As the war dragged on, the North’s economic advantages became more apparent. Initially, the effects of the war on northern industry had been little short of disastrous. Raw cotton for textiles disappeared, southern planters stopped ordering shoes, and trade fell off precipitously. By 1863, however, the northern economy was in high gear and could provide more arms, food, shoes, and clothing to its troops as well as for those back home. As cotton production declined, woolen manufacturing doubled; and northern iron and coal production increased 25 to 30 percent during the war. Northern factories turned out weapons and ammunition while shipyards built the fleets that blockaded southern ports.

These economic improvements were linked to a vast expansion in the federal government’s activities. War Department orders fueled the industrial surge. It also created the U.S. Military Railroads unit to construct tracks in newly occupied southern territories and granted large contracts to northern railroads to carry troops and supplies. With southern Democrats out of federal office, Congress also raised tariffs on imported goods to protect northern industries. In addition, the government hired thousands of “sewing women,” who were contracted to make uniforms for Union soldiers. Other women joined the federal labor force as clerical workers to sustain the expanding bureaucracy and the voluminous amounts of government-generated paperwork.

That paperwork multiplied exponentially when the federal government created a national currency and a national banking system. Before the Civil War, private banks (chartered by the states) issued their own banknotes, which were used in most economic transactions. During the war, Congress revolutionized this system, giving the federal government the power to create currency, issue federal charters to banks, and take on national debt. The government then flooded the nation with treasury bills, commonly called greenbacks. The federal budget mushroomed as well—from $63 million in 1860 to nearly $1.3 billion in 1865. By the end of the war, the federal bureaucracy had become the nation’s largest single employer.

Northern manufacturers faced one daunting problem: a shortage of labor. Over half a million workers left their jobs to serve in the Union army, and others were hired by the expanding federal bureaucracy. Manufacturers dealt with the problem primarily by mechanizing more tasks and by hiring more women and children, native-born and immigrant. Combining the lower wages paid to these workers with production speedups, manufacturers improved their profits while advancing the Union cause.