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Confederate Economy

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Confederate Economy

Before the Civil War, cotton production and exportation in the southern United States was one of the most important industries in the world. So, why did the cotton industry fail the Confederacy during the Civil War? How did the Confederacy's economy become so weak compared to the Union's industrialism?

Confederate Economy Definition

The Confederate States' economy was the cotton industry. (Other cash crops were produced, such as tobacco, but none in comparison to cotton.) Cotton was produced on plantations and exported to the northern United States and Europe. By 1860, if the southern United States was considered an independent nation, it would have been ranked as the fourth richest in the world thanks to the cotton industry. But there was a glaring issue: cotton production heavily depended on slave labor.

Confederate Economy, Map of the USA, StudySmarter

Map of the USA, 1861. Source: Golbez, CC-BY-2.5, Wikimedia Commons.

Before the southern states seceded from the USA and became the Confederacy, pressure had long been mounting from the Northern States and Europe regarding slavery. Britain and France, two of the largest importers of American cotton, made slavery illegal in their countries. The Northern States, represented in the election of President Abraham Lincoln, wanted to stop the spread of slavery into western territories.

…which now extinguishes slavery. And with it our economy."

–Confederate Vice President Alexander Stephens

An attack on slavery was considered by Southern representatives to be an attack on the cotton industry, the lifeblood of the South's economy. In 1861, the Confederacy was formed to defend the rights of Southern states to hold slaves. The Confederate States believed that the wealth and importance of the cotton industry would win them the war.

Why the Confederate Economy Failed

The Confederacy's reliance on cotton is one of the primary reasons that it lost the Civil War. While cotton exportation was the South's greatest economic strength, it was also the sole lynchpin on which their success would be determined. The Confederate States failed in leveraging its cotton production power, and the Union directly attacked exportation to Europe.

King Cotton Diplomacy

The Confederate federal government believed that withholding exports of cotton to Great Britain and France would pressure the European countries into entering the war on behalf of the South. This was King Cotton Diplomacy. The plan failed for two reasons.

Confederate Economy,  Black and white picture of Slaves, StudySmarter

American Slaves in Georgia, 1850. Source: Wikimedia Commons.

Firstly, France and Great Britain had already banned slavery in their countries and did not want to openly support the Confederacy. Secondly, they could find cotton elsewhere; the European countries turned to other sources such as India for cotton production. They could find land and cheap labor apart from the Confederacy. This was a huge loss to the Confederate States, essentially losing the primary buyers of their cotton.

The Emancipation Proclamation

The Emancipation Proclamation was an executive order issued by President Abraham Lincoln in 1863. Against popular belief, the proclamation did not free all the slaves, only slaves in the south. The emancipation of southern slaves was more a strategic maneuver than an act of kindness. Slavery would remain in the Union until 1865 with the passing of the 13th amendment. Until then, northern slaves were urged to join the war effort against the south, and freed southern slaves were encouraged to rebel. The main effect of the Emancipation Proclamation, however, was in keeping France and Great Britain out of the war. By turning the Civil War into a moral dispute over slavery, the Union ensured the nonintervention of the European powers.

The Anaconda Plan

The Anaconda Plan, proposed by Union General Winfield Scott after the Battle of Fort Sumter at the beginning of the Civil War, detailed a naval blockade of Southern ports. Hundreds of Union ships blockaded over 3,500 miles of coastline, stretching across the Atlantic coastline and the Gulf of Mexico. Ports in New Orleans and Charleston were blocked from outside support.

Confederate Economy, Anaconda Plan, StudySmarter

The Anaconda Plan. Source: Wikimedia Commons.

The Anaconda Plan crippled the Confederate States. By the end of 1861, cotton exportation had already dropped by 95%. The Confederacy was already put into a state of survival; the cotton industry that they had rested much hope and confidence in was essentially destroyed.

Blockade Runners

The Anaconda Plan's Atlantic blockade did not halt all trade into and out of the Confederacy. During the Civil War, thousands of privately owned British ships sailed past the Union in the dark of night. These ships brought information and supplies to the Confederacy and carried cotton and tobacco products out of the country. While the British government was publicly removed from the American Civil War, foreign powers still had a part to play. The Union navy captured over 1,000 blockade runners and destroyed over 300 during the war.

Another focus of the Anaconda Plan was the capture of the Mississippi River, an essential means of transportation for the Confederacy. The Mississippi river connected the western Confederacy (Texas and Arkansas) to the east. Without the river, the Confederacy struggled to coordinate troops and resources throughout its territories.

Confederate Economy Mississippi River Map, StudySmarter

Mississippi River Map. Source: Wikimedia Commons.

Whatever nation gets control of the Ohio, Mississippi, and Missouri Rivers, will control the continent."

–Union General William Tecumseh Sherman

Confederate Economy Inflation

With the cotton industry ruined by the failure of King Cotton Diplomacy and the success of the Anaconda Plan, the Confederate federal government scrambled for a means to fuel their war against the Union. The Confederacy began to print as much money as it needed, causing massive inflation.


In economics, an increase in the prices of goods and a decrease in the value of money.

The graph below represents prices during the Confederacy's existence. The Lerner Price Index is a somewhat complex economics equation. In simple terms, the cost of living in the Confederate states had multiplied by a factor of 92 from the beginning to the end of the war.1 By 1864, the Confederate economy was irreparably damaged.

The Confederate Economy, Inflation Graph, StudySmarter

Inflation Graph. Source: Wikimedia Commons.

The Southern and Northern Economies During the Civil War

The weaknesses of the Confederate States' economy are best realized when compared to the Union's economy. The Union possessed a far superior, industrial economy and infrastructure, as opposed to the Confederacy's largely agrarian-based economy and infrastructure. The chart below details some of the stark differences between the North and the South during the American Civil War.

Union / The North / The United States
The Confederate States/ The South
Number of factories
100,000 factories
20,000 factories
Miles of Railroad
20,000 mi
9,000 mi
22 million
9 million (3 million slaves)
Bank Deposits
189 million dollars
27 million dollars

The Confederate Economy - Key takeaways

  • In 1860, the cotton industry in the Southern United States was one of the most important industries in the world.
  • The Confederate economy depended heavily on the cotton industry and the slave labor that supported it.
  • The failure of King Cotton Diplomacy (pressuring European states into intervention) and the success of the Anaconda Plan (blockade of Confederate naval trade) crushed the cotton industry in the Confederate States.
  • During the Civil War, the Confederacy continued to print massive amounts of money to fund the war, causing massive inflation in the South.
  • The Confederate States could not match the Union's economic and infrastructural might.


Frequently Asked Questions about Confederate Economy

The Union implemented the Anaconda Plan to blockade the Atlantic coastline and the Gulf of Mexico to prevent any trade with the Confederacy. The Mississippi was also taken by the Union, further crippling the South's economy.

The Confederate economy was mostly agriculture-based, focusing on cash crops such as tobacco and especially cotton. 

Due to the inadequacy of the cotton industry and the costs of war, the Confederate economy experienced massive inflation during the Civil War.

By 1863, the cotton industry in the Confederacy was demolished by the failed King Cotton Diplomacy and the successful Anaconda Plan. The economy crumbled along with the cotton industry. 

The Confederate economy was based almost solely on agricultural cash crop production (which relied on slave labor). Once those cash crop industries failed, especially cotton, the Confederate's economy tanked. Additionally, the Confederate States had poor infrastructure and manpower compared to the Union. 

Final Confederate Economy Quiz


What cash crop was most essential to the Confederate State's economy? 

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In terms of economics, why did the Southern state representatives consider an attack on slavery to be an attack on their way of life? 

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Slavery was the backbone of the cotton industry, the South's most lucrative export. 

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What best describes the Confederate economic strategy at the beginning of the Civil War? 

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The cotton industry will sustain the South; pressure the Europeans with cotton and they'll join the war. 

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Describe how cotton was the lynchpin of the Confederate economy. 

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While the cotton industry had been very successful in 1860, any hindrance to the exportation of cotton could cripple the South.

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Describe King Cotton Diplomacy.

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The Confederacy believed that withholding cotton from European trade would cause extreme demand in Europe and force European powers to enter the war on behalf of the South. 

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Why did King Cotton Diplomacy not work? 

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Because European countries had ended slavery in their own countries and because cotton could be found elsewhere.

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What was the Anaconda Plan?

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It was a Union plan to blockade naval trade into and out of the Confederacy. Additionally, the plan involved seizing the Mississippi River from the Confederates. 

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What was the result of excessive Confederate paper money printing? 

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Massive inflation 

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The cost of living in the Confederate States multiplied by a factor of __ from the beginning of the Civil War to the end. 

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Whereas the Union's economy was primarily industrial, the Confederacy's economy was primarily ____.

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Agrarian (cash crops) 

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