Inflation: North and South

0:00Today's topic is inflation during the war. Inflation North and South. Of course inflation is the scourge of society and economy in general. It's an economic poison, although it is often touted by economists as some kind of panacea that we can just print up money and cure all ills. From my perspective and that of Austrian economics, inflation is a giant rip-off. The street view of inflation, so to speak, is that businessmen raise prices for profit and exploit the consumer, the citizen, but in the Austrian view, inflation has a definitive of Cause which is government increasing the supply of money, basically you get too much money chasing too few goods and the consequence of that is that prices rise in the economy.

1:14The quantity theory of money reverses the street view in other words and it shows that An increase in prices is the effect or the consequence of the action of governments and central banks. An important thing to note with inflation in general is that the people who first get their hands on the money benefit from inflation and the people who end up getting So if you have your wealth or your portfolio in cash, accounts, cds, bonds, fixed income, fixed retirement, fixed annuities, life insurance, things of this nature, you are going to be hurt most.

2:21In the Civil War, we are talking about a lot of inflation, many times faster or more significant than we are experiencing today. Under those conditions, we see that some of the functions of money, and money is basically The medium of exchange. It's the product or good which we use to facilitate exchanges, but it also does other things for us. It acts as a store of value. So we can store up value over time in the form of savings, in the form of money itself. And when we see high rates And when we see high rates of inflation, we see that this function of money, the store of value, being undermined.

3:23In other words, if we're used to storing our wealth in the form of money and inflation is eroding that value, people start to find other ways of storing value in real tangible assets like their house. Money also serves as a unit of account. It's what we use to make the terms of contracts. So that baseball players contracts are written in terms of dollars, businesses, investment, all of these things are done in terms of dollars and so we do our economic calculations about profits and loss in terms of dollars and with high rates of inflation that function of money Money deteriorates. Once both of those functions are completely undermined, it usually entails a hyperinflation. Now, to set the stage, it's important, I think, for a number of reasons, To look at money and banking before the war. The U.S. Constitution basically took away the right of individual states or governments to print money and gave the federal government in the Constitution the power to coin money and to fix its weight. And so we had a kind

5:07A period of monetary union based on gold and silver coins in the United States prior to the Civil War. There were a couple of exceptions. The first and second national banks of the United States were periods where the federal government became more active in money and banking, causing two periods of big boom and and busts or depressions in the economy. But from 1837 until the war, we had an era called the free banking era. So what we're going to be talking about here is inflation north and south.

6:02Coming into the Civil War, we had the free banking era, where basically the federal government didn't have much involvement in money and banking, and most of the states had very little regulation or control over banking. You know, there's the general dichotomy that I've tried It's very much a generalization between North and South, where the North tended to be mercantilists, who advocated national banking, who advocated easy money policies, and was more or less pro-government debt.

6:51Where the South tended to be more hard money oriented and they tended to be anti-bank or anti-paper money and they were against, by and large, a large national debt. And the South was basically in, had the upper hand in the two decades before the Civil War in terms of banking, in terms of money, also in terms of trade. The tariff rates were coming down as we headed into the Civil War. So the South, in other words, had the upper hand going into the war. There was still some regulation in free banking states. By giving banks charters, Governments essentially gave banks a seal of approval, and banks could still issue unbacked notes, bank notes that were not fully backed by gold and silver held at the bank, the result was during this period, a period of high economic growth, economic growth and prosperity was fully abundant in the United States, There were some panics, there were fluctuations, but by and large, with lower tariffs and basically unregulated, no involvement or very little involvement in money and banking, the United States was very prosperous.

8:28There's an interesting case study that I'll point out that's in the book about the Citizens Bank of Louisiana prior to the war. They had a law which required banks that if they were going to issue paper banknotes that they had to back up every penny of those banknotes With one third gold, so if they issued $100 or say $300 worth of bank notes, they had to have at least $100 of gold inside the bank. The other two thirds had to be backed with with Short Term Securities. So this bank and Louisiana banks in general were very liquid.

9:25They could always redeem their notes because they had plenty of gold on hand and the rest of it was readily accessible. These short term securities were basically loans for commodities. As commodities would come into New Orleans, and here we're talking about of course cotton, Sugar, Grain from the Midwest, Cattle from the West and so on. These were commodities which were readily sellable and the debts could be rapidly repaid. So they weren't real estate loans or longer term loans. These things could be easily gotten hold of. As a result, The banknotes from Louisiana were very secure. They were, in a sense, as good as gold. Not quite as good as gold, but pretty good. As a result, the banknotes of Louisiana banks were widely circulated. You didn't have to worry about whether or not you could redeem them for gold as much as you would other banks, and as a result, people would be willing to take these bank notes and hold on to them. And as a consequence, the notes circulated

10:46outside of New Orleans, even here in Alabama, Mississippi, Tennessee, the Ohio Valley, Kentucky, Arkansas, Texas, and so on. So they were widely circulated. And one of the most prominent Banks, the Citizens Bank was French owned and of course New Orleans was still a city where the French were a prominent part of the population, French speaking people and And so their notes were written in both English and French. And so their ten dollar note, you'd see the word ten and the French version, D-I-X.

11:47As a consequence, the English speaking people who accepted these notes referred to them as Dixies, and this is widely thought of as the source of the name Dixie, Dixieland, and of course the basis of the phrase that the south is Dixie and the song Dixieland. So that money that was merely as good as gold is essentially the basis of the famous song and the famous designation of the South as Dixieland. Now getting back to the war itself, there's only so many ways we can finance war.

12:34These ideas apply today as much as they did in the Civil War or going backwards in time from there. You can tax the economy or the population to pay for the war. You can borrow the money to pay for the war. Or you can print up the money via inflation to pay for the war. And you can also use direct taking of resources. And here we would look at things like conscription or the draft, the military draft, as a way The Key Question in terms of war is what mix of these means are you going to use to pay for the war effort?

13:30All four of these venues of raising resources have negative consequences on the economy. So there's no perfect way of financing war, there's no panacea of financing war, but some are worse than others. Taxes, I usually don't have much good to say about taxes, especially this close to April 15. They do have flaws, but taxes are among the best ways of financing war. One of its biggest advantages is that the citizens know what the cost of the war is. And because they feel the burden of the war, it also places constraints on government to not take too Borrowing is also a preferable way of fighting a war, but it's best only under certain conditions.

14:52The best way that borrowing can be of use to you is to borrow money from foreigners and to purchase foreign goods and bring them into your economy to fight the war. That way it doesn't place any immediate drain on your economy and it sort of extends the pain of the war into the post-war period. The problem here is, however, that if you're not expected to win or you're losing the war, it makes it more difficult to con foreigners into giving you their money and their products, okay, because they want to be paid back.

15:39And in terms of the North and the South, the South not only had a lower probability of of Winning. I mean the North was not going to go out of existence. The South did not intend to invade and destroy the North. It was the North that was invading and trying to destroy the South. So, foreigners wouldn't be concerned about getting paid back by the North as much as the South. And also, many state governments in the South had defaulted on Foreign Debts Prior to the War. So in the panic in the years around 1837, several states defaulted on their state debt.

16:24And as a consequence, foreigners did not look on the South as a good debtor. As a matter of fact, Mississippi was one of those states. And Jefferson Davis, of course, was from Mississippi. So the President of the Confederacy came from a state which defaulted on foreign debt. Conscription and confiscation are really bad. That's a system where you make the citizens upset about taking their resources, you're getting the resources from the local economy rather than the foreign economy, and government Conscription tends to take if it's got the right to draft as many soldiers or to confiscate as much assets as it wants, then the tendency is for government to overdo it and to take too many resources. So conscription and confiscation is really bad.

17:24And then finally, inflation. Inflation is the easiest way of getting resources. You You print up the money, very little cost to you, and you go about buying resources from the economy. So this is easy, but it also tends to be the most damaging form of revenue. Because inflation is infecting the price system in the economy, it's distorting people's ability to calculate, people's ability to make future plans, people's ability to establish enterprises, businesses, to make investments, to calculate, you know, how much labor am I going to need, how much land am I going to need, how much capital am I going to need, putting that all together in order to, say, produce a warship, or to produce a hospital, or whatever that investment is that might be beneficial to the war effort, it makes it very difficult for entrepreneurs to calculate. And there's some stories in the literature about business This is people north and south finding themselves being deluded by inflation, thinking that they're making profits, but actually finding out after the fact that they really didn't

18:43make any money, that it was all an illusion of prosperity. So it distorts the private economy and it also, because it's easy to obtain resources In the North, they started out with a hard money policy. They were going to pay for government with taxes and they were going to borrow money from abroad to pay for the war and they were were going to stay on the gold standard, even though they were mercantilist in philosophy, they started out with a very hard money perspective on the war. They very soon found out, however, that they couldn't borrow as much money as they needed, so they went to the greenbacks, which is essentially the forefather of what we have today. The greenbacks, paper money, Very quickly Gresham's Law went into effect and the paper money stayed in circulation and the gold money came out of circulation. If you had a choice between, say as a business you were getting some gold and some paper money into your store and then you had to

20:12spend some of that money, chances are you'd spend the paper and hold on to the gold because The Paper Money Losing Value Sure enough, that was what happened on a massive scale. The gold left, the paper stayed, and it lost, over the course of the war, almost two-thirds of its value. Northern money, greenbacks lost at its peak two-thirds of its value. Even though there was a promise to pay after the war, pay it all back in gold. The general story, the impression that people had during the war that the rising prices, the greenback is falling in value, means that prices are rising and so food, clothing and In addition to higher prices, inflation in the North caused other effects. For example, there was more extravagant spending, there was more spending on luxury goods by people People who were making a lot of money during the war.

21:37So there was a tendency towards extravagance and luxury in northern cities. Property values went up, which is typical during inflation. People wanted to invest in land, housing, things of that nature. Workers or the labor force was the most hardest hit. So if you were a teacher or a minister, well not necessarily a factory worker, but farmers, people in the labor force were hurt the most because the prices were rising but their wages didn't keep up with inflation. So this is typically the case that workers are hurt by inflation.

22:25There was the illusion of prosperity. Everybody's money income was going up every year. This course feeds into the luxury spending as well. Let me see here. I want to just briefly explain A section in the book that looks at how different schools of thought view the inflationary process and then the book brings to bear the evidence of the Civil War to show how each of these groups can be interpreted. There's the Keynesian economists, there's the monetarists of the Chicago School, and then there's the Austrians. And these are sort of the extreme views of of these three schools, particularly the Keynesians and the monetarists, when trying to explain rising prices, the Keynesians emphasize real factors, in the extreme they say it's all just real factors. So the Keynesian view, it was the war that was driving higher prices.

24:15Prices, the war effort on top of the regular economy, increased aggregate demand and drove up prices. The monetarist of the Chicago School not surprisingly emphasized monetary factors in the economy, The printing press was responsible for inflation. In the extreme version, monetary factors account for all of the rise in prices in the economy. The Austrians define inflation not as rising and Prices, but as changes in the money supply or increases in the money supply. The mainstream of Keynesians, monetarists and other schools of thought that have developed off of these These two main branches look at inflation in terms of its effect, or the price increases, Whereas the Austrians look at inflation in terms of the cause or increases in the money

26:04supply. So when it comes to explaining higher prices, when it comes to explaining the effect, the The Austrians would view the Civil War both in terms of the real factors plus the monetary factors. So that inflation during a wartime, when the war is sucking out resources and destroying resources in battle, plus you've got the printing press going, when you want to look at what's What's causing the higher prices, you want to look at both of those aspects, more money and fewer goods.

27:06So in terms of understanding the evidence that's presented there, in terms of the price levels that are calculated, in terms of the impact of battles and that sort of thing, sometimes called the psychological factors or the event factors, we want to include everything to explain those higher prices. Now, inflation in the South was much more severe than in the North. And I think that this goes a long ways to explaining the growing weaknesses in the Southern economy. I mean, we've already looked at the blockade and that sort of thing, But in terms of inflation, this poison that's injected into the economy by government was at a much lower rate in the north than it was in the south.

28:07The bulk of resources that the Confederate government used, it paid for with paper money. And so the southern economy was totally disoriented by the effects of inflation. and they not only just pumped the money in but they pumped it in at an erratic pace and later in the war they actually had a revaluation of the currency so that southerners didn't know what to do in terms of bonds and cash and investment and building projects it was just a massive confusion the amount of inflation was in terms of the increase in the money supply, the money supply went up by over a thousand percent. In the north, it was much less severe, their currency depreciated by two-thirds. Of course, ultimately in the south, the confederate currency depreciated to zero.

29:17For those of you who are up in the reading, I just couldn't resist this quote from John Shelton Reed, a sort of sociologist of the South, that leads in this chapter. I'll read to you here. It's from, it was actually originally from an article that he published, but it's in the book Whistling Dixie Dispatches from the South, published in 1990 by the University of Missouri Press. In 1865, the Confederate dollar was a mere scrap of paper, but today A Confederate $1 bill cost $8 of U.S. dollars. What accounts for the Confederate miracle?

30:19How can currency backed by a government defunct now for over a century be sounder than one backed by the government in Washington D.C.? Confederate officials aren't sane, but they They seem to have learned a lesson from the severe inflation of 1862 to 1865. Strict controls on the growth of the Confederate money supply, coupled with a fiscal policy that produces a balanced budget in every year. It's funny, but it contains a lot of wisdom. Actually, That quote contains all the wisdom governments need. If they have a balanced budget at an extremely low level in this case, and they have strict controls on the supply of money, in other words, there's no way they can increase the money supply.

31:13What you see is not an inflation system in terms of depreciating money, but something Well, George, the best advice I can give you in terms of Alan Greenspan comes from an article that I wrote about his testimony before Congress, and what we should think about it. I'll give you the title of the article, it's called Green Spam. Last year, green spam, and like email spam, you should not open it, but you should delete it. Unless you're particularly So what would you call him, a liar, a cheat, or incompetent?

32:47A Republican bureaucrat, which sort of encompasses all those things. I'm not trying to be one side or the other here, but he is a Republican. Republican. And Republicans tend to be mercantilists, support faster money growth, national debt. Now of course Greenspan has written that he thinks the gold standard is the way to go back in the 1960s. But, you know, that's when he was, you know, wasn't involved in politics.

33:39Great essay, I remember now reading it.

34:09Inflating less than the other side. Or not at all. Politicians might find that very difficult to do. But let's take a look at the evidence presented on page 75 in table 3.4, where we compare the mix of resources from the, let's see, the Confederacy, the Union Government, the American Revolution, and the War of 1812 and we We break down the financing in terms of loans, taxes, currency, paper money, and other forms of revenue.

35:10And what we find is that in Confederacy about 21% was in terms of loans, about 10.5% in in terms of taxes, currency 61.7% and other was 6.5%. The Union on the other hand took in almost 65% of its revenues in terms of loans, 16.5% in terms of taxes, 16.5% in terms of currency and 2.5% by other means.

36:01The American side during the war of the American Revolution, the U.S. took in, America took Look in 29.5% in terms of loans, 8.8% in terms of taxes, 57.4% in terms of currency and 4.3% in terms of other means of raising revenue. This doesn't include the draft, you know, the issue of drafting labor. 1812, the U.S., 49% loans, 28.5% taxes, 16.3% paper money, and 6.2% other, those would be...

37:05Did the same thing happen with currency in the war of 17th century?

37:35And the value of the currency issued by the Continental Congress depreciated very rapidly, went into hyperinflation and became almost worthless during the later stages of the war. So yes, I mean that definitely goes into effect and one of the things that really stands out here is that the Confederacy got the smallest percentage and of course these three are victories and this is a loss and we see that the Confederates had the lowest percentage of any of the four cases in terms of loans followed by the American Revolution.

38:31Currency they had the highest percentage, again with second place being the American Revolution. So that the recipe as dictated by economic theory of relying on taxes and loans and avoiding inflation and confiscation and those sorts of avenues really plays out in the American historical experience and even if we were to look at 1776 you know with Continental Congress raising just a little bit more in terms of loans and inflating just a little bit less, you have to remember that you know America did win that war But they didn't win by much. The British were basically, in a sense, in control, in a similar way that we're in control of Iraq, and what basically happened was that the British were feeling the pinch from elsewhere around the globe, and the French intervened on our behalf.

39:47So, yes, that sounds about right. And of course the fleet was very important, but you know, so you have to recognize that 1776, you know, we needed French intervention, which if you You need French military intervention, it's a sign of desperation, right? Something that confirms this, the French Revolution is based, or many people are based on the fact that in helping us, the Revolution, they ran up such a debt, such inflation, that the The French situation throughout, going way back into the 17th century even, the financial situation of the French Monarchy is not all that good. I mean, that's why they sold us Louisiana for the money. That's why they had the Mississippi bubble in France because it was, you know, John Law was trying to somehow pay off the debts of the French Monarchy and, You know, the French situation in terms of their fiscal policy and their public finance

41:37was desperate all the way through this period and, of course, what comes out of it is, you know, it was so bad that people started thinking about these issues to such a great extent. In one case, the person that I'm doing research on, Richard Cantillon, in the aftermath of the Mississippi bubble, sat down and tried to figure out economic theory and ultimately produced a theory of the business cycle and a theory of the market economy. And later on in France, again, you have the physiocrats dealing with these questions and and Adam Smith developing his response and David Hume developing his response.

42:31Basically they were all good responses. They were telling people like the British Parliament and the French monarch what to do and it's just that the French monarch in particular refused the advice. They ended up canning Turgot as finance minister, and because they failed to reform themselves, they end up with a French Revolution. So you know, these are, so European governments have barred for a long time, a lot of war for a long time, and they had to get that money somewhere, and a lot of them got it from the One after another, and there are extravagant expenses in addition to the war expenses.

43:45So these are general lessons, but in terms of the war, I think the evidence does point in the direction of what Ludwig von Mises has written about in terms of how to finance a war and what's written in this text about how to finance war. Professor Joseph Salerno has an excellent article about war finance. It's referenced in the book, and I believe it came out in the journal Libertarian Studies, about financing war and how inflation is a way of concealing the cost of war, a way of concealing the cost Cost of War from the Citizens, but by concealing the cost of the war, it makes it too easy for government to extract resources and therefore they extract too many.

44:48And so that really gets back to one of the main points that we try to get across in the book that in terms of North and South, the North took a more moderate approach, a more more traditional approach to financing war and that was a big advantage over the Confederate process which historians are constantly clamoring that the South would have won if they only had this, if they only had that, if we only did more of this, more inflation, more soldiers, more confiscation, more all this stuff and basically we're arguing no, they really needed to do less of that, and they needed to take a more traditional approach, curb their appetite, in other words, find another way, a better way of getting the job done. There's more than one way to skin a cat, and inflation allowed the Confederate government to think it was doing the right thing, when I would argue in fact it wasn't. And after the break, When we come back, I'm going to talk a little bit more about how I would have approached

46:08it, how I think the Confederate government could have approached it, and so then we can discuss that. But before we go to break, I want to give a little bit, well actually we're just now Yeah, I would say that by and large, World War II, for example, the U.S. relied on taxation and borrowing. That would be the case in World War I as well.

46:58Although the amount of inflation was probably higher than you would have expected given U.S. involvement in World War I. The Korean War and the Vietnam War, we were on the Brenton Woods system, so we were on the gold standard and we were pledged to redeem our currency and Gold, and so we were under the table inflating, putting out too many dollars, and ultimately that did cost us. Eventually that did cost us. Fighting the Korean War, the Cold War, the Vietnam War, the war on poverty is essentially what undermined the gold standard, and Nixon takes us off the gold standard in 1971.

47:55And... Mark, when you look at the percentages there, some of them aren't too far from Green's Yeah, there's been a lot of inflation, a lot of borrowing, but the level of taxation is is also very high and ultimately the total burden also matters in terms of the mix matters but the total burden on an economy of government, whether it's a war or not, also matters and Over time, the fact that you have inflation freely available to you means you have a tendency to increase the size of government and because you have inflation as an ongoing tool, your ability to issue debt is also easier because everybody knows that, well, the bonds may Inflation may depreciate in value because of inflation, but they'll always pay them back.

49:34And so, when you have, instead of just taxes and borrowing because you're a good risk, with inflation, you seemingly open the floodgates and the burden of government becomes bigger and bigger and bigger over time. So, you know, that's the wartime example, but as we've seen in the case of France, as we've talked before the break, you know, that you can run into trouble outside of a wartime issue, so, you know, it's definitely a problem. Yes?

50:20You were talking about progress at the time, the generation, the creation, the harvest. As a crowd committee takes a war to the north, is that from an economic standpoint? I mean, obviously, we want building banks, or at-lamps, to build the wall, but perhaps they will build a long-term solution. Would we have been able to take the actual start of the war, or would that help?

51:14That's very bad for your economy, in a number of ways, but I don't think the South could effectively take the war up into the North to any great degree, except on the basis of guerrilla-like tactics, where you'd send small bands of guerrilla fighters into the north who would go there in order to destroy infrastructure. So, you know, I think sending The Confederate armies to Gettysburg and Antietam were big mistakes, but I think if you sent small bands of Confederate soldiers slash guerrilla fighters into the north in In order to, say, blow up railroad bridges, moving supplies and troops from east to west, that would have been very advantageous because in the north there was a choke point in the area of, say, West Virginia, Pennsylvania, Ohio, and, you know, resources and men moving Back and forth, had to go through there and there were only a couple of railroad lines

52:56and if those lines had been constantly disrupted, that is a small tactic that could have placed a large burden on the northern war effort and so, you know, if you're the smaller force, if you're the defending force, you always have to look in terms of what gives you the The Biggest Bang for the Smallest Buck. The idea of bringing together 150,000 troops and clothing them, provisioning them, getting them weapons, getting them horses, getting them all the food necessary and all the backup supplies and all that kind of stuff necessary for an Invasion is very, very expensive, and I'm not sure what it would really accomplish.

53:49I mean, there was the thought that if you could invade Washington, D.C., get the capital, you know, capture Lincoln or something like that, you know, was an old European tactic. You capture the capital, you capture the king, you win the war. But other than that, yeah, chess. Other than that, I'm not sure what the advantage would be for the South unless it was planning on burning down a city, right, right, exactly. Well now that we're on that particular topic, and this is something that isn't really in the book, but the book implies all along that the Confederate government was too big, it was too interventionist, it was using the wrong policies, it was trying to raise big armies, it was doing all the wrong things.

54:56We never really say in the book what should they have done and you know frankly we're not here in the book to start another war or be on any particular side. I'm from New York so I mean it's not like I have, as a matter of fact I probably had ancestors in in the Union Army, so that's not the purpose here, but it is somewhat incumbent for the argument's sake, although not necessarily for the book's sake, because the book is about what happened, but what if, what would happen, what could have been the result, and these These are some of my thoughts with respect in terms of what Confederate policy should have been.

55:54First of all, instead of a large federal army, when I say federal, I should say confederate or national army. The national army would only be large enough basically to defend Richmond and the capital of the Confederacy and by that I imply that it would be defending the city of Richmond and a different capital of the Confederacy. It probably would have been better to maintain the capital in Montgomery.

56:46Keep it out of the way, keep it further away from federal troops, and of course, for most of the war, not much would have been necessary to defend Montgomery, and then each state would have its own army. They really needed to defend Richmond because of its iron works. It was the only substantial domestic iron works in the south capable of providing large-scale Iron work, armor, cannons, things of that nature. There was no city of Birmingham. You mentioned Birmingham. There was no Birmingham.

57:53I've got a map in my office from 1860 and Birmingham's not on it. And as a matter of fact, I don't even think Atlanta is on it. When did it begin? It was the beginning. Iron, center of the south, after the war. Much after the war, that's right. Could be because, you know, with the Union winning, of course, all those protection of tariffs were placed on the entire United States, so that it became, there was an incentive, instead of importing cheap European iron goods, you could, you had the incentive to find iron because if you could produce iron goods, you could sell them huge prices. So, you know, they were trying to find iron anywhere. And you'd have small state armies sufficient to defend the state capital and the major seaport. Just about Not every state in the south, if you think about it, has a capital and the capital tends to be centrally located and has a seaport which tends to be on the coast.

59:15So that most states in the south would have a primary seaport and a capital and the state armies would be there to supervise the defense of those two facilities, so that each state would remain an independent actor, in other words. This would not be a unified war effort. The Federal Army would have a limited goal of protecting Richmond and the capital, and The States would have their own defense, their own seaport maintenance as their primary idea here.

1:00:03The third thing, maybe the first thing, is free the slaves. One of the biggest detriments to the South's war effort, of course, was the fact that anytime the Union did invade a certain area, they took the slaves, very often put them into the Union army, or put them to work harvesting cotton or rice for the Union government. So, if they were free, I don't know what the exact legislation would be, that they would have to work on the plantation that they were living on until the end of the war, or that they could be placed into Confederate armies, or that they could become volunteers to build forts and defensive works.

1:01:08But whatever it was, I mean, give all the slaves their freedom so they're fighting for your side. Yes? It sounds like a great idea. I'm wondering if it was ever considered. You know, that's a good question. I think it was considered at the end of the war. I think even Davis, that was one of, you know, the emergency thoughts that he had at the end of the war that... There were really few slaves in the war. Well, no, see, because we're making the case that early on, of course, that the war was not fought primarily over slavery, but over economic policy. Of course, slavery was part of economic policy, but the existence of a large slave population was a big detriment to the South,

1:02:29or you can fight or you can help build defensive works, all of a sudden you effectively increase your pro workforce by just a tremendous amount. Yeah, and the abolitionists, you know, that was a small group of supporters in the North, but it was, they were very vocal. A big part of the defensive work would be the militia. In the northern states of the You know, Mark, your item one and two, I worked with a retired Marine Colonel. He said you should never plan an attack with less than five times the force of your attack.

1:03:43The general idea here is to fight a completely defensive battle. You always want to have your guys behind huge defensive words or out in a guerrilla type situation where they're attacking people behind them and, you know, behind obstructions, things of that nature. So you really put a disability, you really make the large armies of the Union a disability on their ability to fight and the militia would also be used for siege warfare. In other words, if the Union did They would come down. They would essentially be allowed to advance. They would advance typically to a city and lay siege to that city.

1:04:40Well the militia would have to be in the city to help the state army hold off the siege. So the militia would be activated whenever the Union came into an area and it would be activated in southern cities to fill in the defensive works that had already been pre-established. Something I'm not really too familiar with, but I do know that the southern states had And lots of land that they owned, that they could sell or use for public works. And I would just suggest that one of the things they could have done was to sell that land, if possible, to Europeans in order to raise funds from outside the borders or to back Bank Loans from Europe. I'm not sure how successful that would be, but it would be something in the right direction to use resources that were available to help pay for the war, to get rid of, in other words, government property is, any kind of government property you can get rid of and sell for cash or in terms of backing loans would be a good thing.

1:06:11Question? Yes, Ozzie. What about this? If you have each state, more or less, having its own autonomy in defense and offense and everything, what if the Union Army, you get a big Union Army, and you have expertise in moving troops and everything in your railroads, you can use this huge board to attack the small board and knock this one off. Well actually I mean we're still talking about the same number of people so that if the Union Army did enter into your state and tried to attack your large city or your state capital, what you would do is not offer resistance or much resistance, you would offer a guerrilla Warfare, so as to delay and hamper, disrupt the supply routes of the Union force and basically make it very difficult to supply and slow its pace and then once you got to whatever the Confederate town was, you would have already pre-established defensive works and you would The Union Army comes down to confront you, it can't get in or can't get in right away and it still faces all of these harrying tactics.

1:08:21that would work. Now a lot of that depends of course. Remember from a previous class we talked about Vicksburg running out of food because they didn't have enough food in storehouse but yet Sherman was able to get all sorts of food off of farms in Mississippi. So you'd have to have a policy that was conducive to bringing that produce in the fortified cities so you can't steal people's food you can't steal people's products you can't heavily tax them in a way that discourages that kind of thing but if you have set up a nice protective area then people would have the incentive to introduce food into general warehouses in those capital in the absence of price controls, and that kind of thing, like we're actually doing in the course of this year.

1:09:47Any kind of attack is going to result in, as George said, five times the losses of the attacking force compared to the losses of the defending force. So every time... If every one is made big enough to crack, pretty soon the other side will just give up. You know, forts, even by this time, were not all that useful militarily, but what I'm talking about here is large, earthen barriers that were still defensive enough against cannons. And I'll talk a little bit more about that in my sort of pop military approach.

1:10:35And then also something I mentioned previous was to offer bounties or prizes for destroying or capturing blockade vessels. So you would offer a prize for a particular vessel. They knew who was blockading them. They knew the vessels, even their names, and they were tracked within distance. And so the Confederate government or the state governments would offer prizes is for whoever could find a way of destroying, capturing or whatever those particular blockade vessels to weaken the blockade, to make it less effective and to make exports and blockade running more viable. I would also, in terms of bounties and prizes as incentives, they also needed to offer prices for needed arms and munitions that were in In other words, the good was actually in their port, delivered.

1:11:40Very often what they would do is buy stuff in Europe and try to bring it back themselves. A good deal of it never made it back. It was sunk, it was captured, and so on. So they needed to pay very lucrative prices, but for things that were actually delivered. So that blockaders had a really big incentive to bring cannons in, for example, or really big incentives to bring repeating rifles in, things of that nature. Enhance the profit opportunities of blockade runners. Don't stifle the profit opportunities of blockade runners. And we also might even consider taxing cotton. There was a tax on cotton, and I'm a little uncomfortable with any kind of tax really. I'm sure there's something wrong with this, and I know I'm either going to get spanked right here in class or get some emails from People out on the web, the idea of taxing cotton in storage, not food, because we wanted the food put in storage in the cities, but if there was a tax on cotton, say that every

1:13:06Christmas there would be a 30% tax on all your cotton, so we went to your farm on Christmas That's really cruel. Just pretend I'm from the government. So I'm going to show up every Christmas at your farm, or your warehouse, or your barn, and I'm going to take 30% of your cotton from it. Now you are all knowledgeable, intelligent taxpayers. What are you going to do? You'd sell it before Christmas, right? Yeah. You'd sell it before Christmas, but who's going to buy it if they have to pay taxes on it?

1:13:53The wholesale price would go down, but that would be that price. Okay, so the price goes down. So what do people do? How do you avoid the tax? You buy it. Well, that's true. You ship it out. So, in other words, the tax is there to encourage exporting it out. Because what happens? Well, I sell my cotton at a reduced price. You sell your cotton at a reduced price. But George, he's a little smarter than the rest of us. He sees prices of cotton falling. And so he can buy it. If he can get it out of the country, he buys it at a really low price. He avoids the 30% tax, he gets it to England, and it's worth 10 times that amount.

1:14:47So it encourages the export of cotton. So again, we're trying to run down that blockade force, we're trying to get goods into the country by offering good prices, and we're trying to get goods out of the country, or maybe even get people to start switching over to the production of food products rather rather than cotton, but all of those would produce more resources for that particular war effort.

1:15:21So I mean that's the general outline, smaller army, larger militia, freeing the slaves, coming up with some innovative tactics to overcome the blockade by using incentives. We're giving incentives to destroy the blockade fleet. We're giving incentives to run things in that we need by offering superior prices and we're encouraging people to export. We're getting ourselves back into our Our Comparative Advantage. Just a minute or two on my pop military strategy here. I've had a course in the Civil War and I've had courses in military history which involve military strategy, but I'm certainly I'm probably not any kind of expert in this area, but basically what I'm talking about in terms of a city that you're trying to defend and of course there's a lot of complications, a lot of cities are on rivers and things of that nature, so there's all sorts of transport routes like roads that are coming in and out of your city, the defensive perimeter and this would be built with, of course you need a lot of labor, so you'd have to get the freed slaves or the actual slaves as well as possibly the militia to work at least part-time in terms of building this perimeter, which would be earthen works with observation decks, covered areas where troops could go in case of

1:17:18Bad weather or cannons firing and so forth, so that your defensive works produce a barrier between the limits of the city in black and the limits here. And then, you know, one of the things I said was they needed to bring in some better weapons, specifically long-range Rifle Cannons would fire large shells long distances but they would be stationary heavy basically heavy cannons and if these are placed close to the perimeter

1:18:07basically if these are larger heavier cannons then can be moved by the opposing side which which is traveling by land or things of that nature. They couldn't move larger cannons compared to your stationary cannons. So these cannons can fire a longer distance than can the other side. Right? And so, in order to get into range, your opponent, to get into To get to range of the actual city, they would have to be somewhere, let's put the opponent in red, they would have to get in to some area like that, or that, or that.

1:19:01So they would be in range of your cannons long before. You wouldn't need many of these things. You could have the smaller cannons on your side as well, so as to prevent any rapidly moving force from overcoming your defensive works. You could have the smaller cannons like they have to stop troop, you know, what do they call them? Charges. And then of course what you have here is you have the regular military supervising and the militia basically manning these defensive works.

1:19:55So that a small force with the advantage of these long, large, rifled cannons would inflict tremendous injuries and losses on any opposing side that tried to overwhelm this fortified city. So, if you had the right preparation, the right distribution of labor, which is basically a small number of regulars supplemented with a large part-time militia, You could induce an effective or you could produce an effective support in defensive works and even if you lost, you would still inflict many more losses on the other side than you yourself would sustain.

1:20:59When George said you need five times the number of troops, that's because you lose five times the number. And of course you can make it more complex as armies have done in the past, you can have a second level of defenses in addition to the outer perimeter. And also of course the smaller weapons can be moved around the town, mobile cannons, the horse drawn versions of the Guns, which were so prominent in the war itself. Yes, they did use that at Richmond and they did use that at Petersburg and basically you You know you have a big pile of dirt for most of it, you have observation decks, you have cannon emplacements which are protected, so you'd have to have an actual direct hit to do any damage, and they were very effective, and it requires only a few soldiers to really be on the lookout, and anytime they come, well you just start shooting at the other side and your buddies come to help you. And in Richmond and Petersburg, it was very effective,

1:22:45worked very well, Grant kept sort of pushing the limit of it and they kept extending their lines and eventually Grant ran around those defenses. And because they weren't circular, they were able to do that in that casing and that ultimately brought the war to a conclusion It shows that Richmond was never really successfully invaded and that's basically what they did. I think that that would have worked and I think that it would have been used in more places had the Confederacy taken a more decentralized approach where each state was more or less fending for itself as well as contributing some soldiers to the national effort as well.

1:23:41Well, I mean, Mississippi would have had to defend Vicksburg and Jackson, and you know, If you go down the list, most of the southern states basically turn out that way where they've got a capital city in the center of the state, they've got a seaport, we had Mobile, Montgomery, Georgia had Savannah, and was it Macon, you know you were, Milledgeville, and then of And of course, you know, they would also have Atlanta, which was not much of a town at that point, it was a railroad junction.

1:24:46And certainly some states would have been disadvantaged, and I think you could have redistributed some troops, you know, say for example, you know, in Alabama we were away from the battle, and people in Alabama tend not to like that, so they may have volunteered for a federal force that was helping to protect Memphis or Nashville or something like that. Chattanooga. Chattanooga would have been, you know, that would have been one that could have used better defense. But in any case, those are some suggestions. I mean, that's not a well-developed military strategy. That's just some suggestions of the types of things that I think that they should have considered and that they would have better represented the type of approach that I'm suggesting here.

1:25:42That would have brought on war of weariness in the North, and then they would have had the two foot feats that they had done right, like you say, every state held up their end of the, they would have, that probably would have brought on the fact that we can't, you know, we're just killing each other, we might as well sit down.

1:26:12They weren't going to invade the North. What they needed was, and there was plenty of war weariness in the North. Well, there was a lot of sediment in Ohio before the war. There was, in Ohio and elsewhere in the Northwest, the Northwest, you know, didn't really support the war as strongly as some Northeastern states.

1:27:04And so, the Northwest, the Midwest, those states were particularly vulnerable and certainly in the Electoral College was a matter of dispute.