No, you dare not make war on cotton. No power on earth dares to make war upon it. Cotton is king!

Sen. John Hammond, South Carolina, 1858¹

Introduction

The American Civil War was fought from 1861 to 1865. It has voluminous literature, perhaps because it can be used as an example of an inflection point in the history of warfare. On the battlefield, Napoleonic era technological limits to communication required soldiers to fight in close-order ranks while facing rifled muskets and artillery that greatly increased lethality². At sea, steam powered and turreted ironclad warships faced sailing ships with muzzle-loaded cannon. Railways and steam ships allowed the movement and sustainment of large armies in multiple theatres, while generals struggled to find a coherent method of forging widely dispersed tactical engagements into a coherent strategy. At the grand strategic level, politicians on both sides developed methods to manage their civil-military relations³. The war was also a contest between the mobilisation of the modern economic systems that fuelled its scope and ferocity. This essay will concentrate on this last aspect: the economic underpinnings of the war effort.

This is not a new area of study – scholarship in the field attributing the causes of the war to Northern economic expansionism date to before the second world war⁴. There is a significant body of literature on the economic conditions and financing of both the Union and Confederate war efforts. Rather than describe lessons for economic strategy (i.e. using the economy as an instrument of national power), this essay will draw out lessons for students of strategy for the use of military power. It does not seek to make economists out of strategists, but aims to show that failure to appreciate the economic underpinning of military power can lead to defeat. This will be shown using the ‘influence effect’ theory of Albert Hirschman, an influential scholar of the use of economic power in international relations, to demonstrate two points of relevance to students of strategy. The first point relates to the management of important groups inside the strategist’s own state, and the second relates to the management of groups within a state that the strategist intends to influence. While not proposing that these points encompass the entire reasons for the Confederacy’s defeat, they played a large part and remain relevant to students of strategy today.

To demonstrate this, the reasons that these points remain relevant will be explained through a description of the economic similarities between the time of the Civil War and today. This will show that there is enough in common for a case study of the period to remain relevant. A description will then be given of the three components of Hirschman’s influence effect theory and why these are relevant to students of strategy. This will illuminate the link between sub-state actors, economic factors and strategic success or failure. Two lessons will then be derived from this framework. The first relates to the Confederacy’s poor integration of the economic interests of its most powerful sub-state actors with war aims, showing students of strategy that misaligned interests within a state can contribute to defeat. The second relates to the Confederacy’s unsuccessful attempts at economic coercion of its trade partners; showing students of strategy that poor understanding of the sub-state actors inside a target state can be fatal to successful strategy.

Relevance – going from the specific 150 years ago, to the general today

In assessing lessons from studies of the past, students of strategy should be cautious of what lessons they draw. In examining the American Civil War, the student of strategy should question why lessons from a war conducted almost 150 years ago are relevant. In this case, the strategic lessons presented are related to the economic underpinnings of military and national strategy. The international economic conditions of the time have parallels to the present. Unlike the mercantilist international economy of the 18^th century, dominated by institutions such as the East India Company, the period of 1846-1870 was an imperfect free trade system much like today⁵. Much as the United States has done in the post-civil war period, it engaged in protectionist practices such as tariffs before the Civil War⁶. While many countries adhered to the now abandoned gold standard for their currencies, neither the Union nor the Confederacy did⁷. Robert O’Brien and Marc Williams note that this international economic system after the Napoleonic wars was “based on liberal principles that are similar to the guiding principles of today’s dominant powers and institutions”⁸. These similarities between the systems of then and now provide a valid basis for drawing general lessons from the specific case study.

Theoretical lenses – managing internal and external polities. How domestic interests get a strategic vote

Albert Hirschman is mostly known for his works on the political economy. In an early but influential work, National power and the structure of foreign trade, he described several important effects of the use of trade as an instrument of national power. One of these, which will be the focus of this essay, is the ‘influence effect’. This is the political consequences of engaging in mutually beneficial exchange⁹. Three aspects of the influence effect will be used to provide insight into why Confederate strategy failed.

The first aspect of the influence effect examined is that in any state involved in trade, there will be groups, such as the producers of export goods, for whom the stoppage of trade would by disproportionately disadvantageous. These groups, referred to by Hirschman as ‘commercial fifth columns’ will exert influence on governments to maintain friendly policies towards states to trading partners¹⁰. To strengthen the link to other elements of strategy, a complementary means of examining the influence of substate actors, selectorate theory, will be introduced. This will be used to explore the effects of two sub-state actors: slave holders inside the Confederacy, and manufacturers inside Britain.

The second aspect is that an exporting nation has an incentive to put in place policies that make it difficult for the trading partner to dispense with the imports. "A country trying to make the most out of its strategic position with respect to its own trade will try precisely to create conditions which make the interruption of trade of much graver concern to its partners than itself"¹¹. The Confederacy’s attempts to leverage its cotton trade as an instrument of strategy will be examined.

The third aspect is that as this trade re-orientation occurs, the economy of the smaller state can become increasingly conditioned on that of the larger.¹² This can result in asymmetrical influence effects as even if the smaller state has made its trade as indispensable as possible, the consequences for interruption for itself are disproportionate. Combined with the second aspect, this will be explored in relation to the Confederate cotton trade with Britain.

Substate actors in the Confederacy – important selectorates and southern financing

To understand the implications of financing on the failure of Confederate strategy, it is necessary to understand some of the underlying factors. The American Civil War has advantages as a case study in strategy due to the relative similarities of the belligerents: both were, by modern standards, imperfect democracies with modern economies.¹³ The Confederacy perpetuated many of the political and economic institutions of the United States after succession. The differences in remaining variables can therefore be instructive.

There were significant differences between Union and Confederate war financing models in three principle areas: Loans, government issued notes, and taxes. The union financed 31% of their war effort with loans, 14% with notes, and 20% with tax revenues. Confederate war funding relied almost exclusively on notes (a massive 54% of total revenue), 19% on loans, and less than 4% through taxes¹⁴. Taxation accounted for less than 1% of Confederate government revenue throughout its short existence¹⁵. The Confederacy’s extreme reliance on methods other than taxation had several effects that contributed to strategic failure. The first is that compensating for lack of tax revenue and specie through printing money backed “by nothing but faith” resulted in hyper-inflation that destroyed its economy¹⁶. The second was that the lack of tax revenues posed severe credibility problems in the international money market, resulting in Confederate bonds and notes being severely discounted. Only in the final years of the war did the Confederacy enact effective taxation, which was too late¹⁷. The Confederacy’s inability to develop an effective wartime finance model, compared to the relative success of the Union¹⁸, directly contributed to its defeat.¹⁹

The Confederacy had reasons to be averse to taxation. The first of these was in Confederate elites’ ideological aversion to the concentration of power in federal hands rather than in those of the states²⁰. The second is more prosaic. Taxes on property were the most common form of direct taxation in the antebellum period²¹. The proportion of slaves as a percentage of total property in the Confederacy’s ‘deep south’ states in 1860 averaged 46%, while being significantly lower elsewhere²². Records of voting decisions in the Confederate congress show that proposals for tax on property were most opposed by representatives from deep south states at the beginning of the war. Conversely, deep south states strongly supported such taxation when impending Union victory and emancipation imperiled slavery²³. By this stage of the war, such measures were too late – ‘the side with the best credit won’²⁴. It is this second reason, the failure of the Confederacy to align the interests of an internal polity with national aims that is more germane to the lessons for modern students of strategy.

In order to understand the influence of this internal polity, it is useful to combine Hirschman’s influence effect with selectorate theory. Selectorate theory offers a way to understand the roles and interests of sub-state actors that expands on the potential ‘commercial fifth columns’ Hirschman describes. Randolph Silverson and Bruce Bueno de Mesquita are key scholars of this theory. They define a selectorate as a group that leaders require support from to maintain power, and who require public and private goods to do so. Victory is only one such public good²⁵. The majority of slaves in deep south states were involved in cotton production²⁶, which in turn accounted for more than half of United States exports before the war²⁷. The deep south states, comprising seven of the 15 Confederate states, were too powerful a selectorate for the Confederacy’s leaders to ignore their wealth production interests²⁸. The public goods required to keep this selectorate aligned with Confederate goals was protection of their ability to generate wealth. Paradoxically, this protection resulted in the Confederacy’s diminutive tax revenue, which in turn removed all credibility from its chosen instrument for financing the war – the issue of notes. This crippled its ability to provide the war material it required. By the time that slave states interests in avoiding defeat eclipsed their need to protect wealth generation (i.e. the needs of the selectorate were aligned with the needs of leaders’ strategy), it was too late to effect the outcome of the war. The lesson for students of strategy here is that enacting effective strategy requires a state to align the aims of its selectorates.

Substate actors in Britain – important selectorates and asymmetric trade relationships

While the previous lesson concentrated on managing domestic sub-state actors, the next lesson for students of strategy provides an example of the impacts of failing to correctly diagnose the interests of external substate actors. In this case, the example used will be the Confederacy’s miscalculation of Britain’s interests in the war. Here, the Confederacy badly misjudged domestic factors in Britain, which (like the financing failure described above, contributed to its eventual defeat. Hirschman’s influence effect will be used to explain this outcome.

The Confederacy had good reason to believe that cotton could contribute to leverage with European powers. After succession, it controlled most of the United States’ cotton producing land. Europe, and Britain in particular, were highly dependent on Southern cotton. In 1860, some 67 - 87% of raw cotton stock In Britain was from the United States, with the overwhelming majority from Confederate states²⁹. The cotton crop of 1861 was worth almost 10 times the amount of gold held by southern states, providing huge potential for securing war materiel³⁰. In addition, Britain’s leaders were at best ambivalent to both the Union and the Confederacy³¹. Confederate leaders almost assumed that this reliance could be leveraged to secure recognition of the Confederacy, resulting in more substantial military aid and pressure on the Union to negotiate³². From the start of the war, these assumptions proved to be false.

The Confederacy made several misjudgments in its attempts to use the cotton trade for international leverage. In the first year of the war, an incoherent financial policy resulted in the Confederacy buying cotton to use as leverage for credit abroad, but it then failed to legislate against state-level and local unofficial embargoes. This provided an irritant in its attempts at diplomacy, exploited by the Union in claims that the Confederacy was employing this as an official policy³³. When the Union announced a blockade of Confederate ports, abnormally high stocks already held in Britain provided a buffer from the stoppage of trade³⁴. By 1863, cotton was flowing into Britain from other countries³⁵. British leaders, already unimpressed and irritated by clumsy Confederate diplomacy, were not coerced³⁶. “No Parliament could stomach the humiliation of bowing to what amounted to extortion³⁷”. Opposition to slavery from Britain’s labouring and middle classes dampened opposition from those most impacted by the cotton shortage, and Britain could afford to provide relief to impacted industries³⁸. Britain was also reliant on grain imports from the Union. It therefore had little incentive to not comply with the Union blockade, and ultimately it remained neutral. Other countries were not inclined to risk war with the Union by breaking the blockade³⁹. The Confederacy suffered the triple blow of failing to coerce international support for its cause, loss of revenue for its war effort, and the undermining of its major commodity for underwriting bonds and notes.

This complex web of interactions can be explained through Hirschman’s influence effect. The Confederacy misjudged the degree to which it had made the interruption of cotton trade unsustainable for Britain. It failed to anticipate that Britain would avert the risk of its manufacturing industry becoming one of Hirschman’s ‘commercial fifth columns’ through the provision of relief. It over-estimated the degree to which it had made it difficult for Britain to, as Hirschman put it ‘dispense entirely with the trade’ or source supplies from other countries⁴⁰. Most importantly, it failed to appreciate the asymmetry of its trade relationship with Britain. While the confederacy may have had other markets for its cotton, the preponderance of trade with Britain meant that the impacts of ceasing trade were much less bearable for the Confederacy than they were for Britain. Rather than wielding influence effects, the Confederacy became the victim of them. The lesson for students of strategy here is that even in economic relationships which verge on monopoly, strategists should not assume leverage, particularly where there is an asymmetric economic advantage against the near-monopoly holder.

Conclusions

Despite the passage of 150 years, the American Civil War provides fertile ground for drawing lessons for students of strategy today. In examining the economic conditions of the period, characteristics of the modern international economic system can be seen. The Union, the Confederacy and their trading partners were modern states positioned in a free trade economy like that of today, and like today that free trade was imperfect. They had to make choices to manage scarcity, and like states today had to manage the interests of important substate actors inside their societies and those of their trading partners. Hence, the influence effect theory Albert Hirschman described in 1946 remains relevant today as well. The relevancy of the case study and relevancy of the theory allow for the two lessons described here: enacting effective strategy requires a state to align the aims of its selectorates, and even in economic relationships which verge on monopoly, strategists should not assume leverage, particularly where there is an asymmetric economic advantage against the near-monopoly holder. The Confederacy failed to learn these lessons at the time, and this contributed to their defeat.

Of all the lessons that could be drawn from the tactical, operational and strategic study of the Civil War, why are these the most important? The answer is that these lessons show that the economic element of national power impacts all others. Incoherent Confederate finance undermined their ability to pay for military power. Their clumsy attempts at coercion undermined their diplomatic leverage. Their protection of their economic interests undermined the diplomatic efforts. This points to the utility of economics-based lessons for students of strategy even if their focus is the military element of national power. In a world that continues to be characterised by asymmetric power relationships and unevenly distributed interests of sub-state actors, students of strategy will benefit from the lessons the Confederacy failed to learn.

Bibliography

Bedwell, Randall (ed). Brink of Destruction: A quotable History of the Civil War. Cumberland House, 1999

Blainey, Geoffrey. The Causes of War. The MacMillan Press, 1973

Bonner, Michael Brem. Confederate Political Economy: Creating and Managing a Southern Corporatist Nation. LSU Press, 2016

Campbell, Duncan Andrew. “Letting Someone Else Have Your Way: The Palmerston Ministry’s Foreign Policy and the American Civil War.” Journal of Liberal History, no. 114 (March) (2022): 6–21

Cohen, Elliot A. Supreme Command. Simon and Schuster, 2002

Corbett, P. Scott; Volker Janssen; John M. Lund; Todd Pfannestiel; Paul Vickery; and Sylvie Waskiewicz. US History. OpenStax College, 2021. Located at: http://openstaxcollege.org/textbooks/us-history.

de Mesquita, Bruce Bueno; James D. Morrow; Randolph M. Siverson; and Alastair Smith. "Testing Novel Implications from the Selectorate Theory of War." World Politics, v. 56, no. 3 (April) (2004): 363-388

Flaherty, Jane. “The Exhausted Condition of the Treasury on the Eve of the Civil War', Civil War History, v. 55, n. 2 (2009): 244–277

Helleiner, Eric. “Economic Foundations of Strategy: Beyond Smith, Hamilton and List.” In The New Makers of Modern Strategy: From the Ancient World to the Digital Age, edited by Jonathan Kirshner and Hal Brands. Princeton University Press, 2023

Hirschman, Albert O. National Power and the Structure of Foreign Trade, University of California Press, 1946, expanded edition 1980

Lacey, James. “Alexander Hamilton and the Financial Sinews of Strategy.” In The New Makers of Modern Strategy: From the Ancient World to the Digital Age, edited by Jonathan Kirshner and Hal Brands. Princeton University, 2023

Nolt, James H. International Political Economy: The Business of War and Peace. Taylor & Francis Group, 2013

O'Brien, Robert and Marc Williams. Global Political Economy: Evolution and Dynamics. Palgrave MacMillan, 5th edition, 2016

Razaghian, Rose. Financial Civil War: The Confederacy's Financial Policies, 1861-1864. Yale ICF Working Paper No. 04-45, Yale University, Last Revised June 2005

Ron, Ariel and Sofia Valeonti. “Money War: Democracy, Taxes and Inflation in the U.S. Civil War,” Cambridge Journal of Economics, v. 47 n. 2 (2023): 263–288

Silva, Joaquim Ramos. “Trade between asymmetrical democratic countries,” Journal of Economic Studies, v. 26 n. 4/5 (1999): 412-426

Siverson, Randolph M., and Bruce Bueno de Mesquita. "The Selectorate Theory and International Politics." Oxford Research Encyclopedia of Politics. 28 Jun. 2017; https://oxfordre.com/politics/view/10.1093/acrefore/9780190228637.001.0001/acrefore-9780190228637-e-293.

Stoker, Donald. The Grand Design: Strategy and the U. S. Civil War. Oxford University Press Incorporated, 2010

Surdam, David G. “King Cotton: Monarch or Pretender? The State of the Market for Raw Cotton on the Eve of the American Civil War.” The Economic History Review v. 51, n. 1 (1998): 113–132

Weigley, Russell F. A Great Civil War: A Military and Political History, 1861-1865. Indiana University Press, 2000

Wilson, Mark R. The Business of Civil War: Military Mobilization and the State, 1861–1865, Johns Hopkins University, 2006

Footnotes

¹Quoted by Randall Bedwell, Brink of Destruction: A quotable History of the Civil War (Cumberland House, 1999), 20.

²Russell F. Weigley, A Great Civil War: A Military and Political History, 1861-1865 (Indiana University Press, 2000), XIX.

³See, for example, Elliot A. Cohen, Supreme Command (Simon and Schuster, 2002), 15-51.

⁴Jane Flaherty, “The Exhausted Condition of the Treasury on the Eve of the Civil War', Civil War History, v. 55, n. 2 (2009), 248-249.

⁵Robert O'Brien and Marc Williams, Global Political Economy: Evolution and Dynamics (Palgrave MacMillan, 5th edition, 2016), 67, 71.

⁶James H. Nolt, International Political Economy: The Business of War and Peace (Taylor & Francis Group, 2013), 118.

⁷O/Brien and Williams, Global Political Economy, 68

⁸O’Brien and Williams, Global Political Economy, 68

⁹Hirschman, National Power and the Structure of Foreign Trade, 16.

¹⁰Hirschman, National Power and the Structure of Foreign Trade, 29.

¹¹Hirschman, National Power and the Structure of Foreign Trade, 16.

¹²Eric Helleiner, “Economic Foundations of Strategy: Beyond Smith, Hamilton and List,” in The New Makers of Modern Strategy: From the Ancient World to the Digital Age, ed. Jonathan Kirshner and Hal Brands (Princeton University Press, 2023), 256

¹³For the Confederacy as a modern economy, using the criteria of Nobel laureate economist Edmund Phelps, see Michael Brem Bonner, Confederate Political Economy: Creating and Managing a Southern Corporatist Nation, (LSU Press, 2016),183. For the trade between imperfect democracies, see Joaquim Ramos Silva. “Trade between asymmetrical democratic countries,” Journal of Economic Studies, v. 26 n. 4/5 (1999): 412-413.

¹⁴Rose Razaghian, Financial Civil War: The Confederacy's Financial Policies, 1861-1864. Yale ICF Working Paper No. 04-45 (Yale University, Last Revised June 2005), 1.

¹⁵Donald Stoker, The Grand Design: Strategy and the U. S. Civil War (Oxford University Press Incorporated, 2010), 25; and Weigley, A Great Civil War, 69.

¹⁶Stoker, The Grand Design, 25; Mark R. Wilson, The Business of Civil War: Military Mobilization and the State, 1861–1865 (Johns Hopkins University, 2006), 227,puts hyperinflation in the Confederacy at close to 5000% compared to the Union’s at around 75% for the same period.

¹⁷Razaghian, Financial Civil War, 21, 28-30.

¹⁸Razaghian, Financial Civil War, 17.

¹⁹Ariel Ron and Sofia Valeonti. “Money War: Democracy, Taxes and Inflation in the U.S. Civil War,” Cambridge Journal of Economics, v. 47 n. 2 (2023): 283; Nolt, International Political Economy, 131.

²⁰Razaghian, Financial Civil War, 6.

²¹Razaghian, Financial Civil War, 10.

²²Razaghian, Financial Civil War, 8-9.

²³Razaghian, Financial Civil War, 28-30.

²⁴Nolt, International Political Economy, 123.

²⁵Randolph M Siverson and Bruce Bueno de Mesquita. "The Selectorate Theory and International Politics." Oxford Research Encyclopedia of Politics. 28 Jun. 2017; accessed 07 March 2025 at https://oxfordre.com/politics/view/10.1093/acrefore/9780190228637.001.0001/acrefore-9780190228637-e-293

²⁶Corbett et al, US History (OpenStax College, 2021), 289.

²⁷O/Brien and Williams, Global Political Economy, 65.

²⁸Bruce Bueno de Mesquita et al, "Testing Novel Implications from the Selectorate Theory of War." World Politics, v. 56, no. 3 (April) (2004):370.

²⁹David G. Surdam, “King Cotton: Monarch or Pretender? The State of the Market for Raw Cotton on the Eve of the American Civil War.” The Economic History Review v. 51, n. 1 (1998): 122.

³⁰4.5 million bales, worth $225 million in gold. Stoker, The Grand Design, 28.

³¹Stoker, The Grand Design, 122-123; Duncan Andrew Campbell, “Letting Someone Else Have Your Way: The Palmerston Ministry’s Foreign Policy and the American Civil War.” Journal of Liberal History, no. 114 (March) (2022):11.

³²Stoker, The Grand Design, 27, 105

³³Stoker, The Grand Design, 28

³⁴Estimates vary on what the stocks were, and also what the Confederacy believed them to be. Stoker, The Grand Design, 27-28; Sundam, “King Cotton”, 122.

³⁵Stoker, The Grand Design, 30

³⁶Weigley, A Great Civil War, 68-69

³⁷Stoker, The Grand Design, 29

³⁸Stoker, The Grand Design, 30

³⁹Stoker, The Grand Design, 104

⁴⁰Hirschman, National Power and the Structure of Foreign Trade, 17

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Defence Mastery

Own Domain Awareness defence-poa-level1

The Art of War Joint Competency defence-poa-level3

Military Power Joint Mastery defence-poa-level4

Integrated National Power defence-poa-level5

Critical and Creative Thinking defence-cognitive-level1

Complicated Problems defence-cognitive-level2

Complex Problems defence-cognitive-level3

Wicked Systems defence-cognitive-level4

Multi-agency Wicked Systems defence-cognitive-level5

Operational Planning Military Science defence-nsps-level2

Campaign Planning Operational Art defence-nsps-level3

Theatre Operations Strategic Art defence-nsps-level4

Coalition Operations Political Acumen defence-nsps-level5

Social Mastery

Lead Teams Lead Leaders social-influence-level2

Lead Operating Systems social-influence-level3

Lead Capability social-influence-level4

Lead Integrated Systems social-influence-level5

Moral Leadership social-ethics-level3

Lead organisation through ethical concerns social-ethics-level4

Stewarding the Profession social-ethics-level5

Character Role Model social-character-level3

Generate Climates of Trust social-character-level4

Character Exemplar social-character-level5

Cultural Stewardship social-culture-level3

Cross Cultural Leadership social-culture-level4

Biography

Phillip Baldoni CSM

Commander of Joint Logistics Unit Victoria

Colonel

Colonel Phil Baldoni enlisted into the Army in 1998 as a Cavalry Trooper and entered the Royal Military College in 2000. He graduated into the Royal Australian Corps of Transport. He has served in a variety of regimental positions in road transport and movements control roles, and was the commanding officer of the 9^th Force Support Battalion in 2019-2020.