AP® United States History · Unit 5 · Topic 5.9
Government and Economy During the War
Fighting the Civil War forced both governments to grow far beyond their prewar size, taxing, drafting, and spending in ways that strained the very principles the war was supposedly about.
The Confederacy seceded in the name of states' rights, but war does not run on principle, it runs on money and men. With Southern representatives gone, the wartime Congress passed laws the Union had argued over for decades. The Homestead Act of 1862 gave 160 acres of western land to settlers who worked it, encouraging westward growth while the South could no longer block it. The Pacific Railway Act of 1862 funded a transcontinental railroad with government land grants and loans, tying the Pacific coast to the Union economy. And Congress passed the first federal income tax, because tariffs and land sales could not cover the war's cost. None of this fits a limited-government story. Necessity overrode it.
Raising an army created its own crisis. The Union's 1863 draft law let a man avoid service by paying a 300 dollar commutation fee or hiring a substitute, a sum far beyond most laborers' reach. Working-class New Yorkers, many of them Irish immigrants competing with freed Black workers for jobs, saw a war that conscripted the poor while the rich bought exemptions. That resentment exploded in July 1863 into the New York City draft riots, days of violence that included attacks on Black residents and conscription offices.
The Confederacy faced a sharper version of the same pressure. With little gold, a weak tax base, and a blockaded economy, the Confederate government printed paper money to pay its bills. Prices spiraled upward, savings collapsed, and by the war's final years Confederate currency was nearly worthless, undermining the government's ability to fight at all.
Key terms
- Commutation fee
- A payment, 300 dollars under the 1863 Union draft law, that let a drafted man legally avoid military service.
- Homestead Act
- An 1862 law granting 160 acres of public land to settlers who lived on and farmed it for five years.
- Pacific Railway Act
- An 1862 law providing government land grants and loans to fund construction of a transcontinental railroad.
- Income tax
- A tax on individual earnings, first adopted by the Union Congress in 1861 to help finance the war.
- Inflation
- A rise in prices caused by a currency losing value, which devastated the Confederate economy as it printed unbacked paper money.
Watch it explained
- How it worksWalk me through the wartime Congress passing the Homestead Act, the Pacific Railway Act and the first income tax.
- How it worksHow do the New York draft riots grow out of a conscription law with a purchase clause?
- Going furtherWhat happens to the Confederate economy once printing money is the only way to pay for the war?
Check yourself
End of topic.