This paper was improved considerably by discussion at early stages with my colleagues Samuel Morley and Donald Nichols. Subsequent criticism by Robert Gallman, Stanley Engerman, Peter Lindert, and Richard Sylla helped clarify my ideas still further. The effective assistance of Leo DeBever, James Roseberry and Adair Waldenberg is also gratefully acknowledged. The research underlying the paper has been supported by the National Science Foundation, grant number GS35639.

¹ Gallman, R. E., “Commodity Output, 1839–1899,” in Trends in the American Economy in the Nineteenth Century (Princeton, N.J.: Princeton University Press, 1960)Google Scholar and “Gross National Product in the United States, 1834–1909,” in Output, Employment and Productivity in the United States After 1800 (New York: NBER, 1966).Google Scholar

² Much of this paragraph is taken from Engerman, S., “The Economic Impact of the Civil War,” Explorations in Economic History, III (Spring 1966), 178–83.Google Scholar

³ For a recent accounting of the enormous cost of the Civil War, see Goldin, C. and Lewis, F., “The Economic Costs of the American Civil War: Estimation and Implications,” Graduate Program in Economic History, University of Wisconsin, EH 73–19 (March 1973).Google Scholar

⁴ The remainder of this paragraph is taken from Engerman, “The Economic Impact of the Civil War,” p. 184.

⁵ Williamson, J. G., “Late Nineteenth Century American Retardation: A Neoclassical Analysis,” Journal Of Economic History, XXXIII (September 1973), 581–607;Google Scholar idem, Late Nineteenth Century American Development: A General Equilibrium History (Cambridge: Cambridge University Press, forthcoming), Chapters 5 and 6; Temin, P., “General-Equilibrium Models in Economic History,” Journal Of Economic History, XXXI (March 1971), 72–4;Google ScholarDavis, L. and Gallman, R., “The Share of Savings and Investment in Gross National Product During the 19th Century,” Stanford Research Center in Economic Growth, Memorandum No. 63 (July 1968).Google Scholar

⁶ Mitchell, W. C., A History of the Greenback (1903)Google Scholar; Gold, Prices and Wages Under the Greenback Standard (1908).

⁷ Kindahl, J. K., “Economic Factors in Specie Resumption: The United States, 1865–1879,” Journal of Political Economy, LIX (February 1961), 30–48Google Scholar, reprinted in Fogel, R. and Engerman, S., eds., The Reinterpretation of American Economic History (New York: Harper and Row, 1971), pp. 468–79.Google Scholar

⁸ Williamson, “Late Nineteenth Century American Retardation: A Neoclassical Analysis.”

⁹ Gallman, “Gross National Product in the United States, 1834–1909,” Table A-l, p. 26. The GNP concept used throughout the present paper excludes the value of improvements made to farm land with farm construction materials, value added by home manufacturing, and changes in inventories.

¹⁰ Engerman, “The Economic Impact of the Civil War,” Table 1, p. 180. See notes to Table 1 in text. A regional breakdown of GNP is not available, although Robert Gallman has suggested in private correspondence that the South had a smaller share in national GNP than in commodity output. The issue, however, is the behavior of the southern share between the 1850's and the 1870's.

¹¹ Sylla, Richard, “The American Capital Market, 1846–1914,” Ph.D. thesis, Harvard University, 1968, p. 177.Google Scholar Chapter V of Sylla's thesis focuses at length on the monetary impact of federal debt policy in the post-bellum period.

¹² Krooss, H. E., American Economic Development (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1955), pp. 459–60.Google Scholar

¹³ Engerman, “The Economic Impact of the Civil War,” p. 191.

¹⁴ A., C. and Beard, M. R., The Rise of American Civilization (New York: Macmillan, 1930).Google ScholarHacker, L. M., The Triumph of American Capitalism. (New York: Columbia University Press, 1947)Google Scholar, and The Course of American Economic Growth and Development (New York: Wiley, 1970).Google Scholar

¹⁵ Engerman, “The Economic Impact of the Civil War,” p. 191. The savings rate differential of .40 is taken from Kuznets, S., Shares of Upper Income Groups in Income and Savings, NBER, Occasional Paper No. 35, 1950.Google Scholar

¹⁶ Technically, the statement should read “almost comparable” since as private savers attempt to replace the now retired government debt by private debt, the rate of return on private capital diminishes, thus inhibiting a completely comparable expansion in private capital. This follows as a corollary of “Mill's test” of the burden of the war debt, discussed below.

¹⁷ See, for example, Samuelson, P. A., “An Exact Consumption-Loan Model of Interest With or Without the Social Contrivance of Money,” Journal of Political Economy, LXVI (December 1958), 467–82;Google ScholarBowen, W. G., Davis, R. G. and Kopf, D. H., “The Public Debt: A Burden on Future Generations,” American Economic Review, L (September 1960), 701–6;Google ScholarModigliani, F., “Long-Run Implications of Alternative Fiscal Policies and the Burden of the National Debt,” Economic Journal, LXI (December 1961), 730–55;Google ScholarDiamond, P., “National Debt in a Neoclassical Growth Model,” American Economic Review, LV (December 1965), 1126–51.Google Scholar

This section draws on similar work Professor Kelley and the author have completed on Japan: Kelley, A. C. and Williamson, J. G., “Military Imperialism and Fiscal Policy: Sake Versus Swords in Meiji Japan,” Discussion Paper EH 72–12, Graduate Program in Economic History, The University of Wisconsin (November 1972)Google Scholar; Lessons from Japanese Development: An Analytical Economic History (Chicago: The University of Chicago Press, forthcoming), Chapter 8. 18.

¹⁸ In reality, appeals to patriotism may influence this result but little evidence of this can be found in reading the Reports of the Secretary of the Treasury from 1861 to 1865. In addition, unexpected price inflation may also catch investors unaware so that the real rate of interest may be observed to decline during wartime. Finally we have implicitly assumed the tax system to be neutral when in fact during and after the Civil War it was regressive and also taxed consumption heavily.

¹⁹ Report of the Special Commissioner of the Revenue, 41st Cong., 2nd Sess., Executive Document No. 27, December 20, 1869, p. xxvi.

²⁰ Report of the Special Commissioner of the Revenue, 40th Cong., 3rd Sess., Executive Document No. 16, January 5,1869, p. 11.

²¹ Actually, this debt burden is an underestimate since it excludes significant state and local war debt issued during the hostilities. For example, in 1861 the following authorizations were made by state governments in the North: New York and Pennsylvania, $3,000,000 each; Connecticut, New Jersey, Indiana and Ohio, $2,000,000 each; Massachusetts, Maine, Illinois and New York City, $1,000,000 each; Iowa, $800,000; and Michigan, $500,000. The resulting 1861 total state, authorization was $19.4 million which is to be compared with the federal new debt issues of $25.8 million. Thus in the early years of the war, “… the market for bonds was stocked with the securities of several states which were negotiating war loans.” W. C. Mitchell, A History of the Greenbacks, p. 20

²² Mill, J. S., Principles of Political Economy (London: Longmans, Green and Company, 1909), p. 874.Google Scholar

²³ W. C. Mitchell, A .History of the Greenbacks, p. 120, suggests that “more efficient methods of negotiating loans were devised.” It seems more appropriate to stress that the Treasury was now able to pursue more competitive, rather than efficient, methods of negotiating loans.

²⁴ W. C. Mitchell, A History of the Greenbacks, p. 115.

²⁵ Jay Cooke estimated that as much as $1 billion of the long term federal debt had reached Europe even by 1869. (The total long term federal debt outstanding in 1869 was $2.2 billion. See Table 2.) The migration of Union securities to Europe can be viewed as another form of “retirement” since this made it possible for Americans to substitute private domestic capital for their (unproductive) holdings of government debt. It seems likely on these grounds that our accounting of the contribution of federal debt operations on the high GDCF rates in the 1870's is grossly understated. The size of the understatement clearly depends on how much foreign lending would have taken place in the absence of a European option to purchase Union securities.

²⁶ The term is used by Engerman in “The Economic Impact of the Civil War,” p. 182.

²⁷ McGouldrick, P., New England Textiles in the Nineteenth Century (Cambridge: Harvard University Press, 1968), Table 46, pp. 240–41Google Scholar, deflated by textile price index reported in Historical Statistics, E-5, p. 115. While the textile industry price index is available on an annual basis, the economy-wide Gallman index is not. Indeed, the figures after 1860 refer to decade averages.

²⁸ Calculated from Gallman, “Gross National Product in the United States, 1834–1909,” Table A-3, p. 34.

²⁹ Gordon, R. A., “Differential Changes in the Prices of Consumers’ and Capital Goods,” American Economic Review, LI (December 1961), 937–57.Google Scholar

³⁰ Ibid., p. 937.

³¹ One cannot be too, confident in any estimate of price anticipations, but the trends in cols. (3) and (4) of Table 7 are produced under all the numerous weighting schemes tried. Obviously, the short-run impact of Greenback inflation was important. The emphasis of this paper, however, is the long run. Indeed, economic performance during the war years is intentionally ignored for this reason. The contrasting short-run impact of the war is apparent when we note that real yields were negative from 1862 to 1865.

³² Whether the sharp shift to a. protectionist policy would have been forthcoming in the absence of the Civil War is an issue we would prefer to sidestep.

³³ Taussig, F. W., The Tariff History of the United States (New York: Augustus M. Kelley, 1967).Google Scholar

³⁴ Williamson, J. G., “What Should the Civil War Tariffs Have Done Anyway?,” University of Wisconsin, Madison, Wisconsin, September 1973.Google Scholar Mimeographed. The paper is available upon request. A similar argument has been suggested for antebellum tariff experience in Williamson, J. G., “Optimal Replacement of Capital Goods: The Early New England and British Textile Firm,” Journal of Political Economy, LXXX (September 1972)Google Scholar, 1320–34 and Brito, D. L. and Williamson, J. G., “Heterogeneous Labor Inputs and Nineteenth Century Anglo-American Managerial Behavior,” Explorations in Economic History, X (Spring 1973), 235–52.Google Scholar

³⁵ The model makes other predictions as well which bear noting. The war tariffs should have tended to reduce the wage differential between skilled and unskilled. In fact, Clarence Long's data document a remarkable stability in the ratio of skilled to unskilled daily wages between 1862 and 1878. Setting the ratio at 100 in 1862 produces an index in 1878 of 98.9. (Long, Wages and Earnings in the United States, Tables A-10 and A-12, pp. 152 and 154). The period 1862–1878 apparently represents a reversal of the antebellum trend since wage differentials increase from the 1820's to the 1850's. (Brito and Williamson, “Heterogeneous Labor Inputs,” p. 238). The model also predicts that the war tariffs should have precipitated an unusually rapid rate of industrialization as measured by the changing share of manufacturing value added in GNP. In historical fact, the unusual acceleration in manufacturing expansion during the “catching up” phase is well-known. Indeed, Robert Fogel has shown that manufacturing's share in GNP increased between 1869 and 1884 at a rate higher than any other in nineteenth century history. (Fogel, R. W., Railroads and American Economic Growth (Baltimore: John Hopkins Press, 1964), p. 121.)Google Scholar

³⁶ Kessel, R. A. and Alchian, A. A., “Real Wages in the North During the Civil War: Mitchell's Data Reinterpreted,” Journal of Law and Economics, II (October 1959)Google Scholar, reprinted in Andreano, R. (ed.), The Economic Impact of the Civil War (Cambridge: Schenkman, 1967), pp. 11–30.Google Scholar

³⁷ The tax history can be found in Smith, H. E., The United States Federal Internal Tax History From 1861 to 1871 (New York: Houghton Mifflin, 1914).Google Scholar Phelps-Brown has compiled American nonfarm real earnings data that suggest that real wages do not recover their 1860 levels until 1873–1874. Phelps-Brown, E. H., A Century of Pay (London: Macmillan, 1968), Appendix 3, pp. 448–9.Google Scholar

³⁸ Cochran, T. C., “Did the Civil War Retard Industrialization?” Mississippi Valley Historical Review, XLVIII (September 1961), 197–210.Google Scholar See also Gilchrist, D. T. and Lewis, W. D. (eds.), Economic Change in the Civil War Era (Greenville: Eleutherien Mills-Hagley Foundation, 1965)Google Scholar and R. Andreano (ed.), The Economic Impact of the Civil War.

³⁹ Engerman, “The Economic Impact of the Civil War.”

⁴⁰ The “gradual return to normality” is reflected by retardation in per capita GNP growth and a decline in capital formation, rates even though investment shares are relatively stable up to 1900. See the author's “Late Nineteenth Century Retardation.”