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Cotton, Gold, And Flesh

June 2023
4min read

By 1851 the United States had nearly reached the full extent of its contiguous territory. But while the territory east of the Mississippi had all been formed into states, west of the Mississippi only California, Texas, and the states bordering the river had been admitted to the Union. Much of the rest was still unorganized and even unexplored. And most Americans lived in the East. Indeed, the nation’s center of population lay in what is now West Virginia.

The economy of the United States in the middle of the nineteenth century was sharply divided, on a line along which the nation itself would nearly cleave a few years hence. The Northern economy was characterized by agriculture based on the family farm, commerce (America in 1850 had a merchant marine second only to Britain’s), finance, and, increasingly, industry. The most important Northern export, however, odd as it may sound to our ears, was ice. Cut from ponds in winter and stored beneath mounds of sawdust, a byproduct of the lumber industry, ice was shipped as far away as India.

Textiles were the primary industry, centered in New England, where there were plenty of clear, fastrunning streams to power the mills. Few of these textiles were exported, and often they were competitive with European textiles in the domestic market only because they were protected by high tariff walls. And the country still imported most of its manufactured goods from Europe, especially Britain.

But while the North had a mixed economy, the South remained overwhelmingly agricultural. The reason was simple: Much of the South—with its rich soil, abundant rainfall, and warm climate—was the best place in the world to grow one of the mainstays of the nineteenth-century world economy. Cotton had been a luxury fabric in the eighteenth century because the fibers of the cotton plant are difficult to separate from the seeds and, once separated, hard to weave into cloth. Textile machinery solved the latter problem, and when Eli Whitney’s cotton gin solved the former one as well, the demand for cotton exploded as its price plummeted.

By the Civil War, the United States was exporting about four million bales a year. But much of this vast cotton trade was brokered through New York, already the country’s dominant financial center and leading port. Southern financial institutions such as banks and brokerages were small and usually weak.

Thus the Southern economy was greatly dependent on a single cash crop. And while immensely profitable, there was a terrible price to be paid for this dependence. Slavery had been a declining institution in the early days of the Republic, but cotton, a laborintensive crop, changed that dramatically, and the slave population in the South began to grow quickly just at the time when moral opposition to slavery was growing equally quickly in the North. By 1860 the price of a prime field hand was six times what it had been at the turn of the century, and the South had much of its capital invested in human flesh.

The United States was prosperous in 1851, especially compared with the previous decade, when it had been mired in a depression that started in 1837 and lasted longer than any other in American history. But while the depression had been lifting in the late forties, it was the California gold strike of 1848 that transformed the American economy.

The Gold Rush moved the country’s center of political gravity westward in a historical instant. Indeed, it was in the year 1851 that John B. L. Soule wrote in the Terre Haute Express , “Go west, young man, go west!,” a phrase quickly picked up by (and forever after attributed to) Horace Greeley. California was admitted to the Union in 1850. And since it lay more than a thousand miles west of its nearest fellow state, Texas, connections to it became a prime political question, leading to the completion of the transcontinental railroad less than two decades later.

The economic effects of California gold were equally important. Gold was at the very center of the international economy in the nineteenth century. Britain, the leading economic power, had been on a pure gold standard since 1821, buying and selling unlimited quantities of pounds sterling for a fixed price in gold, and the Bank of England was the world’s de facto central bank.

But America’s money supply in mid-century was a hodgepodge. The federal government minted gold and silver coins, but state banks—thousands of them—provided the paper money. Sound banks backed the notes they issued with gold and government bonds in their vaults. Less sound banks often did not. A New York agency issued a newsletter called “The Bank Note Detector” to help the wary tell good notes from dubious ones.


California gold allowed a great increase in the money supply by letting sound banks issue more bank notes. In 1847, a typical pre-California year, the United States produced 43,000 ounces of gold. In 1848, thanks to California, the country produced 484,000 ounces; the next year the output was 1,935,000 ounces; and by 1853 it was up to 3,144,000 ounces, worth almost $65 million—$17 million more than the federal government’s total expenditures in that year.

The economy expanded rapidly under this freshet. Government revenues, a rough measure of economic activity in those years, were $29 million in 1844. A decade later they were $73 million. There were 9,021 miles of railroad track in the United States in 1850—and 30,626 in 1860. The telegraph spread even faster, and together with the railroad it began to knit the country together in a way that had never before been possible, and would remake the economy in the ensuing decades.

Pig-iron production, also an important measure of economic activity, soared from 63,000 tons in 1850 to 883,000 tons a mere six years later. Foreign investment poured into the country to finance this development, as American securities held overseas increased from $193.7 million in 1847 to $383.3 million in a decade.

But these ebullient numbers hid a problem: The American economy was on what a later generation would call autopilot. President Andrew Jackson had vetoed the recharter of the central bank, the Second Bank of the United States, which dissolved in 1836. The country would not have another until 1913, when the Federal Reserve came into being. As a result of having no institution to check “irrational exuberance,” economic expansions in the nineteenth century tended to run out of control and to end in financial crashes. This boom was no exception.

Wall Street had become the dominant financial market in the previous decade, as the telegraph allowed people in distant cities to trade in New York. By 1856 there were 360 railroad stocks, 985 bank stocks, and 75 insurance stocks being traded on Wall Street, as well as hundreds of corporate, state, and federal bonds. The following year, the broker George Francis Train summarized the vagaries of Wall Street in rhymed couplets:

Monday, I started my land operations; Tuesday, owed millions by all calculations; Wednesday, my brownstone palace began; Thursday, I drove out a spanking new span; Friday, I gave a magnificent ball; Saturday, smashed—with just nothing at all.

The “Saturday” came in the summer of that year. “What can be the end of this but another general collapse?” asked James Gordon Bennett in the New York Herald on June 27th. ”… Government spoilation, public defaulters, paper bubbles of all descriptions, a general scramble for western lands and town and city sites, millions of dollars, made or borrowed, expended in fine houses … silks, laces, diamonds and every variety of costly frippery are only a few among the many crying evils of the day.”

The crisis came in late summer, when Wall Street crashed and most of the country’s banks temporarily suspended payments in gold and began to call in loans as fast as they could.

The result was four years of depression, a depression that would be ended only by the Civil War.

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