The end of the Civil War brought freedom to 3.9 million formerly enslaved people. Yet, almost immediately following the war, Southern states started to incarcerate freedpeople at unprecedented rates in an effort to reinstate racial hierarchies in the post-Emancipation era. Not before long, Southern states introduced new carceral institutions, most notably the convict-lease system, under which prisoners were leased out as laborers to private contractors for the duration of their sentence. The emergence of convict leasing has often been portrayed as a programmatic attempt by the Southern whites to find an alternative to antebellum chattel slavery.1 Paying special attention to the sequencing of political events during Reconstruction, I revisit this story by highlighting the role that state capacity and public finance played in the introduction of the policy. As conviction numbers swelled after Emancipation, the carceral capacity of Southern penitentiaries was quickly overwhelmed, prompting Reconstruction legislatures and governors to search for alternatives to conventional imprisonment. I argue that convict leasing emerged from these capacity challenges as a cost-effective solution that initially enjoyed broad bipartisan support. Over time, leasing grew more profitable, both for the state governments and the lessees, and abolition efforts were stalled for decades, even when the system became increasingly abusive. Using a range of archival materials, I illustrate these carceral developments in an in-depth case study of the origins of convict leasing in Georgia.