The primary dataset for this discussion blog is "Interregional Differences in Per Capita Income, Population, and Total Income, 1840-1950," by Richard A. Easterlin, in Trends in the American Economy in the Nineteenth Century. A summary of the relevant data for this blog is reproduced in The American South: A History:

In 1860, just before the outbreak of the Civil War, personal income in the Northeast was nearly double that of the South (139% vs. 72%). By 1900, personal income in the Northeast remained steady (137%) while the South stumbled to 51% by 1880 and remained there through 1900. It would take until 1950, 85 years after the conclusion of the Civil War, for personal income in the South to regain the same level from 1860. 

What factors explain differences in regional per capita income between the Northeast and South from 1860 to 1900?

The first and most obvious answer is that such differences in income can be explained by destruction during the war. Virtually all of the war was fought in the South. According to historian Philip Leigh, Southern railroad capacity was cut by two-thirds. The war destroyed two-thirds of all livestock. Bank capital was reduced by three-quarters. By one estimate, the direct cost of the Civil War to the South was $3.3B (1860 dollars).

This destruction was enormous, but it did not have to be permanent. For example, historian James F. Doster showed that some extensively damaged southern railroads still managed to show operating profits in 1865 and that the "cost of physical reconstruction was relatively modest." Northern businessmen headed south to help finance rebuilding of railroads during Reconstruction, which grew by 46% between 1865 and 1875; while track mileage increased from 11,000 miles in 1870 to 29,000 miles in 1890. Cotton production across the South surpassed 1860 levels (5.4M bales) by 1880 (5.7M bales).

Although books such as Eric Foner's Reconstruction: America's Unfinished Revolution, 1863-1877 and Philip Leigh's Southern Reconstruction reach radically different conclusions about the intentions and motivations for Reconstruction, it is possible to find at least some common ground in understanding factors to explain the differences in regional per capita income.

Property Confiscation. More than 2M bales of cotton (worth an estimated $17M in 1865 prices) were confiscated after the war. While such confiscations were consistent with a series of confiscation acts passed during the war, the disposition of the cotton was not. Consistent with existing Supreme Court precedent, confiscated property should have been held in trust with the owner given an opportunity to demonstrate their loyalty (Mrs. Alexander's Cotton, 69 U.S. 404 (1865).

Pensions. From 1866-1890, fully 12% of all federal expenditures ($1.145B) went toward generous pensions for Union war veterans (so generous that the last Civil War pension payment was paid to the daughter of a Union veteran in May 2020 when she died!). By 1893, pensions for Union veterans amounted to over 40% of the budget. Federal expenditures (including pensions) were funded primarily by tariffs and taxes paid by both regions, although Confederate veterans received no pensions from the federal government.

Tariffs. Whether one subscribes to the Beale-Beard hypothesis that Northern businessmen supported high tariffs for political control and economic gain, or the more recent view that the North was split on tariffs, the end result was that high tariffs hurt the ability of the South to export cotton.

Freight Rates. Due in part to the costs of repairing and replacing damaged rail lines as well as problems of scale, interstate freight rates were significantly higher in the South. The National Emergency Council's Report on Economic Conditions of the South (1938) found that such rates were 39% higher for southern manufacturers as compared to those in the Northeast despite the fact that the primary reasons for the higher rates had long disappeared. According to the report, "this difference in freight rates creates a man-made wall to replace the naural barrier long since overcome by modern railroad engineering." It would take until the 1940s for the Interstate Commerce Commission (ICC) to modify these discriminatory rates.

Banking Regulations. The National Banking Acts of 1863, 1864, and 1865-66 created a system of national banks that the South was not able to take advantage of because of higher capital requirements (the combination of tariffs, property taxes to fund Reconstruction governments, and higher freight rates left southerners perpetually strapped for cash), geography (the one branch limitation was not suited to the rural southern population), and high taxes on state banks.

Foner concludes that Reconstruction was a moral crusade for black equality. The departure of troops from the South in 1877 represented an unfinished revolution that deprived free blacks of that equality and subjected them to decades of Jim Crow. Leigh finds that the Reconstruction policies of the Radicals were primarily motivated by a desire for political power, and as such punitive in nature. The result was decades of poverty among both whites and blacks in the South. The differences between Foner and Leigh are largely about intent (the moral crusade vs. political power) and focus (equality of blacks vs. poverty among both whites and blacks). The factors cited above, many of which help to explain differences in regional per capita income between the Northeast and the South from 1860 to 1890 do not rely on intent or motivation or focus. Instead, these factors are based upon the results of Reconstruction, regardless of the intent of the Radical Republicans. Within this small window, Foner and Leigh share a small bit of common ground. Whether through deliberate intent to punish or as the undesireable result of the end of Reconstruction, these policies had the impact of impoverishing blacks and whites in the South decades beyond where it might have regained its earlier stature.

Bibliography

Cooper, Jr., William J. and Tom E. Terrill. The American South: A History. New York: Alfred A. Knopf, 1990.

Doster, James F. "Were the Southern Railroads Destroyed by the Civil War?" Civil War History 7, no. 3 (September 1961): 310-320.

Easterlin, Richard A. "Interregional Differences in Per Capita Income, Population, and Total Income, 1840-1950." In Trends in the American Economy in the Nineteenth Century (National Bureau of Economic Research), 73-140. Princeton: Princeton University Press, 1960.

Foner, Eric. Reconstruction: America's Unfinished Revolution, 1863-1877. New York: Harper & Row, 1988.

Goldin, Claudia D. and Frank D. Lewis. "The Economic Cost of the American Civil War: Estimates and Implications." Journal of Economic History 35 (2): 299-326.

Harris, Seymour E., ed. American Economic History. New York: McGraw-Hill, 1961.

Leigh, Philip. Southern Reconstruction. Chicago: Westholme Publishing, 2017.

Murray, Robert B. "Mrs. Alexander's Cotton." Louisiana History: The Journal of the Louisiana Historical Association 6, no. 4 (1965): 393-400.

Report on Economic Conditions of the South. Washington, DC: National Emergency Council, 1938.

Stover, John F. "Georgia Railroads During the Reconstruction Years." Railroad History, no. 134 (1976): 55-65.