Economically, the Civil War was not a contest between equals. It was less "Ali v. Frazier" and more "Ali v. a chubby Russell Crowe." The South had no factories to produce guns or ammunition, and its railroads were small and disconnected. This made it hard for the South to move food, weapons, and men quickly and over long distances, and it also meant that there were probably plenty of scary moments involving derailment and no coffee in the café cars.
Though agriculture thrived in the South, planters focused on cash crops like tobacco and cotton and couldn't produce enough food to feed the southern population. The soldiers on the trendy "Tobacco and Cotton Cleanse" diet fared much better, of course.
The North, on the other hand, had enough food and factories to feed and supply all of its soldiers. It also had an extensive rail network that could transport men and weapons rapidly and cheaply, much like our beloved Thomas the Tank Engine. At first, this superiority of the North didn't seem to make much of a difference. Like many wars in history, everyone thought it would be over quickly, but northern advantages would be crucial as the war dragged on. If you don't think a reliable rail system makes a difference, try getting to Hogwarts without one.
The differences in manpower and industrial capacity on both sides were so extreme that the South's near win came as a shock to observers all over the world. The odds makers stood to lose a fortune, especially in Vegas. Poor souls. On paper, there was no possible way that the South could have stood up to the North. It had all of the material and financial advantages the South lacked, and it did an excellent job of closing off the only advantage the Confederacy did have: cotton. Game, set, match.
Since most of the South's money came from the cotton trade and exportation, the North had immediately aimed to shut it down. One of the first things the Union government did was to blockade southern ports. They took some time to become operational, but after the capture of New Orleans, the amount of southern cotton exported to England plummeted right along with the South's hopes of holding an upper hand. With New Orleans went the South's only consistent and desperately needed source of income. Wars, they are expensive.
With the loss of its cotton exports, the South was in big trouble. It was in, like, Dad-caught-you-puncturing-the-left-front-tire-of-his-Mercury-Villager trouble.
With the schism, the South had also lost its banking system, which had been headquartered in New York. It held no gold or silver reserves in the event of national catastrophe. Clearly, these people had never heard of a Rainy Day Fund. There were various forms of paper money printed by the states and even by some private banks, but people generally did not trust paper money unless it was explicitly backed by gold, and this wasn't. "Bad news bears" is an understatement.
Without gold and without banks, the Confederacy did the only thing it could: it printed money. Lots and lots of money. Beaucoup de bucks. However, it could not do much to collect taxes to support this huge printing effort because the Confederate Constitution forbade the central government from imposing taxes on the states, and left it up to each individual state to tax its citizens. Ay, there's the rub.
As in the American Revolution decades before, states couldn't successfully collect money, leaving the Confederacy nearly broke. The Confederacy was less than enthused, but it absolutely refused to go to its parents for a loan. It wasn't going to go down that road again.
The Confederate government gave in to the Big Government hoopla and decided to levy taxes in 1864, but by that time it was too little, too late. With printed Monopoly money flooding the market, Confederate currency devalued rapidly. Horrendous inflation dogged the Confederate war effort from beginning to end, and that's not even taking into account the plight of poor General Junius Daniel, who had his own inflation problem to worry about.
In terms of agriculture, with so many family heads away fighting the war, much of the southern agricultural land was left idle or insufficiently farmed. Those crops weren't going to reap themselves. The South, then, couldn't manage to feed both the civilian and military populations. Food was scarce throughout the war and, by the end, parts of the South suffered from full-blown starvation. You'd think that after boasting confidently that they'd win the war, they could have eaten their words. It turns out their words didn't have that much nutritional value.
When men eventually realized that their families back home were starving to death, they started deserting the army to try to help. Desertion and starvation didn't do much for morale in the Confederate ranks, as you might expect.
Arms and ammunition were also in chronically short supply in the South, and all of the new ones they had bought on Amazon were still on back order. Men needed to bring their own guns (it was BYOG), and soldiers scavenged the battlefields to take Union weapons and ammunition.
Soldiers also lacked simple necessities like shoes. If you don't think shoes are a necessity, go a week without them and get back to us. We'll let you borrow our tweezers so you can get all the splinters out from between your toes. In fact, the quest for shoes brought both the North and the South together at the town of Gettysburg, which housed a shoe factory. There was also a DSW, to boot. Pun clearly intended.
Uniforms, tents, wagons and horses were also rare in the South, and these problems only increased toward the end of the war. In the end, the South lost the war primarily because it ran out of men, money, and supplies. Guess it should have gotten over itself and hit up the parental units for a loan after all.
The picture, not to mention the evening sunset, was much rosier north of the Mason-Dixon Line. In addition to having a population that was more than twice that of the South, the North had enough food to feed all of its people, armies included. It was the Golden Corral of the nation. They had just about everything except a sneeze guard over the salad bar and that chocolate fountain thing.
The North also boasted factories that produced much of what those armies needed. The federal arsenal at Springfield, Massachusetts alone produced over one million rifles and countless rounds of ammunition. It was such a well-oiled machine, it was like an assembly line in there. In fact, there was almost certainly a literal assembly line in there. Also, probably several well-oiled machines.
The Union armies had wagons, tents, and its factory-produced blue uniforms. Southern uniforms were generally of a brownish-gray homespun color since they were into earthy tones. Also, dye was expensive. The North also enjoyed 69% of the railroad capacity compared to only 31% in the South, and held all of the currency reserves of the federal government. It also held a large percentage of the federal government's currant preserves, but those were mostly only used for topping its English muffins.
The Midwest and Northeast were the most industrialized areas of the country, and those factories quickly turned to making war supplies to keep the massive Union armies equipped. On the downside, those factories saw a steep drop-off in yo-yo production.
Despite these advantages, the government needed money, and it went to great lengths to get it. First, it issued a massive bond measure in which citizens and financial institutions were asked to buy bonds to fund the war. The hope was that this would be the first bond to save a nation since another famous Bond.
When this plan failed to bring in enough money for the war, the Secretary of the Treasury, Salmon P. Chase (yes, his real name, and yes, as awesome as it sounds), decided to print paper money. The "greenbacks," as they became known, were initially backed by gold, and then later by the bonds that the government sold. This seriously upset some leprechauns, who argued that never in a million years would they be caught dead guarding a pot of government-issued bonds.
In a complicated scheme, the government sold bonds for greenbacks but repaid the interest in gold, making them attractive investments. A little eyeliner and blush probably wouldn't have hurt either. The value of the paper money varied according to the fortunes of the Union Army, though, and at times they were worth almost one-third less than face value. You can bet that the leprechauns had a good, hearty laugh about that one.
In contrast to the economic plan in the Confederacy, the Union made the greenbacks "legal tender for all debts public and private," which helped lower inflation since, by law, everyone had to accept them for goods and services. So much for Uncle Seamus down at Uncle Seamus' Furniture Barn, who preferred only to barter in baked goods. Get with the times, Seamus.
Still searching for ways to gather more money, the federal government introduced the first income tax in 1862, and the Bureau of Internal Revenue, later known as the IRS, was established. Let's all take a moment to curse that day collectively.
All of this worked relatively well, at least at the time. The Union dealt with a rate of inflation that never topped 80% per year, while the South suffered a rate that reached 9,000% by the end of the war. No, our finger didn't slip on the "0" key. You read that right