EH.Net review of Thornton and Ekelund

Published by EH.NET (April 2004) Mark Thornton and Robert B. Ekelund, Jr., _Tariffs, Blockades, and Inflation: The Economics of the Civil War_. Wilmington, DE: Scholarly Resources, 2004. xxix + 124 pp. $19.95 (paper), ISBN: 0-8420-2961-3; $65 (cloth), ISBN: 0-8420-2960-5. Reviewed for EH.NET by David G. Surdam. A fundamental axiom in show business is to leave the audience begging for more. Professors Thornton and Ekelund, at the Ludwig von Mises Institute and Auburn University respectively and both economists utilizing the Austrian approach, fulfill this axiom. They present a libertarian interpretation of economic issues involved during the American Civil War. For readers unfamiliar with the Austrian approach to economics, the two authors offer a readable, enjoyable treatise that introduces the works of many economists operating under the Austrian approach. Yet, they leave many intriguing questions unanswered.For libertarians who view a nascent Confederacy as a laissez-faire paradise (except for blacks), the authors provide a valuable corrective. They recognize the ironic paradox: the states' rights Confederacy had strong central government action while the Federal government's policies were less centralized. Thornton and Ekelund's book contains a lengthy introduction and four chapters. The first chapter emphasizes the tariff as a key economic factor driving regional friction. The second chapter examines the blockade and finds it effective, albeit helped by clumsy Confederate policies. The third chapter describes the inflationary experiences of both sectors and uses an Austrian monetary model to analyze the causes and effects. The final chapter describes the war's effects upon the economies of the two regions. I want to stress that the book is an interpretation; the authors provide little new data. Their chapter on the blockade has an original use of data compiled by John Christopher Schwab, while in most of the other discussions the authors employ theories and data used by previous commentators. The authors assert that the tariff was a crucial, if not the main, economic source of divisiveness during the antebellum era. They de-emphasize slavery, although, they are moderate on this belief compared with some libertarian writers who claim that slavery was an unimportant issue in precipitating the war. There are some difficulties with their presentation of the tariff issue. Their Figure 1-2, which shows the sources of Federal government revenues as percentages, should have been accompanied by a table or a figure showing the actual amounts collected. Otherwise, their statements on page 12 that tariff revenues were volatile and uncertain and that the increase in tariff rates in 1842 led to drastic reductions in tariff revenue are not necessarily sustained by changes in the percentages. For instance, the figure only shows a modest dip in the percentage of Federal revenue emanating from the increased tariff rates. Certainly a prohibitive tariff did engender inefficiency and arguably an inequitable redistribution of wealth and income. Southerners may well have had reason to feel aggrieved by contemporary tariff policy and fearful of future policies, as the authors point out. However, the authors do not explain what alternative peacetime revenue policies would have been superior. Was the system of tariffs more injurious to southerners than, say, an income tax or a property tax? Southerners surely would have disliked a property tax and an income tax might have proven intrusive and difficult to enforce. The authors allude to the issue much later in their book when discussing wartime public finance: "Despite all of its flaws, taxation can be the best method of public finance because the burden is relatively well-known and certain" (page 66, see also page 68). They suggest that a low rate that would have been applied to the largest possible base would have sufficed. Unfortunately, they do not cite Douglas Ball's work on Confederate finance, who offers a detailed analysis of Confederate public finance (see pp. 22-23 in _Financial Failure and Confederate Defeat_, University of Illinois Press in 1991). Still, I believe Austrian economists have useful things to say about public finance, and I wish these authors had more completely developed their intriguing suggestion. Their later discussion of public finance with regards to inflation also raises a key issue that is rarely broached in discussions of the Civil War. Aside from the well-known (at least where economists congregate) fact that volatile changes in general price levels due to printing money obscure underlying changes in relative prices, making economic calculus tenuous, at best, the authors point out that, "it also impedes the ability to calculate the true cost of government activities, such as war" (p. 68). This statement is certainly correct, but given the reticence of southern legislators to enact any taxes or for southerners, in general, to favor taxes, an unsettling question arises: How much did southerners value independence? The chapter on the blockade is bedeviled by a paucity of data. I am certain that Thornton and Ekelund's argument that blockade runners preferred to import items with high value relative to weight is correct. I am less certain that their comparison of coffee to sugar and molasses prices suffices to prove the contention. In particular, their use of terms such as _luxury_ (coffee) and _necessity_ (sugar and molasses) is, as they discuss, fraught with ambiguity. Unfortunately, time series of, say, fine wine and silk cloth prices are not available. Their attempt to contrast coffee as a high value-to-bulk commodity versus sugar or molasses as low value-to-bulk item is an improvement. Unfortunately, the data underlying their Figures 2-3 and 2-4 are suspect. John Christopher Schwab collected price data from various southern cities during the Civil War and compiled price series. He presented the prices in terms of comparisons with 1860 prices. Thornton and Ekelund use Schwab's data to show that the high value-to-bulk coffee fell in terms of relative price compared with sugar and molasses, except for a spike in 1865. The authors attribute the increase in coffee's relative price in 1865 to a loosening of the blockade, but this is unlikely. The Union capture of Fort Fisher removed Wilmington, North Carolina as a seaport for blockaders; Charleston, South Carolina was rendered useless for the Confederacy the next month. More troubling for demonstrating their thesis is the strange behavior of sugar and molasses prices in 1864 reported by Schwab. A particularly bizarre episode occurred between January and February 1864. The combined sugar and molasses index doubled (going from 47 to 99), but sugar's index fell from 59 to 14! Molasses only increased from 36 to 59 between January and February. Sugar's index price remained low for the remainder of the war, while molasses generally increased. The combined index continued to rise. It is possible that Schwab's 1864 sugar prices are typographical errors, but the figures occur in both his article and book. An alternate set of prices compiled by Eugene Lerner ("Money, Prices, and Wages in the Confederacy, 1861-65," Ph.D. dissertation for the University of Chicago, 1954) better support the contention of continually rising sugar prices. I also believe that the authors rely too much upon capture rates of blockade runners. Similar capture rates in the face of a dwindling number of attempts would suggest an increasingly effective blockade. Steamers that ran the blockade evolved but required inefficient cargo holds, special "smokeless" coal, and skilled navigators. Since steam vessels normally did not carry bulky grains during peacetime, for instance, a switch to steamers and away from sailing vessels would generate the results predicted by Thornton and Ekelund. The Austrian economic approach can provide valuable insights into the Civil War. The authors have capably introduced readers to the burgeoning corpus of Austrian analysis of the war. Yet, I feel there are other insights they could have investigated, and I hope they will further their efforts. David G. Surdam is an independent scholar. His book, _The Postwar New York Yankees and America: A Revisionist View of Baseball's "Golden Age"_ is wending its way through the publication process. His _Northern Naval Superiority and the Economics of the American Civil War_ (University of South Carolina Press) was published in 2001. Copyright (c) 2004 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net; Telephone: 513-529-2229). Published by EH.Net (April 2004). All EH.Net reviews are archived at http://www.eh.net/BookReview. -------------- FOOTER TO EH.NET BOOK REVIEW --------------