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When discussing the United States during the 1860s, "the Union" refers quite simply to the federal government and the northern states that remained together in the face of southern separatism. The use of the "union" by the federal government -- in opposition to the "confederacy" of the South -- has its origins in the preamble to the Constitution of the United States:
"We the people, in order to form a more perfect Union..."
The fundamental question of federalism versus a confederacy had its origins in the revolutionary war period, as colonies debated the relative authorities to be granted to the central -- or federal -- government and those to be allocated to individual states. As the issue of slavery represented the central point of contention dividing North from South, an issue that most in the South viewed as a "state's rights" issue, the distinction between Union and Confederacy is clear.
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