The civil war was mainly caused by the economic differences between the northern and southern United States. The Northern states had a developed industrial economy while the Southern states were mostly an agrarian economy depending mostly on cheap labor for crop production. The source of this cheap labor was slavery which the federal government was trying to eradicate. To abolish slavery meant that the South’s economy will be heavily hit. During that era, cotton was very profitable that it was used as collateral to back bond issues by the Confederacy. It was said that the turning point of the war was the fall of Vicksburg, Mississippi. It is true in a combat and strategic perspective; however, the economic turning point of the civil war which favored the Northern forces was the fall of New Orleans, Louisiana a year before.
New Orleans was a major trading port for the export of cotton to Liverpool in England which serves as a hub for the textile industry in that country. In order to finance the Confederacy’s war efforts, it sold bonds to its citizens and as fresh local debtors became scarce, the Confederates turned to Europe for support on its bonds. In the eyes of major European financiers like the Rothschild’s, the Confederate States was a high credit risk. However, that did not stop the Confederacy from issuing bonds to Europe. They added a kicker to their bonds which allows the holder to redeem the securities in cotton. This sweetener was a perfect incentive for debtors since the price of cotton was steadily rising. In an attempt to make Confederate bonds even more attractive, they restricted imports of cotton which proved to be devastating to their cause. The now decreased availability of cotton made its price too expensive that it affected the South’s profit from exports. Confederate bond investors in Europe started to lose faith on their ability to actually redeem the bonds for cotton and when the major port of New Orleans fell under Union forces, Confederate bonds became near worthless because the captured port was the primary hub for cotton exports. As the Confederacy ran out of options for war funding, they started to just print more currency to pay for the war effort to a point where a Confederate dollar was only worth 1 cent in gold compared to 50 cents for the Union Greenback notes.