How did the South's reliance on a slave labor system restrict its ability to diversify its economy?

Answer 1

Prior to the US Civil War, the United States, looking upon it as a whole, had an economy with no restrictions for the Northern or Southern parts of it, except for the fact that certain crops like cotton were better suited to the warmer southern climates.

The North had a larger population and waterfalls to provide the power to run grain mills & textile factories. The economy there was also to a degree based on crops that the climate & soil could handle.

The Southern economy was based largely on cash crops that were shipped to the North. Textile mills, for instance used the cotton from southern plantations. The South exported cotton along with tobacco overseas. Tobacco was a new crop found in the New World and was marketed world wide. Cotton was exported to England, for instance, to fuel English textile mills.

The large crop plantations had the advantage of cheap slave labor. These large farmlands combined with the more industrious parts of the North made the entire US economy well balanced. Thus there was no pressing need for factory development in the South.

This answer is not meant to speak about the nature of slavery, which was not a positive feature of the economy.