Before the US Civil War, Lancashire’s cotton industry was producing more finished goods than people around the world wanted to buy. The level of production couldn’t last and was already headed for a crash.
The Civil War, and the idea that cotton would become scarce, made people panic. Speculators bought up the available cotton, which drove prices significantly higher. This made it too expensive for mills to keep running at their usual pace. The war exacerbated an existing problem.
The impact on people was harsh. Workers who had been doing relatively well suddenly became very poor because mills closed and jobs disappeared. That may have contributed to more deaths; in Manchester, deaths in 1865 were 14% higher than the decadal average, possibly due to chronic malnutrition, even with local and national help like soup kitchens. While the mills eventually resumed operations, some people relocated (with a slight increase in migration to Canada), and some towns began producing different products, marking a lasting change for Lancashire.
Based on the article A Reconsideration of the Lancashire “Cotton Famine”
Eugene A. Brady, Agricultural History, Vol. 37, No. 3 (Jul., 1963), pp. 156-162