The Civil War affected northern and southern economies differently. When the war began, the north, with its large factories and well-established companies, generated a great deal of the country’s business. After the first volleys of battle, the north experienced a slight depression due to the uncertainty of the war and the loss of southern business associations. However, after the initial shock passed, the northern economy flourished. The federal government moved quickly to plan for its financial future. Congress increased excise taxes on tobacco and alcohol, tariffs were created to protect manufactures from foreign competition, and an income tax was introduced for the first time in the history of the nation.
Congress also passed a series of measures that were long desired by the north but consistently killed by southern opposition. In 1862, the Homestead Act provided 160 acres to settlers who agreed to farm the land for five years. Also passed was the Morrill Land Grant Act which offered states land, approximately 30,000 acres for each Congressman, to support agricultural colleges.
In 1863, the National Banking Act was authorized by Congress to stimulate the sale of government bonds and to establish a uniform currency. Banks that joined the National Banking System could issue reliable paper money and buy government bonds. The system functioned until 1913 when it was replaced by the Federal Reserve System.
As Northerners prospered, Southerners experienced an abundance of financial difficulties. The blockades ordered by Lincoln cut off money generated from the import and export goods. Since the South relied heavily on revenue from the sale of cotton and tobacco, the backbone of their financial system collapsed. In many instances, Southerners were forced to recycle goods because they had no way to receive new products. For example, as the condition of railroad tracks declined, Southerners were forced to pull rails from one line to repair another. Metal items, like the weights from windows, were melted down to create bullets for the troops.
The harsh times did not deter citizens from trying to improve the conditions. When hundreds of thousands of men were called to duty, women in the north and south stepped up to take their places in the farms and factories. Many women also trained as nurses to tend to the growing number of injured soldiers.
The huge armies created a massive demand for clothing, shoes, and blankets. Companies raced to keep up with production orders and turned to machines to lend support. Since most of the manufacturing industry was located in the north, and tight blockades choked Southern trade, Yankee businessmen grew wealthy while Confederate farmers grew hungry. With each passing day, the war slowly squeezed the life from the once proud southern states.