Lincoln’s Economic Legacies


In December 2010, Allen Guelzo, Professor of Civil War Era History at Gettysburg College published an article in National Review entitled “Mr. Lincoln’s Economics Primer,” Quoting Lincoln’s law partner William Herndon, he asserted that Lincoln liked to study political economy. Quoting his fellow Springfield, Illinois lawyer, Shelby Cullom, he asserted that Lincoln was great on political economy. Although Herndon once wrote that Lincoln seldom finished an entire book, Cullom gave him credit for voraciously digesting and assimilating directly or indirectly the works of classical economists like Adam Smith and David Ricardo. He also mentioned John Stuart Mill, Mathew Carey, John Ramsay McCulloch, Francis Wayland, and Henry Carey.

Henry Carey, was, in fact, Lincoln’s chief economist. But Henry Carey, was by no means a classical economist. He was a convert to Henry Clay’s American System, which called for a national bank (and fiat money), internal improvements (corporate subsidies), and high protective tariffs, none of which could rightly be described as classical economics. These policies are much closer in theory to 17th and 18th Century British Mercantilism, or big-government-big-business political economics rather than free enterprise, free trade, free markets, and limited government. Lincoln, a former Whig, was an avid admirer and supporter of Henry Clay and his American System, the economic mainstream of the Whig Party, also tracing back to Alexander Hamilton and the Federalist Party. Hamilton, however, at least learned to appreciate the dangerous side effects of overly aggressive tariff policies.

Carey, who was State Chairman of the Pennsylvania Republican Party during the 1860 election, promoted the “American System” of developmental capitalism and government intervention and was an important contributor in drafting the Morrill Tariff, which reached the House Ways and Means Committee in 1858. In a series of letters to Speaker of the House Schuyler Colfax published in March 1865, he advocated the continuance of Lincoln’s Greenbacks policy of issuing debt-free, government-issued money as a way of freeing the U.S. economy from British influence and dominance. This inflationary policy of fiat currency had to be reversed by the Coinage Act of 1873, which put America back on the gold standard. He also recommended raising the reserve requirement for private banks to 50 percent in order to promote national banking by squeezing out state and privately owned banks. Most stupendous of all, he wrote the Speaker that:

“To British Free-trade it is, as I have shown, that we stand indebted for the present Civil War.”

To Carey’s credit, he at least did not characterize the war as a moral crusade to end slavery. That politically correct myth had not yet been fully developed. A more astute and honest admission, however, would have been that the “American System” of protectionist tariffs, and especially the Morrill Tariff—a product of his own hand and influence—had brought forth one of the greatest calamities of American history.

Before going into the three basic legs of the Lincoln-Clay-Hamilton American System of developmental capitalism and government intervention—high protective tariffs, government subsidies to big business, and a fiat money creating Central Banking System—let’s take a look at the cost of the war itself. In 1978, economists Claudia Goldin and Frank Lewis made some cost estimates of the so-called “civil War.” To move from the 1860 dollars compiled by Goldin and Lewis to 2012 dollars, we must multiply by the inflationary factor of 24.39, itself a shocking consequence of 150 years of predominantly politicized monetary policy.

Cost of War in Billions $2012 South North Total

Government Expenditures $25.2B $56.1B $81.3B

Physical Destruction $36.3B negligible. $ 36.3B

Loss of Human Capital $18.7B $26.0B $ 44.7B

Total Direct Costs $80.2B $82.1B $162.2B

Indirect Costs

Decline in Consumption $151.0B $28.0B $179.0B

Total Costs $231.2B $110.0B $341.2B

In terms of 1860 dollars, the Southerners suffered a per capita loss of $371, or 3.0 years of annual per capita income. The Northern per capita loss was $148.

At the end of the war, 40 percent of the private property in the South had been destroyed, not counting their investment losses in slaves, estimated to be of $3 billion in 1860 dollars for 4 million persons. One of every 4 white Southerners of military age was dead. In addition to 258,000 military dead, nearly 200,000 more were permanently disabled, and hundreds of thousands of widows and orphans were left with little financial support. Farmland, crops, and livestock had been severely reduced. Property values declined 40 to 60 percent by 1870. Two-thirds of the railroad mileage had been destroyed. Inflation had ravaged what was left of the Southern economy by the end of 1864, and real wages had dropped 89 percent.

Reconstruction was no Marshall Plan and added considerably to the economic damage done by the war. . In addition to political tyranny, Reconstruction was plundering by confiscation, taxation, and swindling. Unjust tariffs imposed by Northern special interests in Congress continued to hold down Southern economic recovery for generations.

In perspective, white Southerners had a per capita annual income of $125 in 1857. This had dropped to just under $80 by 1879.

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