Tuesday, September 27, 2011

The Role of Tariffs in the Civil War - Part 2

Continuing our discussion of The Role of Tariffs in the Civil War...

Were these tariffs designed to hurt the Southern economy?
While the tariffs were designed to protect American industries, they were not designed to punish the South.  Most industries were in the North due to a good supply of raw materials, plentiful skilled labor, and cheap energy. At the dawn of the Industrial Revolution, American business and political leaders recognized  that the country would have to have a strong industrial base to compete with the European nations and insure the young country's survival. 
Southern businessmen had limited resources to draw on.  They did not have access to raw materials, energy, or skilled labor.  Moreover, they were tied to flawed agricultural society that was based on slave labor.  Their unwillingness or inability to see the possibilities of a transition to an industrial economy cost the South dearly.  It forced them to defend slavery and, when the war broke out, it left the South without the necessary industry to support the war effort.
Ultimately, the tariffs were beneficial. 
How did the tariffs hurt the Southern economy?
While not designed to hurt the Southern economy, the impact on the South was profound.   The "40 bales theory" tried to quantify the impact of tariffs on the South.  The theory attempted to explained how tariffs on manufactured goods reduced demand for the South’s raw cotton: a 40% tariff on cotton finished goods led to 40% higher consumer prices, which translated to 40% fewer sales, since consumers had less money to spend following the Panic of 1819. And 40% fewer sales meant cotton manufacturers purchased 40% less cotton.
What enraged the South was that the Federal Government was seen as using policy to favor the economic health of one part of the country at the expense of another.  Southern leaders worried that Northern Abolitionists would use the same tactic to end slavery and destroy the heart of the Southern economy.
While tariff funds did not go to Northern industrialists, the northern manufacturers could obtain higher prices by virtue of the higher prices paid for foreign imports. Manufacturers would be allowed to raise prices to the level of foreign imports.  These prices would be passed on to both northern and southern consumers.  Based on the population distribution, northern consumers should have paid more in total than their neighbors in the South.
The South contended that the tariffs would hurt cotton production and exports.  Plantation owners argued that while northern industries increased output and market share, southern plantations would see less demand.
The statistics don't support that conclusion as shown in the following graph using data from the Economic History Association.

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