy Adams’ nationalist ideas.

The critical economic issues from 1800 down to about 1845 were the protective tariff, a national banking system, and internal improvements (roads and canals mainly, to that date). These were joined from about 1845 onward by immigration, slavery expansion, and railroad promotion for internal improvement. Generally, the Jeffersonians and Jacksonians opposed a protective tariff, a national bank, federal appropriations for internal improvements, and, in the years before the Civil War, favored the expansion of slavery. The opposition to the national bank and federally aided internal improvement reached its peak during Jackson’s presidency, and is symbolized by his veto of the Maysville Road Bill and the Bill for rechartering of the Second United States Bank. Jackson got caught in political crossfires on the tariff question, but his followers generally opposed the protective tariff as well.

Seeds of Conflict

Those who would use the power of the United States government to develop a national economy were generally thwarted up to the Civil War, and undoubtedly they were more than a little frustrated. Some historians have maintained that the frustration mounted in the years just before the war. Charles A. Beard held that it was Northern capitalists ranged against Southern slaveholders that precipitated the conflict. The desire for a protective tariff did apparently spread after the depression which began in 1857. There is no doubt that the necessity for expanding slavery if the South was to regain its parity in the Senate became more pressing after 1850. That slaveholders (actual and potential) suffered from a capital (or credit) crunch attributable mainly to the rising cost of slaves can be, and has been, documented ad nauseam. That made them competitors, at the least, with Northern industrialists for capital.

But it is neither my purpose to make an economic interpretation of a portion of United States history nor to explain the coming of the Civil War. Rather, I. wish to show the change in direction that took place by way of political centralization or nationalization during and after the war. To do that at all effectively, it needs to be done against the background of what had happened before the war.

Sectional Interests

The main features of pre-Civil War America were: widespread economic freedom, decreasing intervention in the economy by the national government, and developing sectionalism, regionalism, and localism. The sectionalism was not a consequence of economic freedom, but of slavery, which is its opposite. The regional-ism and localism were, however, at least according to its critics, a product of non-involvement by the United States. One thing is clear: while the Constitution removed or forbade the erection of political obstacles to a common market in the United States, the general government did very little to overcome the natural obstacles to a nation-wide market. A case can be made that building roads, canals, and railroads is not the business of government, and that position had vigorous advocates during these years. Also, it should be noted that much building of transportation routes and linking of regions was done during this period, both by private investors and with the aid of state governments. But for virtually the whole period they were links from the inland to seaports, not connections between inland areas.

Aside from the difficulties of transportation, one of the greatest obstacles to a national market during much of this period was the absence of a generally agreed upon and acceptable currency. To put it more precisely, a good many different kinds and varieties of money, or would be money, vied to become the currency. The Constitution seemed to bend the United States toward a gold and silver coin currency. That ran into trouble early on, however, because of Hamilton’s effort to establish bimetallism. He set a ratio of 15 to 1 between silver and gold. This undervalued gold and overvalued silver. In consequence, only silver was presented to the mint for coining. But that ran into difficulties, too, because the American dollar was slightly lighter than the Spanish silver dollar. It tended to leave this country to be exchanged for the Spanish dollar. The mint had little to employ it, so the ever frugal Jefferson had it closed in 1806.[2] Thereafter, until the 1830s, Americans relied mainly on foreign coins for minted money.

Government Control of Banking

Meanwhile, banks took up the slack by issuing paper money which was sometimes redeemable in specie. The First United States Bank was chartered in 1791 and lasted until 1811. The Second United States Bank was chartered in 1816 and expired in 1836. During their tenure, these banks usually supplied a common currency for the United States, one limited in its quantity by law and redeemable ordinarily in specie. Further, they held in check the issues of paper money by state banks by discounting their paper money. Thus, the United States Banks provided a standard of measurement of the value of all circulating media of exchange in the country. With the demise of the second bank there was no longer any generally acceptable measure of the worth of state bank issues.

Before its demise, however, a new mint had been established by the United States, and a 16 to 1 ratio between gold and silver promulgated. This overvalued gold and undervalued silver. In consequence, gold was brought in for minting.[3] Whether the United States then had a gold standard may be debatable, but it is certain that thereafter silver dollars, following Gresham’s Law, did not remain long in circulation. After the gold discoveries of the late 1840s, even the subsidiary silver coins had to be debased to keep them in circulation.

Market Possibilities

If governments had withdrawn entirely from the monetary field, except for specifying in what forms they would accept payment of taxes and for land, it is quite possible that a common currency would have developed in the United States. Private mints could have supplied the coins, and the troublesome question of a fixed ratio between precious metals could have been settled by having none. The weight in ounces of what metal could have been engraved on all coins. Merchants could have set their prices, and adjusted them from time to time, in terms of ounces of gold, silver, copper, or what have you. Paper money might even have circulated with a guarantee of redeemability certified by 100 per cent reserve in specie backing it. (A major difficulty with this scenario is that there would be little profit, if any, for the mints and none, so far as I can see, for the issuers of paper money. Counterfeiting and fraud might not be prohibitive difficulties, but they would remain as problems nonetheless.)

There was a movement, of sorts, against banks and against their issuance of paper money which mounted in the 1830s and probably reached a peak in the 1840s.[4] It got underway with Jackson’s veto of the bill to recharter the Second Bank of the United States. Animosity mounted following Jackson’s issuance of the Specie Circular, requiring the payment for government ]ands in specie. There were numerous bank failures as banks were pressed to redeem their paper money in specie. President Martin Van Buren proposed an Independent Treasury, which was eventually passed into law in the 1840s. This meant that money received and held by the United States would not go into the banking system (or lack of system) at all, and could not, therefore, be used by banks as a reserve against their paper money. Several states in the West adopted constitutional provisions prohibiting their legislatures to charter banks. Others adopted strenuous limitations upon banking.

Even so, governments remained entangled in the monetary situation. The federal government was minting gold coins and had set a ratio between gold and silver. Most states continued to charter banks which could and did issue paper money. Those states that did not were usually flooded with paper money from surrounding states. The paper money was not legal tender, of course, but it did pass as currency, or at least some of it did. It is probably true that good money will drive bad money out of circulation, in the absence of tender laws, but while it is doing so the paper continues to pass as currency. Moreover, during the 1840s and 1850s, as well as earlier, there were usually plenty of new banks to put out some more. Besides, some of the paper was not bad money, and it was not readily apparent which was which in many cases.

In Massachusetts, the currency was stabilized by a consortium of bankers. In New York, the state enforced a reserve system that worked tolerably well. Elsewhere, there was usually chaos. A contemporary described the situation this way:

In the West, the people have suffered for years from the issues of almost every state in the Union, much of which is so irredeemable, so insecure and so unpopular as to be known by opprobrious names . . . There the frequently worthless issues of the State of Maine, the shinplasters of Michigan, the wildcats of Georgia, of Canada and Pennsylvania, the red dogs of Indiana and Nebraska, the miserably engraved notes of North Carolina, Kentucky, Missouri and Virginia and the not-to-be-forgotten stump-tails of Illinois and Wisconsin are mixed indiscriminately with the par currency of New York and Boston . . . .[5]

For Lack of a Common Currency

The main point that I would make is that there was considerable difficulty in having a common market without a common currency, that trade between manufacturing centers, such as there were, and the hinterlands, for example, was made unusually difficult by the variety of currencies and the absence of up-to-date discount rates. (Discount rates were published, but some of them were apt to be obsolete by the time they were printed.) In consequence of this, as well as other obstacles, most production of manufactured articles was for local markets up to the Civil War. As one historian says, “Most firms sold only in certain natural geographic regions, shipping only limited distances and depending upon consumer satisfaction and local advertising for the spread of their wares.”[6]

With one or two exceptions, the federal government’s posture was neutral toward economic development. A good example of this neutrality is what happened following the Panic of 1837. Many states had become deeply involved in road, canal, and some railroad building in the 1830s. Large issues of bonds had been sold, especially to foreign investors, particularly the English. When hard times hit, many of the states defaulted on the payment of the debts. Efforts to get the federal government to bail them out, to assume the loans or enforce payment, were of no avail. In consequence, foreign sources of capital almost dried up for Americans. Not even the securities of the United States could find subscribers in the 1840s. “You may tell your government,” said one of the Rothschilds, “that you have seen the man who is at the head of the finances of Europe, and that he has told you that they cannot borrow a dollar, not a dollar.”[7]

States did offer the means for the consolidation of capita] from investors by way of the limited liability corporation. In the early 1800s, however, corporate charters could only be obtained by special acts of legislatures. Such charters were difficult to obtain, were conducive to bribery, and were tainted because they were special privileges. To overcome these objections, a movement began in the 1830s for states to pass general acts for incorporation. By 1860, the following states had passed such acts: Connecticut, Maryland, New Jersey, New York, Pennsylvania, Indiana, Massachusetts, and Virginia.[8]

There was a difficulty with state incorporation, however. It was not clear what rights a corporation chartered in one state would enjoy in others, if it chose to operate there. Would its property be secure there? Might it not be subject to disabling taxation, regulation, or other punitive measures? Whether the United States government had the authority to protect foreign (i.e., out of state) corporations, or whether it would if it could, were open questions.

A Pro-Slavery Trend

The political trends of the 1840s and 1850s were not very reassuring. This brings us to the major exception to the neutrality of the federal government toward economic development, its position regarding slavery. It is possible to argue that prior to the 1840s the government was neutral toward slavery, except for prohibiting the importation of slaves. But in the last decade or so before the war, the Southern leverage over the government was being used to expand and protect slavery.

The annexation of Texas and the territorial acquisitions from Mexico following the Mexican War were viewed at the time as moves to expand territory open to slavery. A Fugitive Slave Act was passed in the wake of the Compromise of 1850 which put the government in the business of capturing runaway slaves and returning them to their owners. The Kansas-Nebraska Act opened up Kansas to slavery, if the voters wanted it. The revelations of the Os-tend Manifesto brought out into the open proposals for annexing Cuba as a potential slave state. The Dred Scott decision held that Congress had no power to determine where slaves could be taken in the United States.

The trend was to circumscribe the powers of the federal government and augment those of the states. Southern leaders were becoming less and less willing to compromise, and they were bending the United States Constitution in the direction that they would write into fundamental law in the Confederate Constitution.

A Republican Party

The modern Republican party was brought into being to counter these trends and directions. It ran its first presidential candidate in 1856. The platform called for the repeal of the Missouri Compromise, the admission of Kansas as a free state, the stamping out of slavery in the un organized territories, federal aid to build a Pacific railroad, and a federal program for internal improvements. The appeal of the new party was clearly demonstrated, for it carried several Northeastern and Mid-western states.[9]

The Democratic party broke up in 1860. The Northern Democrats nominated Stephen A. Douglas, the Southern Democrats, John C. Breckinridge, and a new party, the Constitutional Union, was devised for those who wanted neither. It nominated John Bell of Tennessee as its candidate. With the disruption of the Democratic party went almost certainly the Southern dominance of national politics. The Republicans seized the opportunity, nominated Abraham Lincoln for President, and adopted a platform which had no discernible appeal in the South.

While the Republican platform did not come out in favor of the abolition of slavery, did not even condemn the Fugitive Slave Act or slavery in the District of Columbia, it did reaffirm its opposition to slavery expansion in the territories. It denied that Congress had the authority “to give legal assistance to slavery in the territories,” viewed with horror the illegal reopening of the slave trade, and once again demanded the admission of Kansas to the union as a free state. In contrast to the platform of 1856, it came out in favor of a protective tariff, declaring that duties should be adjusted so as “to encourage the development of the industrial interests of the whole country.”[10] It opposed any change in the naturalization laws, i. e., favored a liberal immigration policy, and came out for a new homestead law which would make government land available virtually free. Or, as one contemporary newspaper expressed it, the platform offered protection for industry, “economy in the conduct of the government, homesteads for settlers on the public domain, retrenchment and accountability in the public expenditures, appropriation for rivers and harbors, the admission of Kansas, and a radical reform in the government.”[11]

As soon as it became certain that Lincoln had been elected, Southern states began to secede to form a Confederacy. When all who would had seceded, control over the United States government was fully in the hands of the Republican party. The control was consolidated during Reconstruction, mainly by Congressional dictation of the terms of read-mission to the Union of Southern states. Not until 1884 was a Democrat elected to the presidency, and he was the only one to serve (if Andrew Johnson be excepted) from 1861 to 1913. One or the other houses of Congress was from time to time Democratic, but in general Republicans dominated the government from the Civil War to the eve of World War I.

The South Dispossessed

Not only was the South dispossessed of most of its political power by secession, war, and reconstruction but also of much of its wealth and the basis of its economy. The abolition of slavery resulted in a loss of capital (in slaves) reckoned at something on the order of $400 mil lion. The Fourteenth Amendment prohibited both the United States governments and those of any states from compensating owners for any loss of property in slaves. Moreover, neither were permitted to assume or pay any debts contracted for the prosecution of the war by the Confederacy. The Confederate money was then worthless as were all bonds and securities sold by the Confederacy or states that were in rebellion. On top of this, many of the larger. cities were burned or destroyed, railroads destroyed, plantations plundered, and so on. Whatever power and fortune there had been in the South to defend the powers of the states or thwart centralizing and nationalizing tendencies was, as Margaret Mitchell well said, Gone With the Wind.

With the South as an obstacle to centralization removed, with a war to fight and a South to remake, a large scale nationalization of power took place. The most far-reaching step toward nationalization was made in Section 1 of the Fourteenth Amendment, which said, in part: “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the law.” In theory, at least, this gave Congress and the federal courts oversight over all state acts and legislation, for there was little they could do that would not involve in one way or another, privileges and immunities or life, liberty, and property. When the courts later ruled that a corporation was a “person” in the sense intended by the amendment, they also enjoyed this protection from state governments.

Protectionism

But well before the Fourteenth Amendment had been either proposed or ratified the government had adopted considerable legislation with a nationalizing tendency. The Republicans in power moved with a right good will to use the government to promote economic development along lines congenial to them. While there is hyperbole in his summation, there is truth too in Wilbur -Cash’s harsh assessment of Northern aims, when he said: “The Civil War and Reconstruction represent in their primary aspect an attempt on the part of the Yankee to achieve by force what he had failed to achieve by political means: first, a free hand in the nation for the thievish aims of the tariff gang, and secondly, and far more fundamentally, the satisfaction of the instinctive urge of men in the mass to put down whatever differs from themselves . . . . ”[12]

Whether the aims were thievish or not, the Southern representatives were hardly out of Congress before the movement was afoot to adopt a full-fledged protective tariff. It came to fruition in the Tariff Act of July 14, 1862, which “increased the rates on articles of non-American production, gave protective increases in the case of many articles which could not be produced at home, and greatly reduced the free list.”[13] Tariffs reached a wartime peak after the passage of the Tariff Act of 1864. The average of duties on imports was 47 per cent and some rose as high as 100 per cent.[14]

Nor was Congress any slower in getting around to authorizing the building of a railroad to the Pacific. Federal corporations to be named the Union Pacific and Central Pacific were authorized to build and operate the roads. Large inducements were offered to the builders of the road, first in 1862, but these were supplemented by another act in 1864. Among the inducements were the full use of the power of the federal government to obtain rights of way: the extinguishment of any Indian titles to land along the route; the availability of armed forces to drive off any trespassing Indians; the power of eminent domain would be exercised to acquire land. In addition large land grants were made, and millions of dollars in bonds.[15] With such privileges in hand, financiers were able to raise much capital for the undertaking.

State bank notes were finally banished once and for all after the passage of the National Bank Act of 1864. This act authorized the formation of national banks, granted them the power to issue bank notes, made them depositories of federal funds, and required them to purchase United States bonds to the extent of one-third of their capita]. When banks did not rush to become national banks, Congress levied a 10 per cent tax on state bank notes, and those banks which remained state banks stopped issuing paper money.

Financial Concentration

It should be noted that reserves against both bank notes and deposits had to be kept in specified “reserve cities.” So it was that much of the reserves of national banks came to be held in New York City banks.[16] It is worth pointing out, too, that after the war bank note issues were concentrated in the Northeast. They were supposed to be distributed on the basis of population, or at least along those lines. It did not happen that way: New England and the Middle Atlantic states got the lion’s share, and the South hardly any at all. As one historian pointed out, “The little state of Connecticut had more national bank circulation than Michigan, Wisconsin, Iowa, Minnesota, Kansas, Missouri, Kentucky and Tennessee.”[17]

Much of the liquid wealth in the country was bound up with, tied to, and dependent on the national government in the course of the war and its aftermath. This came about mainly by way of the financing of the war. The National Bank Act was, in part, a device for financing a part of the cost of the war initially. The requirement that banks buy bonds served that purpose, and the bank notes augmented the money supply. Taxes were more widely levied during the war than had ever been the case under the Constitution. An income tax was even imposed. Mainly, though, the war was financed by the selling of bonds and the issue of Greenbacks. The Greenbacks were not quite fiat money, for they did carry a promise of eventual redemption, though no time was specified. They were made legal tender both for the payment of government obligations, except interest on bonds, and for taxes to the United States. The largest portion of the cost of the war was paid for by the sale of bonds.

Another way to look at it is that a great concentration of wealth, hence, of potential capital, took place during the war. The instrument for this concentration was the federal government. The concentration was accomplished in two ways during the course of the war: by taxation and by promises to pay in the future. The national bank notes, the Greenbacks, and government bonds were promises to pay, or debt, and the concentration took place by way of the wealth they drew into the treasury at the time.

Government Distorts the Economy

This concentration had two major impacts on the accumulation and concentration of private capital. In the first place, it was paid out by the government for goods and services, for ships, for munitions, for army and navy supplies, for salaries and bonuses, and such like. Government contracts for supplies brought profits, and, when they were saved, future capital for industrialists. For example, in meat packing, one historian says: “It was no accident that the men who obtained Civil War government contracts—Jacob Dold, Philip D. Armour, Nelson Morris—were to emerge by 1865 . . . as the packers of modern-day capitalist enterprise.”[18]

The other major impact occurred as the debts were paid and the currency redeemed. Unlike what has happened since World War II, the government did not long continue most of its inflationary war practices. It moved toward retirement of the bonded indebtedness as the bonds matured. Eventually it redeemed, or offered to redeem, the Greenbacks in specie. National bank notes in circulation were reduced or retired as the government reduced its debt. Since the bonds had floated in the market and the Greenbacks depreciated after they were issued, it was possible to trade in these for profit. Since interest on the bonds was always payable in specie, exceedingly good returns were possible by buying them at discount and collecting interest in premium money. There were widespread accusations, too, in the decades after the war that government bonds had been bought with 50-cent dollars and paid back with 100-cent dollars. There was some substance to the charge, but my point is that handsome private accumulations of capital could be had at the expense of taxpayers generally in this situation.

Since it is easy to misinterpret these events, and since it has been done often enough, let me restate the broad point I am making and summarize what has been presented so as to bring it as directly as possible to bear on that point. The conception I am working with is that when government intervenes in the economy it produces distortions and may have determinative impact on the direction of economic development. Further, my broad point is that a sectional party, the Republican party, came to power at the time of the Civil War, that it centralized power in the national government, and used that power to intervene in the economy so as to promote a nationally integrated economy, especially by the promotion of capital concentration, manufacturing, and the development of transportation. The developments which followed in the latter part of the nineteenth century were shot through with the impact of government intervention.

The Destruction of Wealth

The most drastic intervention, of course, was the destruction of a large portion of the wealth of the South. The emancipation of the slaves—surely, a desirable outcome—was accomplished in the most disruptive and vindictive manner conceivable, and the canceling of all debts left many Southerners in financial ruin. The protective tariffs were the most direct sort of intervention, aimed at discouraging foreign trade and promoting domestic manufactures and goods. The government commenced a policy of large grants for the promotion of transportation. The inter ventions in the money supply were multiple: fostering national banks, giving precedence to their bank notes, stopping redemption in specie during the war, issuing Greenbacks, and gaining national control of the money supply. It was this surreptitious financing of the war rather than the later redemptions that was the intervention and the source of the ills.

It was these and other interventions that contributed so heavily to the ills most historians have identified in the latter part of the nineteenth century: the greatly accelerated, hasty and shoddy railroad building, the lopsided thrust to industrialization, the financial shenanigans, the surge of farmers into Western lands that could not support them, and the booms and busts that followed upon expansions and reductions of the money supply. Economic freedom does no more than provide opportunities; government intervention thrusts economic development along political lines that are dangerous to the well-being of the populace. []


1.   Vernon L. Parrington, The Beginnings of Critical Realism in America: 1860-1920 (New York: Harcourt, Brace and World, 1930), p. 17. Emphasis added.

2.   Clarence H. Cramer, American Enterprise: Free and Not So Free (Boston: Little, Brown and Co., 1972), p. 145.

3.   Ibid., p. 159.

4.   See Bray Hammond, “Banking in the Early West: Monopoly, Prohibition, and Laissez Faire” in Thomas C. Cochran and Thomas B. Brewer, Views of American Economic Growth, vol. I (New York: McGraw-Hill, 1966), pp. 171-88.

5.   Quoted in Louis M. Hacker, The Triumph of American Capitalism (New York: Columbia University Press, 1947), pp. 333-34.

6.   Thomas C. Cochran, “Business Organization and the Development of an Industrial Discipline” in Cochran and Brewer, op. cit., p. 227.

7.   Thomas C. Cochran and William Miller, The Age of Enterprise (New York: Harper & Row, 1961), pp. 48-49.

8.   Cochran, “Business Organization,” op. cit., p. 218.

9.   Hacker, op. cit., pp. 315-16.

10.   Quoted in James F. Rhodes, History of the United States, vol. II (New York: Harper & Brothers, 1893), p. 464.

11.   Quoted in Hacker, op. cit., p. 338.

12.   Wilbur J. Cash, The Mind of the South (Garden City, N. Y.: Doubleday Anchor Books, 1954), p. 113.

13.   J. G. Randall and David Donald, The Civil War and Reconstruction (Boston: D. C. Heath, 1961, 2nd ed.), p. 287.

14.   Ibid.

15.   Ibid., pp. 288-89.

16.   Ibid., p. 351.

17.   Quoted in ibid., p. 352.

18.   Hacker, op. cit., pp. 256-57.

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January 1982

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