War Socialism and the Confederate Defeat

In Human Action, Ludwig von Mises writes:

The market economy, say the socialists and the interventionists, is at best a system that may be tolerated in peacetime. But when war comes, such indulgence is impermissible. It would jeopardize the vital interests of the nation for the sole benefit of the selfish concerns of capitalists and entrepreneurs. War, and in any case modern total war, peremptorily requires government control of business.

This doctrine, of course, is one that Mises was objecting to. As he noted a few paragraphs later, a country that substitutes “government control for private enterprise . . . would deprive itself of the most efficient means of defense.”

In the history of the American Civil War, historians laud the successful interventions by Confederate bureaucrats in the economy to hasten Southern industrialization. According to the standard narrative, the Confederate States lost the war despite these tremendous accomplishments.

Mises, of course, would say that the CSA lost the war because of these interventions. “It was in the [American] Civil War,” he writes, “that, for the first time, problems of the interregional division of labor played the decisive role.” In Human Action, Mises is chastising European military leaders for dismissing this conflict as non-instructive prior to the World Wars through which he lived.

Like many warring countries, the Confederacy adopted interventionist measures that “step by step led to full ‘war socialism.’” This is contrary to the standard narrative, both from historians who favor the Union cause but object to laissez faire economics, as well as those who are sympathetic to the Southern states and favor capitalism. The Union, of course, intervened heavily in its own economy as part of the war effort, but Union intervention never reached the full-blown war socialism of the CSA.

Historians who like to applaud government interventions often point to Confederate Chief of Ordinance Josiah Gorgas. Through his efforts, the Confederacy forced industrialization on the agricultural economy, all through government fiat. In his personal diary, Gorgas showed pride in his accomplishments:

I have succeeded beyond my utmost expectations. . . . Large arsenals have been organized at Richmond, Fayetteville, Augusta, Charleston, Columbus, Macon, Atlanta and Selma, and smaller ones at Danville, Lynchburg, and Montgomery. . . . A superb powder mill has been built at Augusta. . . . Lead smelting works were established by me at Petersburg, and turned over to the Nitre and Mining Bureau, when that Bureau was at my request separated from mine. A cannon foundry established at Macon for heavy guns, and bronze foundries at Macon, Columbus, Ga., and at Augusta; a foundry for shot and shell at Salisbury, N.C.; a large shop for leather work at Clarksville, Va.; besides the Armories here and at Fayetteville, a manufactory of carbines has been built up here; a rifle factory at Asheville; . . . a new and very large armory at Macon, including a pistol factory; . . . a second pistol factory at Columbus, Ga. . . . Where three years ago we were not making a gun, pistol nor a sabre, no shot nor shell (except at the Tredegar Works) – a pound of powder – we now make all these in quantities to meet the demands of our large armies.1

The Ordinance Bureau was not the only Confederate bureaucracy to set up nationalized industrial works. The CSA established powder mills, chemical plants, small-arms factories, shipyards, clothing, shoe, and wagon factories, as well as any number of state-level enterprises.

Private firms still existed in the Confederate states, but much like the German socialism that Mises criticized the Nazis for, the Confederacy “dictated prices and profits” for any supplies purchased.2By the end of the war, President Jefferson Davis nationalized Southern railroads, steamboats, and telegraph lines. The Confederate bureaucracy, by 1863, boasted a whopping 70,000 employees. The foundation for such a swollen bureaucracy was the Confederate Constitution itself, which made it illegal for the president to fire government workers (this clause was included to try to prevent political patronage).

War socialism was implemented at the state-level as well, as states intervened in the agricultural economy, hoping to stimulate food production. Limits were placed on the production of cotton and tobacco, for example, but taxes to the central government were also payed “in kind,” meaning that the government quickly became the largest cotton merchant in the global market. As the economy was thrown into chaotic misallocation from the heavy-handed and rapidly implemented government controls, inflation ensured that the central authorities had first access to any goods.

Despite all of these problems, it is the nationalization of the Confederate economy that historians point to as an impressive success. Yet no connection is made between these many government controls and the shortages of food that plagued the Confederate economy, which led to increasing numbers of deserters. On April 2, 1863, the capital city of Richmond suffered the infamous bread riot that did not end until President Davis turned Confederate troops against the rioters. Historians correctly recognize this as a symptom of logistical problems that plagued the Confederacy and helped secure Union victory in the war, but the connection between the bread riots and the supposed successes of nationalized industries is rarely observed.

To be sure, the Lincoln administration was no champion of laissez faire. Implementation of taxation and inflation (albeit to a lesser degree than Confederate inflation), among other interventions, certainly caused similar economic problems in the north. But speaking in relative terms, the Confederate government exercised substantially more economic control than did the Union. In explaining the outcome of the war, historians have yet to include Confederate war socialism as among the factors contributing to the CSA defeat.

This was originally posted on Mises.org.