On June 19, 1861, the Daily Dispatch in Richmond, Virginia, published an article analyzing the financial position of both the Union and Confederate governments. The article argued the Confederate government had considerably greater tax revenue capacity because the South exported much more of its production, which would enable it to pay for more imports than the North and consequently raise more tariff revenue (the tariff being the main source of revenue for national government in the nineteenth century).
While the article, entitled “A Comparison of the Financial Resources of the United States and Confederate States” was clear Southern boosterism, it made a credible argument based on U.S. government statistical data from fiscal 1860 (July 1, 1859-June 30, 1860). It carefully accounted for exports by individual product or commodity, separating them into those produced exclusively by each section as well as those both sections produced. By the accounting of the Daily Dispatch, the value of U.S. exports for fiscal 186o was $316,220,610. Of that amount, the Dispatch asserted $214 million came from exclusive southern exports amounting to two-thirds of all American exports. The value in fiscal 1860 of combined exports was nearly $97 million and exports exclusively produced by the free states a mere $5 million.
The Daily Dispatch crowed:
If any one will analyze the articles embraced in the amount of $96,826,299, belonging alike to the labor of the free and slave States, he will find that at least one-third is justly the product of slave labor. We have, therefore, the fact that out of $316,220,610 of exports of domestic industry, nearly $250,000,000 is furnished by those States known as slave States.
Bearing in mind the fact — which cannot be questioned — that the imports of a country must be proportionate to its exports, and that upon the amount of imports depends the amount of revenue to be received, we have before us the most gratifying evidence of the great advantage, in this respect, of the Confederate over the United States. In this table, we have included all the slave States though Kentucky, Missouri, Maryland, and Delaware are not yet with us, and the general result would not be very materially varied if they never should come, as neither of them produce any considerable quantity of the great staple which gives such advantage to the South over the North.
Clearly here the Daily Dispatch was referring to “King Cotton,” which in fiscal 1860 had an export value of $192 million–nearly 90 percent of the exclusive exports from the slave states and over 60 percent of all American exports.
No doubt the main intent of the article was to reassure Virginians that their recent decision to join the Confederacy had been a sound one. That the slave states had a solid financial basis for their new national government and ample resources to resist any military effort by the North to crush it. But the Daily Dispatch took the argument farther. It asserted that the U.S. government lacked the financial resources to suppress southern independence. The article stated:
From the official records of our enemy, we can afford to read with complacency their idle and extravagant talk of superior advantages in financial resources. Nor are those who deal in financial operations ignorant of these facts. At present the bonds of the United States are selling in New York at eighty-five cents in the dollar, and that, too, when capital is lying idle and seeking a safe investment. The same bonds, before the separation of the Southern States, sold at one hundred and fifteen, showing a depreciation of thirty cents on the dollar. What has caused it? Not a want of money, for there is an abundance there, anxiously seeking a safe investment. The difficulty is the want of confidence in the security. The monied men of the North prefer to hold their money and do nothing with it, than to trust a Government whose sinking fortunes point to certain and inevitable bankruptcy. On the other hand, look to the operations now going on in the Confederate States. Whilst our people have no large amount of surplus capital to invest in the bonds of our Government, they manifest their confidence in the security by promptly offering to all their cotton and other products, and receive payment in the bonds and Treasury notes of the Confederate States. Our bankers, by their action, exhibit the same confidence; and indeed, all persons, in whatever business of life engaged, press forward, to manifest their confidence in our Government, and their purpose at all hazards and under all circumstances, to stand by it. With such resources and such a spirit, how idle and ridiculous are the vain-glorious boastings of our deluded and malignant enemies. The truth is, that the present war is wasting away the means and credit of the United States, and it is impossible for them to keep it up for any great length of time. They boast of having in the field over two hundred thousand men. If so, the annual expense of their Government cannot be less than two hundred and fifty millions of dollars, and their receipts do not exceed thirty millions a year. At this rate, they are increasing their public debt at least two hundred millions per annum. How long will their people consent to a continuance of a war which is thus exhausting their resources, destroying their business and covering their Government with debt and bankruptcy, and which has for its object no higher motive than the gratification of the most malignant passions? As long as they hoped to conquer us into subjection to their will, and thus force us to return to the Union, that they might continue to feed and fatten upon our substance, there was a practical object in the war, but that delusion is fast passing away, and when finally dispelled by the array of our army and the exhibition of our financial resources, we may look to an early peace, our prosperity and their ruin–three very certain and well-deserved results.
Of course, this prediction of the Daily Dispatch was wrong on all counts. The war would be long, ruin the South, while stimulating the economy of the North and laying the basis for massive industrial growth there after the war. While the argument about the value of southern exports was correct, its analysis of the ability of both sides to finance the war proved to be wishful thinking. While financiers early in the war were skittish about purchasing U.S. government bonds, with a competent Treasury Secretary, Salmon P. Chase, and well-motivated bond salesmen like Jay Cooke, the Lincoln Administration was able to tap northern capital to finance most of its war effort. Confederate planters and farmers quickly tired of delivering their harvest for promissory notes, and as the Dispatch article admitted they had little liquid capital to loan to the Richmond government. As noted in the March 15 edition of Civil War Emancipation, the Confederacy attempted to levy a direct tax on slaves and land, but experienced such widespread evasion it raised little revenue from it. Likewise, the increasingly effective federal naval blockade meant that the South’s ability to obtain money from exports and import tariffs proved limited. Hence, the Confederacy was forced to finance the war largely by printing money, leading to hyper-inflation which combined with the war’s devastation and disruption, ruined the southern economy over the course of the conflict.
So while the analysis by the Daily Dispatch in June 1861 of the financial prospects of the Confederate government is not without merit, clearly a slave-based plantation economy financing a war fought primarily on its own soil, could not outlast a determined and adequately financed enemy from without, even as it was undermined from within by its own citizens and the slaves it believed provided the basis for its economic strength.