Confederate Economy

Before the Civil War, cotton production and exportation in the southern United States was one of the most important industries in the world. So, why did the cotton industry fail the Confederacy during the Civil War? How did the Confederacy's economy become so weak compared to the Union's industrialism?

Confederate Economy Definition

The Confederate States' economy was the cotton industry. (Other cash crops were produced, such as tobacco, but none in comparison to cotton.) Cotton was produced on plantations and exported to the northern United States and Europe. By 1860, if the southern United States was considered an independent nation, it would have been ranked as the fourth richest in the world thanks to the cotton industry. But there was a glaring issue: cotton production heavily depended on slave labor.

Fig. 1 - Map of the US, 1863.¹

Before the southern states seceded from the USA and became the Confederacy, pressure had long been mounting from the Northern States and Europe regarding slavery. Britain and France, two of the largest importers of American cotton, made slavery illegal in their countries. The Northern States, represented in the election of President Abraham Lincoln, wanted to stop the spread of slavery into western territories.

An attack on slavery was considered by Southern representatives to be an attack on the cotton industry, the lifeblood of the South's economy. In 1861, the Confederacy was formed to defend the rights of Southern states to hold slaves. The Confederate States believed that the wealth and importance of the cotton industry would win them the war.

Why the Confederate Economy Failed

The Confederacy's reliance on cotton is one of the primary reasons that it lost the Civil War. While cotton exportation was the South's greatest economic strength, it was also the sole lynchpin on which their success would be determined. The Confederate States failed in leveraging its cotton production power, and the Union directly attacked exportation to Europe.

King Cotton Diplomacy

The Confederate federal government believed that withholding exports of cotton to Great Britain and France would pressure the European countries into entering the war on behalf of the South. This was King Cotton Diplomacy. The plan failed for two reasons.

Fig. 2 - American Slaves in Georgia, 1850.

Firstly, France and Great Britain had already banned slavery in their countries and did not want to openly support the Confederacy. Secondly, they could find cotton elsewhere; the European countries turned to other sources such as India for cotton production. They could find land and cheap labor apart from the Confederacy. This was a huge loss to the Confederate States, essentially losing the primary buyers of their cotton.

The Anaconda Plan

The Anaconda Plan, proposed by Union General Winfield Scott after the Battle of Fort Sumter at the beginning of the Civil War, detailed a naval blockade of Southern ports. Hundreds of Union ships blockaded over 3,500 miles of coastline, stretching across the Atlantic coastline and the Gulf of Mexico. Ports in New Orleans and Charleston were blocked from outside support.

Fig. 3 - The Anaconda Plan

The Anaconda Plan crippled the Confederate States. By the end of 1861, cotton exportation had already dropped by 95%. The Confederacy was already put into a state of survival; the cotton industry that they had rested much hope and confidence in was essentially destroyed.

Another focus of the Anaconda Plan was the capture of the Mississippi River, an essential means of transportation for the Confederacy. The Mississippi river connected the western Confederacy (Texas and Arkansas) to the east. Without the river, the Confederacy struggled to coordinate troops and resources throughout its territories.

Fig. 4 - Mississippi River Map.

Confederate Economy Inflation

With the cotton industry ruined by the failure of King Cotton Diplomacy and the success of the Anaconda Plan, the Confederate federal government scrambled for a means to fuel their war against the Union. The Confederacy began to print as much money as it needed, causing massive inflation.

The graph below represents prices during the Confederacy's existence. The Lerner Price Index is a somewhat complex economics equation. In simple terms, the cost of living in the Confederate states had multiplied by a factor of 92 from the beginning to the end of the war.² By 1864, the Confederate economy was irreparably damaged.

Fig. 5 - Confederate Inflation Graph.

The Southern and Northern Economies During the Civil War

The weaknesses of the Confederate States' economy are best realized when compared to the Union's economy. The Union possessed a far superior, industrial economy and infrastructure, as opposed to the Confederacy's largely agrarian-based economy and infrastructure. The chart below details some of the stark differences between the North and the South during the American Civil War.