Politics and Economics of the War

In the North, the Republican‐controlled Congress implemented the party's domestic program. The Pacific Railroad Act (1862) authorized the construction of the first transcontinental line from both Omaha, Nebraska, and Sacramento, California. The Union Pacific and Central Pacific Railroad companies received more than sixty million acres of land at no cost and $20 million in very generous loans from the federal government, and together they completed the line in 1869. Republicans had always favored a liberal land policy, and the Homestead Act (1862) granted 160 acres free of charge (except for a small registration fee) to any farmer who worked the land for five years. The Morrill Land Grant Act (1862) was a boost to higher education in the country. States were given public lands for the purpose of establishing colleges for “agriculture and the mechanical arts.” Today's state university systems are based on these “land grant” colleges.

Financing the war. The war was expensive for both sides. The Union raised money through higher tariffs, an excise tax that raised prices on most goods and services, and the imposition of the first federal income tax. The Bureau of Internal Revenue was established to collect taxes. Congress ordered paper money, known as greenbacks, to be printed as legal tender that could be used to pay debts but could not be redeemed for hard currency. Greenbacks and bonds issued by the federal government provided the main sources of revenue for the war effort. Bonds were sold through a network of agents and increased the national debt to almost $3 billion by 1865.

War created the opportunity for profiteering. The Union awarded millions of dollars in contracts to businesses for firearms, uniforms, and a broad range of military equipment and supplies. The contractors often took advantage of the federal government's largesse. One of the most notorious examples was manufacturers' use of shoddy, a cheap cloth made from compressed rag fiber, for making uniforms, which quickly fell apart. The word “shoddy” entered the English language as an adjective for anything of very poor quality.

The Confederacy, which was unable to secure the loans it expected from overseas, faced far worse financial problems than the Union. While taxes were raised in the same manner as in the North, they were difficult to collect and provided less than five percent of the South's wartime revenue. Confederate paper money was not declared legal tender, so there was little to no public confidence in it. Inflation became a major problem as more and more paper money was put into circulation; the value of a Confederate dollar dropped to just over one and a half cents in gold by the end of the war. Prices in the South rose by more than nine thousand percent between 1861 and 1865.

Civil liberties and the war. Some basic civil liberties were also casualties of the war. Lincoln, with the ultimate approval of Congress, suspended the writ of habeas corpus early in the conflict, and individuals suspected of disloyalty or active work against the Union were arrested without formal charges. While most of the nearly fourteen thousand who were detained were never brought to trial, those who were tried came under the jurisdiction of military courts. The reliance on military courts for trying civilians was declared unconstitutional by the Supreme Court in Ex parte Milligan in 1866.