Economic Prelude to the War
Chase and Union Finance
1861 - Borrowing
1861-62 Specie Problems
The Cooke System
1862 - Greenback Legislation
1862 - Tax Legislation
1863 - Banking Legislation
1864 - Gold Speculation
Changes in 1864
The Union economy expanded in the early 1860s - but that expansion was not an obvious or necessary outcome of southern secession and the subsequent Civil War. Abraham Lincoln's election as president greatly upset the financial markets in New York. The prospect of secession spooked both merchants and financiers whose business was closely linked to the South. In November 1860, Harpers' Weekly reported: "Within the past fortnight a panic has prevailed in Wall Street, and stocks of all descriptions have declined from ten to fifteen per cent. Such an event, occurring simultaneously with the most bountiful crops and the most remarkable development of material wealth this country has ever known, has naturally puzzled the public, and given rise to much surprise and conjecture."1 The New York financial community had opposed Lincoln's election. "Merchants were apprehensive that it might result in cancellation of orders from the South, and bankers expected the repudiation of Southern debts amounting to over $200,000,000, if the South should secede," wrote historian Richard Hofstadter. "The opposition press made a concerted effort to frighten business and financial interests. Merchants contributed so lavishly to the Fusion ticket in New York that Lincoln was disturbed."2
New York City business reacted to a string of different fears during 1860 and early 1861 - and these in turn prompted different reactions toward the political situation the country confronted. Fear of a deleterious impact of a Republican victory caused many of them to try to force the creation of an anti-Republican fusion slate in New York. But fears of an inconclusive election that was thrown into the House of Representatives pushed some previously Democratic businessmen into the Republican camp. Southern radicals preaching secession and economic doom to the North pushed some New York businessmen toward the GOP. Furthermore, an improved economic situation pushed some New Yorkers to turn their business face from the South toward the Midwest. Businessmen were also aggravated by a phony financial panic in late October 1861. Shortly before the election, New York Republican businessmen issued an appeal to their fellow merchants: "It is simply a question of self-defense, of self-preservation. No true business man, it seems to us, who understands his own interests, can disregard the appeal made to him in this peculiar crisis of public affairs. We want peace and not panic, and there is only one way left now by which it can be secured."3
After the election, a new round of fears circulated in the business community. Fear of defaults on Southern loan pushed businesses to try to settle accounts for long-term loans. Commerce-minded northerners were concerned that Republicans would spurn efforts to compromise with secessionists and upset the North's economic relationships with the South.
New York merchants tried desperately to collect debts and repair relationships with the South. As reports about secession grew that fall and winter, the financial markets fell. Historian Edward K. Spann wrote: "On December 15, 1860, prominent Democratic politicians and merchants, including Samuel J. Tilden and William B. Astor, met privately on Pine Street in New York City. The meeting passed resolutions urging added protection for slavery to mollify secessionists and appointed a committee headed by former President Millard Fillmore to go to the South with assurances of support for the Southern cause."4 Conservative businessmen like John A. Dix formed a Union Committee of Fifteen in December to rally support for compromise with the South. Democratic chieftain August Belmont wrote about another mid-December meeting: "Last evening I was present at an informal meeting of about thirty gentlemen, comprising our leading men - Republicans, Union men, and Democrats, composed of such names as Astor, Aspinwall, Moses H. Grinnell, Hamilton Fish, R. M. Blatchford, Etc. They were unanimous in their voice for reconciliation, and that the first steps have to be taken by the North."5 But after first trying to appease secessionists, New York businessmen became to be offended by them.
Secessionists overplayed their hand. Historian Philip Foner wrote: "The manner in which the secessionists proceeded arrogantly to assert their principles, their action in sending commissioners to Washington to 'negotiate' for control of government property before they had even sounded out Northern opinion, the seizure of Fort Moultrie, and finally, the firing on the Star of the West - all these created an entirely new atmosphere in business circles."6 The secessionists further alienated New York businessmen by seeking to cut New York City out of the trade loop with Europe. "It was impossible to believe that the Southerners would desire to rejoin the Union once they had achieved direct trade with England and had gained more of the Western trade," wrote Foner.7 Foreign trade fell meanwhile, noted historian Jane Flaherty, and "this, coupled with the disruption in collecting customs duties, resulted in a drop in federal receipts between January and March 1861." Flaherty noted that fewer customs duties meant that that the federal government was also deprived of gold specie, which was required to pay customs duties.8
Only a few years earlier in 1857, the country had experienced a serious economic recession so fiscal skepticism and anxiety was understandable at the beginning of the Civil War. The country lacked a strong banking system. Economic historian Bray Hammond wrote: "The source of the fright was not merely political, nor was there the slightest idea of what it was going to cost to regain the seceded states. Its most substantial cause was the enormous indebtedness of southern banks and business men to northern banks and business men."9 Secession disrupted the northern economy in many ways. Historian Allan Nevins noted that there was a "brief paralysis which accompanied and followed secession. The failure of banks whose notes were based on Southern bonds, the collapse of firms to which Southern interests owed large debts, the embarrassment of businesses trading in Southern cotton, sugar, and naval stores, the suspension of commission houses acting for Southern shippers, all added heavy blows to the initial shock and uncertainty. The breakdown of Illinois banks for example, which had based their note issues on Southern State bonds, was calamitous."10
The economic and political status quo was much disturbed by the approaching war. It exacerbated existing cultural and social divisions in the country. Political scientist Waller R. Newell wrote: "Even before the Civil War, the South began to see the North, with its large cities and smoke-belching factories, as somehow too modern, too far from the soil of that virtuous 'yeoman farmer' whom Jefferson, with his Rousseauan sympathies for the Arcadian state of nature, had romanticized as the backbone of the American body politic. In some ways the Civil War was an extension of the English battle between court and country, between commerce and landed gentry, and earlier between Roundhead and Cavalier."11 Economic historian Margaret G. Myers noted: "The country was still recovering from the crisis of 1857 when it was struck by a new crisis in the autumn of 1860. This time the difficulty was as much political as economic. Specie had been going out in large amounts throughout 1860 as European investors, concerned about the danger of conflict, prudently divested themselves of American securities." The approaching conflict had a domino effect on the economy. Myers wrote: "The collapse of the cotton export trade demoralized the foreign exchange market. Southern banks suspended specie payments in November, and the bonds of the southern states lost much of their value. Western banks which had used them as collateral for their note issues were soon in difficulties."12 New York bankers feared ruin. Historian Russell McClintock noted: "When rumors circulated after the election that a Southern confederacy would repudiate the region's debts and institute export taxes, the stock market plummeted. Since the city was also the hub of Northern commerce, the effects rippled outward through the region's urban centers."13
The southern economy was built on slaves and cotton. It was the foundation not only of the region's economy but also of southern wealth. The northern economy was heavily involved in financing that way of life and so the Civil War promised to be a severe economic dislocation for both the North and South. Historian Jane Flaherty noted: "Merchants and planters in the future Confederate states owed northern businesses approximately $200 million in unpaid receipts at the start of 1861; as more southern states seceded, repayments seemed unlikely."14 As different as the regional economies were, they operated in tandem. "The wealth of the North in 186o was more than three times as great as that of the South, exclusive of the slaves," noted economic historian James L. Sellers.15 Although the northern economy was much larger and stronger, it had many important southern links. Historian Russell McClintock wrote: "By 1860, Northerners controlled the nation's manufacturing, banking, and shipping, even of cotton. Southerners often resented what many perceived as an essentially colonial relationship in which they remained in debt (planters' wealth being tied up in land and slaves) while Northern factors, insurance agents, and textile manufacturers reaped cotton's great rewards. Many Northerners, on the other hand, were coming to see the South as economically backward and, even though by the late 1850s cotton exports exceeded in value all other exports combined, stagnant."16 Despite this important economic card, the Confederacy effectively committed economic suicide. Confederates withheld their cotton from the international market at the beginning of the Civil War when there was a glut of cotton and an ineffective Union blockade of the South - giving European manufacturers some time to develop production alternatives in Egypt, India and Brazil that began to fill the gap produced by the Union embargo. (At the same time, there were wheat shortages in Europe that helped expand northern exports.) By the time they attempted to reverse that policy, the Union blockade made it difficult for the South to export to Europe. Historians Mark Thornton and Robert B. Ekelund, Jr., noted: "The adverse effects of the Union blockade on the amount and kinds of supplies getting to the Confederacy over the war years were debilitating for both citizens and the war effort" in the South.17
Northern merchants were right to worry, however, about the economic impact of war and secession on their business. The Civil War promised to be an economic hurricane. There was no economic infrastructure to handle the fiscal needs of the Union government. In the early 1830s, the Jackson Administration had terminated the Second Bank of the United States - undercutting the government's ability to control the expansion of credit. Structurally, the nation was as unprepared for war finance as it was unprepared for military operations. Its bank system was fractured and chaotic. Mark Thornton and Robert B. Ekelund, Jr., noted: "In 1861 bank notes amounted to more than twelve times government currency. These notes were private currency issued by banks and back by gold and silver reserves held by the banks and redeemable in a fixed amount of these reserves. The supply of money therefore depended on both the amount of gold and silver and the reserve policy of banks, which independently determined how many notes would be issued against their gold reserves."18 Economic historians Paul Studenski and Herman Edward Krooss wrote: "The Federal government... not having had any contact with banks for nearly twenty years, it did not know how to deal with them in placing loans. The banking business was conducted by 1,600 state banks, each going its own merry way; 7,000 different kinds of bank notes circulated, with more than half being spurious. Total currency was about $450 million - $250 million in specie and $200 million in private paper issues of dubious character - with about 25 per cent of the paper money circulating in the South. Since the government, under the Independent Treasury [set up after the Bank of the United States was abolished], used only hard money, the dual-currency system was completely unsuited to the conditions of a war economy."19 The incoming Lincoln administration was dealing with a deficient monetary system that Lincoln had harshly criticized two decades earlier when it had been put in place in the late 1830s. Historian Phillip Shaw Paludan wrote that the Civil War required Congress to overhaul the nation's finances, noting that the Independent Treasury system "meant, among other things, that instead of paying and receiving through the quick and easy process of changing accounts in ledgers, tons of gold were hauled back and forth in and out of the Treasury on horse-drawn drays. It also meant that the ability of the government to pay its debt was limited to the amount of gold and silver that was available."20
In the 1830s and 1840s, Abraham Lincoln had been a strong supporter of the financial system of Alexander Hamilton and Henry Clay that President Andrew Jackson had dismantled. Lincoln inherited Jackson's system. Bray Hammond wrote: "There were more serious hurdles to be overcome because the Civil War required the reversal of three decades of Jacksonian fiscal policies that divorced the government from most financial concerns. "Not only was the federal government obstructed, under the Jacksonian legacy, from exercising an essential function - it was forbidden to act normally and to its own advantage as a transactor in the economy. No meeting ground between a government and its people is of more vital important that of monetary payments; yet the federal government was denied the use of money the people used. Any business corporation or individual could borrow at banks, but the government could not. Even in a time of terrible need, the Treasury was forbidden to touch the common means of payment, either as borrower, as payor, or as payee."21 Historian John Steele Gordon wrote: "Since the demise of the Second Bank of the United States, the federal government had financed deficits mostly by borrowing, often short-term, from banks. The banks would then hold the bonds in their reserves or sell them to their largest customers. Because it lacked a central bank, the government had no means of its own in place to borrow money or transfer sums from one area of the country to another."22
The Republican Party formed in the 1850s was the product of a merger of differing economic philosophies. Realizing this, Abraham Lincoln in the 1850s had relentlessly stressed the anti-slavery policies that united the new party rather than the economic policies that divided it. Historian Jane Flaherty wrote: "Deep differences on the core economic issues of the antebellum era still divided the Republicans when they assumed the leadership of a broken nation. Republican candidates had practiced 'avoidance and compromise' in articulating their economic platform before and during the 1860 election. Members of the party wrangled throughout the war years on the basic economic questions that had divided the political classes throughout the ante-bellum era."23 It was economic trial by fire and error.
It was a hard transition for these Republicans. "Political leaders of the North, however, did not seem to realize the seriousness of the situation. Fourteen days before Congress adjourned in June, 1860, on motion of Chairman [John] Sherman, of the Ways and Means Committee, an item of $1,000,000, which was to provide for the repair and equipment of vessels, was stricken from the naval appropriation bill. Some other Northern Congressmen attacked the bill even more severely than did Mr. [John] Sherman. Mr. [Owen] Lovejoy, of Illinois, said: 'I am tired of appropriating money for the army and the navy when, absolutely, they are of no use whatever,'" wrote financial historian Harry Edwin Smith. Southern control of the Buchanan cabinet contributed to such northern skepticism. "The political campaign, together with the threatened secession of the Southern States, made impossible any reliable predictions with regard to the business of the country, and for this reason the Secretary of the Treasury could not make any estimates with regard to the national income which he would consider trustworthy. Secretary [of the Treasury Howell] Cobb said: 'All the elements of prosperity are in existence. Abundant crops, with remunerative prices, money seeking safe investments, and, indeed, everything to indicate more than the usual increase in trade and business. The causes which have so suddenly arrested this tide of prosperity must be looked for outside of the financial and commercial operations of the country. They are of a political character.'"24
By early 1861 even before the Civil War commenced, the federal government was effectively broke and had virtually no market for the securities it attempted to sell to finance its operations. When in late 1860 the government could sell bonds, it sometimes needed to pay 12 percent interest. Historian Jane Flaherty wrote: "Bad luck, fiscal imprudence, and political stalemate created this imbalance."25 Financial historian Albert Sidney Bowles wrote: "The credit of the government had been undermined by the preceding administration. The revenues had withered away without concern, the public indebtedness had been increased, and money could be borrowed only at very high rates. When Congress met in December 1860, 'the treasury was empty - bankrupt. There was no money to pay the public creditors, who were then pressing for payment. There was not money enough even to pay members of Congress.'"26 Flaherty noted that the outgoing Buchanan Administration, especially southern sympathizers, effectively cleaned out the government's coffers before departing office in the winter of 1860-1861.27 "The management of Secretary [Howell] Cobb had thoroughly depleted the Treasury: he had spared no efforts to accomplish this result. On the 4th of March, 1861, there was not money enough left in its vaults to pay for the daily consumption of stationery; no city dealer would furnish it on credit," remembered Treasury official Lucius Chittenden.28 Like many members of President James Buchanan's cabinet, Georgian Cobb was a southerner who would eventually side with the emerging Confederacy. Until December 1860, Buchanan's cabinet was dominated by such secession sympathizers.
Even the sale of long-term government bonds dried up in late 1860 and the federal government was forced to result to more expensive short-term notes. Lincoln's fourth's treasury secretary, Hugh McCulloch, recalled: "To show how low the public credit was at the close of Mr. Buchanan's administration, it is only necessary to state that...in December, 1860, when the national debt was less than $65,000,000, proposals were invited by the Secretary of the Treasury for $5,000,000 of treasury notes (the amount required to meet debts falling due and payable on the 1st of January following), to bear such rates of interest as might be proposed by bidders and agreed to by the Secretary. For these notes, bids to the amount of $1,831,000, at twelve per cent, interest were accepted, and bids for $465,000, at from fifteen to thirty-six per cent, interest, were rejected. Soon after the balance of this loan ($3,169,000) was taken by the Bank of Commerce, New York, and its associates, at twelve per cent, interest. Such was the credit of the Government when the country, although disturbed by the threatened secession of some of the Southern States, was in an unusually prosperous condition."29 The crisis and the lack of Buchanan Administration leadership became evident in December 1860: "Toward the close of the year 1860, after the election of Mr. LINCOLN to the Presidency, but before the Legislatures of any of the states had passed ordinances of secession, it became necessary for the United States Government to negotiate a loan of ten millions of dollars," wrote Treasury official Maunsell Field in his memoirs.
As the national credit up to this time continued unimpaired, the rate of interest was fixed at five per cent. But financiers were already beginning to be somewhat distrustful about the future of the country, and it was only through the unremitting exertions of the Hon. John J. Cisco, the Assistant Treasurer at New York, that the whole amount was finally subscribed. In accordance with the terms of the loan, one per cent of the amount taken by each subscriber was deposited by him at the time of making the subscription. A day or two after the transaction was thus far completed, the Hon. HOWELL COBB, of Georgia, the Secretary of the Treasury, arrived in New York. When he came to the Treasury, Mr. CISCO warmly congratulated him upon the success of the loan. His reply was "CISCO, the people who have taken it are a pack of d-d fools. It will never be paid. The country is going to be broken to pieces. Georgia is going out of the Union; and when she goes, I shall go with her." "Why, Mr. Secretary," rejoined Mr. CISCO, "I am amazed to find you a secessionist."30
Cisco should not have been so astonished. Soon thereafter, the secessionist Cobb left the Buchanan cabinet and was replaced briefly by Marylander Philip Francis Thomas, and a month later by New York Democrat John A. Dix, who later would become a general in the Union Army. (In the last three months of the Buchanan Administration, there were three secretaries of the Treasury.) Dix's son and biographer wrote: "When called to that position the financial affairs of the government were apparently beyond redemption; the Treasury was without money, the administration without credit. Requisitions from the various departments, to the extent of nearly $2,000,000, were on the table, with no funds to meet their payment; the Treasury notes overdue amounted to about $350,000. Not a dollar could be had from the bankers and capitalists of Wall Street."31 Historian Jane Flaherty noted that Dix "notified Congress on February 11, 1861 that 'little more' than $500,000 remained in the central depository in Washington. Demands for $2 million 'unanswered' requisitions had accumulated in the department, with $6 million more due to public creditors in early March. Dix predicted a $21.6 million shortfall by the end of the fiscal year." Many government employees, including members of Congress, had not been paid in more than a month and the Civil War had not even started.32 According to the New York Herald, "Soldiers, sailors, employees in every department of the government had been cooly informed by Mr[.] Dix's predecessors that there was no money for them and no remedy."33
In short, the incoming Lincoln Administration inherited a fiscal mess. "Four difficulties in particular challenged the Republicans," observed historian Jane Flaherty. "First, the spendthrift policies of the Buchanan administration critically reduced the balance in the Treasury and forced them to rely on deficit financing. By 1860, the 'Buchaneers' had created the largest debt ever accumulated by an administration without engaging in war. When the fighting began, the Republican Treasury secretary, Salmon P. Chase, found a reluctant and therefore expensive market for wartime securities." Militarily and financially, the North was not prepared for war. Flaherty wrote: "The Lincoln administration has assumed blame for adopting 'the policy of depending on short-term issues' that eventually increased the costs of the war...The compounding effect of the Buchanan administration's failure to either cut expenses or raise revenue subsequently impaired the ability of the Lincoln administration to raise funds for the 'extraordinary' expenses of war."34
Another problem was that Congress had reduced tariffs in 1857 just before a financial panic hit the country - thus creating a political opportunity for northern Republicans, especially in Pennsylvania, to denounce this action and try to redress it. Traditionally in the early 19th century (with the exception of the 1830s when income from land sales skyrocketed), tariffs provided about 90 percent of federal revenues.35 Financial historian Harry Edwin Smith wrote: "The most significant result of the crisis from the point of view of public finance was a rapid reduction of imports, which, with the reduced rates, caused a very speedy diminution in the national income."36 Pennsylvania Republican agitated for a new tariff schedule to protect industry and raise revenue. That was logical because about 85 percent of the country's manufacturing firms were located outside the South.37 Flaherty noted that "in an effort to address the deficiencies in the Treasury, the Thirty-sixth Congress passed legislation to increase government revenue. Congress passed this bill, known now as the Morrill tariff, at the urging of President Buchanan, to address the 'exhausted condition of the Treasury.' This point has not been emphasized enough. Indeed the established literature suggest that the tariff adjustment occurred as the 'first statement of a new protectionism peculiar to the Republicans.'...Rather than initiate the advent of a new branch of protectionism, the impetus for revising the tariff arose as an attempt to augment revenue, stave off 'ruin,' and address the accumulating debt." That tariff, however, would not have been passed had not southern opponents resigned to join the secession. The tariff was important to the incoming Lincoln Administration. Historian James M. McPherson wrote that a key northern advantage was "an assured source of revenue from the tariff. But the lower rates enacted by the tariff of 1857 and the depression following the panic of that year had reduced revenues by 30 percent. From 1858 to 1861 the federal budget ran four consecutive deficits for the first time since the War of 1812."38
Funding problems put the new federal government in a fiscal box. The United States did not have a tradition of broad-based taxes. Paul Studenski and Herman Edward Krooss wrote that "the revenue system, being based on customs, sales of public land, and miscellaneous source, lacked the elasticity required for overnight expansion."39 Jane Flaherty argued: "Expected to operate with economy, and relying overwhelmingly on tariff revenue as the primary source of income, the national government had few ready options available in the face of budget deficits or in times of extraordinary wartime expenses."40 The nation was effectively broke when in March 1861, President Abraham Lincoln took office with few good options for replenishing the Treasury. Historian James M. McPherson noted: "When Lincoln took office the national debt was the highest in forty years."41 There were other factors that were draining business confidence in the government. Historian Charles R. Geisst wrote: "Anticipating an armed conflict, foreign investors had been selling their American securities and taking cash out of the country, causing a flight of gold. The stock market plunged to lows not seen even in the panic of 1857. The cotton exporting business collapsed, and many Southern banks suspended specie payments, causing problems in other parts of the country. The U.S. Treasury could cover only 25 percent of its expenditures and was desperate for cash."42
Low as well was national confidence in private and public finances as President Lincoln took office. Historian Bray Hammond wrote: "The source of the fright was not merely political, nor was there the slightest idea of what it was going to cost to regain the seceded states. Its most substantial cause was the enormous indebtedness of southern banks and business men to northern banks and business men. Every one of the latter must face the lively possibility that what was due him from the South for merchandise and collections might never be received. Even delay with the receipts might mean ruin, for there were debts to be paid with those receipts."43 Historian Jane Flaherty wrote: "The deterioration of the country's finances during the secessionist winter of 1860-61 inspired the London Economist to observe that, 'It is out of the question, in our judgment, that the Americans can obtain, either at home or in Europe, anything like the extravagant sums they are asking - for Europe won't lend them [and] America cannot.'"44 There was scarcely more confidence back in America. Historian Russell McClintock wrote: "When rumors circulated after the election that a Southern confederacy would repudiate the region's debts and institute export taxes, the stock market plummeted. Since the city was also the hub of Northern commerce, the effects rippled outward through the region's urban centers."45 The finances of the Federal government had been severely affected as the debt rose and foreign financing opportunities closed. Economic historian Margaret G. Myers wrote: "In the last days of the session, in February 1861, as an emergency measure Congress authorized an issue of 25 million dollars in 20-year bonds at 6 percent. The Secretary of the Treasury was able to sell 18 million of them at a discount of 11 percent and was thus able to refund most of the outstanding notes."46 It was merely a stopgap.
President Abraham Lincoln took office on March 4, 1861. New Treasury Secretary Salmon P. Chase, a former Ohio senator and governor, faced a grim situation of barren coffers and reluctant lenders for which the prim, proper, and pompous Chase was not well prepared. Chase had been a lawyer and politician, not a financier or merchant. His primary qualification for office was his personal rectitude. Paul Studenski and Herman Edward Krooss noted that "[h]is personality was...peculiarly unsuited to the needs of his office. Prone to overestimate his prospects and without a sense of humor, he was also suspicious, dogmatic, and pompous. As a result, he did not understand that, in order to finance the war successfully, it was often necessary to compromise."47 Chase did also not understand that the precedents of Jacksonian fiscal policies were not a sufficient guide to the financial difficulties that the country faced. He underestimated the duration, the cost and the severity of the war. But then, Chase was not alone. Almost everyone - North and South - did so too.
The straight-backed Chase had essentially an elitist notion of reform, but a defeatist notion of military initiatives at the beginning of the war. Historian Allan Nevins wrote that Chase "had gone into the Cabinet with the reputation of an unflinching radical, the doughtiest champion of those whom [Charles] F. Adams called the ramwells - that is, the diehards. But at the moment it was actually true that, as [Horace] Greeley's Washington correspondent wrote, he was no extremist, but 'moderate, conciliatory, deliberate, and conservative.' One important factor in his hesitation was his fear that a war would be very difficult, and perhaps impossible, to finance. He was under pressure from Eastern bankers who had warned him that they would not take his pending eight-million-dollar loan unless the government pursued a peace policy. Now he wrote Lincoln that if relieving the Fort [Sumter] meant enlisting huge armies and spending millions, he would not advise it. It was only because he believed that the South might be cajoled by full explanations and other conciliatory gestures into accepting the relief effort without war that he supported it. That is, he was for relief only with careful explanations."48
Chase had other challenges of a more personal nature. Biographer Albert Bushnell Hart argued that Chase was handicapped at the nation's top financial leader in a time of war: "To deal with Congress Chase needed lieutenants, and he never had them. Senator [William Pitt] Fessenden of Maine was sincerely interested in financial questions, and was as helpful as any member of Congress; but Chase had few personal friends in either house and fewer spokesmen."49 In fairness, Hart somewhat exaggerated the limitations of Chase's team. Historians Harry J. Carmen and Reinhard H. Luthin noted: "For his assistant Secretary of the Treasury Chase chose George Harrington, whose long experience in the Treasury Department under other administrations peculiarly qualified him for the added responsibility of planning a financial program for a nation about to be plunged into civil war. However, by 1860 Harrington had become a strong disciple of Republican doctrine and had served as a delegate from the District of Columbia to the convention that nominated Lincoln for President. Chase, with Lincoln's help, prevailed upon a Democrat, John J. Cisco, Assistant Treasurer at New York - who had served with distinction under Presidents Pierce and Buchanan - to continue in his position, despite the fact that Cisco had opposed Lincoln's election and was reluctant to accept Chase's proffer. Another excellent appointment by Chase was that of Elisha Whittlesey, of Ohio, as First Comptroller of the Treasury. Whittlesey, a former Whig, had served under President [Zachary] Taylor in the same position and had even been continued by President Pierce, a Democrat. Whittlesey's selection for the position, through which checks were issued in payment of government services, was lauded even by the Democratic press. His appointment, commented the New York Herald 'is rather unwelcome news to the sharks hereabouts, who expect to fatten off this administration. James Madison Cutts, a Democrat and Stephen A. Douglas's father-in-law, whom Buchanan had appointed as an auditor in the Treasury Department in an effort to pacify Douglas, was promoted to the second comptrollership."50 Chase himself admitted to Congress that he "reluctantly assumed the charge of the vast and complicated concerns of department, and he is deeply conscious how imperfectly he is qualified by experience, by talents or by special acquirements for such a charge. He understands also, better perhaps than anyone outside can understand, the difficulties incident to the task...the criminal insurrection deranges commerce, accumulates expenditures, necessitates taxes, embarrasses industry, deprecates property, cripples enterprise, and frustrates progress."51
President Lincoln left administration of the Treasury Department virtually completely in Chase's hands - sometimes to Chase's consternation. Historian Gabor S. Boritt wrote: "The free hand given to the Treasury by Lincoln was viewed with skepticism by Chase most of all when it came to raising taxes. It also incited the Secretary's political ambitions. To an Ohio ally he wrote: 'I fancy that as President I could take care of the Treasury better with the help of a Secretary than I can as Secretary without the help of the President.'"52 Historians Larry Schweikart and Michael Allen argued that "Chase...proved to be the right man in the right office at the right time."53 There was friction, however, between Chase and his boss. Chase biographer John Niven wrote: "Despite a general consensus of historical opinion, and Lincoln's own profession that he was ignorant of financial and economic matters, I feel that he was quite as well informed as any public man of his day, including Chase, on the broad outlines of finance and fiscal policy."54 As the war progressed, Chase increasingly disapproved of President Lincoln's style of leadership. Ohio editor Joseph Barrett wrote of his friend Chase in a biography of President Lincoln: "Almost from the very beginning of his Cabinet service he had, in private conversation and correspondence, indulged in rather free criticisms of the President - no doubt really apprehending that under Lincoln's guidance or lack of guidance affairs were tending badly."55 Chase wrote: "The President, from the purest motives, committed the management of the war almost exclusively to his political opponents; it said to the delay and anxiety which have marked the past, but I am confident that it will not characterize the future."56 Chase's view that he was intellectually and administratively superior to the president stoked his own drive to replace Lincoln.
If President Lincoln delegated the responsibilities of the Treasury Department to Chase, Chase in turn delegated responsibilities to many subordinates. George S. Boutwell, who in 1862 set up the first Internal Revenue Office of the Treasury Department, recalled: "Mr. Chase's mental processes were slow, but time being given, he had the capacity to form sound opinions. Not infrequently, when I called at his office for conference, he would say: 'My mind is preoccupied - you must either decide for yourself, or call again.' As a result, he never gave an opinion or tendered any advice in relation to the business of the Internal Revenue Office while I was at the head of it. Mr. Chase had only a limited knowledge of the business of the department. Indeed, only a very extraordinary man could have administered the business of the department systematically, with a daily or frequent knowledge of the doings of the man heads of bureaus and divisions, and at the same time have matured and put into operation, the financial measures which were required by the exigencies of the war."57
The nation's financial problems mushroomed in the spring of 1861 and Chase struggled to adapt to the new financial realities the country faced in funding the Civil War. Biographer Albert Bushnell Hart wrote: "The errors in Chase's finance were, then, due partly to inexperience, partly to want of apprehension of the tremendous task thrust upon him, and partly to the hurry and rush of a desperate time...However much he groaned over the difficulties of his place, he met those difficulties firmly day by day, and he did not deceive or cajole. Nor did he protect dishonest men; his immediate subordinates were trustworthy and efficient, and justified his confidence; indeed, the average character of the treasury official was higher than in any other department of the public service except perhaps the Navy."58 The expectation was for a short war that required limited expenditures. The expectation proved wrong.
Fortunately for the country, Chase decided to keep Buchanan's assistant Treasury secretary, John Cisco, the key official dealing with New York's financial markets. Maunsell Field recalled: "The new Administration had not been a very long time in office, when Mr. CHASE sent for Mr. CISCO, whom he had never met, to come to Washington. By his invitation he went as a guest to the Secretary's house, at the corner of E and Sixth Streets. In their first interview, which took place in the evening, Mr. CHASE told him that he desired his presence in order to consult with him in regard to a financial policy for the country. Upon this occasion they had a very protracted conversation, in which each was evidently endeavoring to take the measure of the other. 'We are going to have a long, bloody, and costly war,' said Mr. CISCO; 'the only policy is that of long bonds and strong taxation.' 'How, sir?' replied the Secretary; 'are you not aware that we shall soon have seventy-five thousand men in the field?' At this time some people high in place were talking about a sixty-days' war, and Mr. Chase evidently shared this most mistaken impression. 'As to strong taxation, 'he continued, 'the people of this country will not bear it, and there is no need for it.' Nevertheless, Mr. Cisco adhered to his expressed opinion, and assigned his reasons for it. Mr. Chase eyed him curiously, as if he were meditating whether he, after all, could be secessionist in disguise."59 Cisco would be proved correct.
Not everyone agreed that the rigid Chase had been the right choice for the Treasury post. Chase himself had been reluctant to take the post, writing that he did not want to move from the Senate post to which he had been elected to "another sphere of duty, more laborious, more arduous, and fuller far of perplexing responsibilities." Financial historian Robert P. Sharkey wrote that Chase's "stubbornness, vanity, ambition, and almost total lack of knowledge of the broad principles of war finance were destined to lead him into difficulties on more than one occasion."60 Another financial historian, Theodore Julius Grayson, maintained that "Chase knew very little about finance, and he proceeded to prove his ignorance."61 Nevertheless, argued historian James M. McPherson: "Chase was an adept learner" who adjusted to fiscal circumstances and political necessity."62 Chase was "just the right sort of person to deal with the rich, self-assured leaders of the eastern banking community," wrote historian John Niven. Nevertheless, Chase had no experience in financial issues. "At the same time, he was a person with sufficient practical experience to cope with tough-minded members of the Senate and House finance committees in matters relating to the economy, as well as with temperamental Cabinet colleagues."63 Financial historian Wesley Clair Mitchell wrote of Chase's assumption of office: "Mr. Chase, with small experience of financial operations, undertook to raise the means for waging a most expensive war. From April to June the ordinary receipts of the treasury were $5,800,000, its expenditures $23,500,000. To fill the deficit there was but one recourse - borrowing. Disadvantageous as were the terms on which the recent loans had been made, it was to a new loan that Mr. Chase was forced to resort." Mitchell wrote:
On the whole, he was in a more favorable position for borrowing than Cobb, Thomas, or Dix had been. True, the political situation had become more grave. Mississippi, Florida, Alabama, Georgia, Louisiana, and Texas had followed South Carolina's example in seceding from the Union, and when the new administration was installed at Washington it saw itself confronted by a rival government in Montgomery. But to offset this, Buchanan, who had become thoroughly discredited in the North, had given place to Lincoln, in whom the people reposed greater confidence. In raising his first loan Mr. Chase had the benefit of this feeling. Moreover, the credit of the government was improved by a temporary increase of revenue. The Morrill tariff act, approved March 2, was to go into operation April 1. Importers took advantage of the intervening thirty days to pass their goods through the custom-houses as rapidly as possible in order to escape payment of the higher duties imposed by the new schedule, thus increasing the receipts from customs for the months of February and March.64
After the fall of Fort Sumter, the country's fiscal needs escalated just as war worries escalated its anxiety about the future. The nation's government needed funds in a hurry to raise and equip troops, but the nation's capital was effectively surrounded by the unfriendly residents of Maryland and Virginia. The mood in the nation's capital was "feverish," according to Lincoln aide John Hay, when on April 21 Lincoln's cabinet met at the Navy Department rather than the White House.65 As Lincoln told Congress more than a year later: "I thereupon summoned my constitutional advisers, the heads of all the departments, to meet on Sunday, the [21st] day of April, 1861, at the office of the Navy Department, and then and there, with their unanimous concurrence, I directed that an armed revenue cutter should proceed to sea, to afford protection to the commercial marine, and especially the California treasure ships then on their way to this coast. I also directed the commandant of the navy yard at Boston to purchase or charter, and arm as quickly as possible, five steamships, for purposes of public defence. I directed the commandant of the navy yard at Philadelphia to purchase, or charter and arm, an equal number for the same purpose. I directed the commandant at New York to purchase, or charter and arm, an equal number. I directed Commander Gillis to purchase, or charter and arm, and put to sea two other vessels. Similar directions were given to Commodore [Samuel F.] DuPont, with a view to the opening of passages by water to and from the capital. I directed the several officers to take the advice and obtain the aid and efficient services in the matter of his excellency Edwin D. Morgan, the governor of New York, or, in his absence, George D. Morgan, William M. Evarts, R. M. Blatchford, and Moses H. Grinnell, who were, by my directions, especially empowered by the Secretary of the Navy to act for his department in that crisis, in matters pertaining to the forwarding of troops and supplies for the public defence."66 Without any congressional authorization, Lincoln began unilaterally to finance the war. Financial historians William Schultz, and M. R. Caine wrote: "no bankers had no great love for the Republicans, but they responded loyally to the Administration's call for financial cooperation."67
President Lincoln early recognized the need for congressional action on revenue questions. He told an Episcopal bishop late in the spring of 1861: "I have called this Congress because I must have money. There is [Treasury Secretary Salmon P.] Chase; sometimes he calls for a million of dollars in the course of twenty-four hours, and I can assure you that it is not an easy matter to raise that amount in a day. The result of this war is a question of resources. That side will win in the end where the money holds out longest; but if the war should continue until it has cost us five hundred millions of dollars, the resources of the country as such that the credit of the government will be better than it was at the close of the War of the Revolution, with the comparatively small debt that existed them."68 On taking office, Chase had "found on hand less than $2,000,0000, all of which was appropriated ten times over. He calculated that he needed $320,000,000, as he reported to the Congress that met in July in response to the President's call," wrote financial historian Bray Hammond. John G. Nicolay and John Hay wrote: "Immediately upon assuming office Mr. Chase addressed himself to the difficult work before him. The only provisions which had been made by law for the support of the Government were the fragments of the loan, authorized, but unsold, of his predecessor. Satisfied that the rates at which money had been borrowed both by [Treasury Secretary Howell] Cobb and by [Treasury Secretary John] Dix were unnecessarily degrading to the national credit, he firmly refused terms similar to those which they had accepted, and succeeded in borrowing $3,000,000, none of it at a lower rate than ninety-four, and a few days later he borrowed $5,000,000 more at par. Even in May, after the outbreak of the war, he was able to place some $9,000,000 of Government loans and notes at a rate only a little below their face value. These were of course but temporary makeshifts, based upon previous legislation; but when Congress met on the Fourth of July, in that first special session called by President Lincoln, an entirely new system of finance had to be instituted. The national debt on the first of July was $90,000,000, and there was a balance in the Treasury of only $2,000,000."69 Presidential aide John Hay wrote shortly after Congress reconvened: "The question of revenue - and it really is the most important one before Congress - is one which is claiming the attention of every senator and member. It cannot be denied that there is opposition to some of the recommendations of the recent report of the Treasury Department. A higher tariff and a popular loan are advocated in the most influential quarters in preference to direct taxation, and it is not improbably that this plan will be adopted by the House Committee on Ways and Means."70 But although Congress would repeatedly adjust tariffs higher during the Civil War, it would have a minimal impact on the enormous financial requirements of military operations.
Lincoln's own hands were full, dealing with the military crisis that followed the surrender of Fort Sumter on April 13. The president delegated all Treasury operations to Secretary Chase, noted Nicolay and Hay. They wrote that Lincoln "sometimes made suggestions of financial measures, but did not insist on their being adopted, and when the Secretary needed his powerful assistance with Congress he always gave it ungrudgingly. In regular and special messages he urged upon Congress the measures which the Secretary thought important, and in frequent and informal conferences at the Executive Mansion with the leading members of both Houses he exerted all his powers of influence and persuasion to assist the Secretary in obtaining what legislation was needed."71 Lincoln biographer Carl Sandburg wrote: "Lincoln met the wishes of Chase in many delicate particulars of appointments, arrangements, measures, that would bring in the cash to keep the war going."72 Lincoln came to admire the financial system that Chase created. The president told aide John Hay on December 25, 1863 that "Chase's banking system rested on a sound basis of principle, that is, causing the capital of the country to become interested in the sustaining of the national credit; that this was the principal financial measure of Mr. Chase, in which he had taken an especial interest. Mr. Chase had frequently consulted him in regard to it. He had generally delegated to Mr. Chase exclusive control of those matters falling within the purview of his department. This matter he had shared in to some extent."73 Nicolay and Hay later wrote in their biography of their boss: "Without any special previous experience, without any other preparation for his exacting task than great natural abilities, unswerving integrity and fidelity, and unwearying industry, he [Chase] grappled with the difficulties of the situation in a manner which won him the plaudits of the civilized world and will forever enshrine his name in the memory of his fellow-citizens." New York lawyer William Evarts wrote: "Whether the genius of Hamilton, dealing with great difficulties, transcended that of Chase, meeting the largest exigencies with greater resources, is an unprofitable speculation. They stand together, in the judgment of their countrymen, the great financiers of our history."74
Secretary Chase needed credit, he needed revenue, and he needed an increase in the country's supply of money. In the process of meeting the country's needs, Chase had to overcome his own rigid ideas of how to adjust the nation's financial system to new conditions and to overcome a financial system devised in much simpler economic times by Presidents Andrew Jackson and Martin Van Buren who had destroyed the Second Bank of the United States and set up an Independent Treasury system to replace it. Whigs repealed it and Democrats put it back in place in 1846. Although a Republican, Salmon Chase was a Jacksonian Democrat where the nation's finances were concerned. Financial historian Irwin Unger wrote: "Chase, a rather primitive bullionist Democrat, expected an immediate payment in gold delivered to the Sub-treasury door. Complying with his terms was a serious drain on the banks reserves, offset only by resales of securities to the public and rapid government spending, which soon returned the gold to the banks' vaults. Although still uneasy, the banks took their second installment in October and the third in mid-November,"186175 Financial historian Wesley Clair Mitchell wrote: "At the very outset the banks encountered an unforeseen obstacle. The independent subtreasury system required all dues to the United States to be paid into the treasury in coin. This would compel the banks to send the specie lent the government to the subtreasuries, there to lie in the vaults until paid out in disbursements to public creditors. But provision had been made by Congress with the special intent of removing this difficulty. The law of August 5  had relaxed the rigor of the subtreasury system so far as to permit the secretary 'to deposit any of the moneys obtained on any of the loans.... in such solvent, specie-paying banks as he may select,' and allowed 'moneys so deposited' to 'be withdrawn from such deposit for deposit with the regular authorized depositories, or for the payment of public dues.' Under this law the banks expected that the loan to the government would be managed in the same manner as a loan to a private person; they would credit the United States with a deposit of $50,000,000 upon their books, against which the secretary of the treasury could draw as he had occasion. But Mr. Chase's instinctive distrust of bank issues permitted no modification of the subtreasury system. He declined to make payments in bank checks on the ground that, though the eastern institutions were ready to pay such checks in coin, their western correspondents on whom they might draw would possibly ask creditors of the government to accept bank notes in satisfaction. He therefore insisted that the loan be paid in specie into the vaults of the subtreasury. Much against their will, the banks complied."76 They complied, but the adverse repercussions of compliance soon became evident.
Chase reported on Treasury finances on December 10, 1861. "Chase demonstrated the precarious position of the federal finances, but he failed to provide any plan which seemed likely to improve them," wrote Robert P. Sharkey.77 At a time that the Union was not making any military progress and was involved in a diplomatic confrontation with England, Chase's leadership seemed wanting. In fact, Chase's actions actually made things worse for the Lincoln administration as the year came to a close by effectively bankrupting the government. Economist Don C. Barrett damned Chase for his stubbornness on the specie issue: "In refusing to make use of bank credit either in the form of reformed notes-issues or of deposits Chase assumed that, in spite of his confessed ignorance of monetary and financial matters, he understood better than men trained by long experience how to make great transfers of property with the greatest advantage to the government, the public, and the banks."78 Chase precipitated a major fiscal crisis by acting as if the Independent Treasury Act of 1846 was still in effect. The Specie Circular had repealed in May 1838, and an Independent Treasury Bill was finally signed into law in July 1840. It had been repealed in 1841 and reinstated in 1846. Robert P. Sharkey wrote: "Despite the testimony of [Congressman Elbridge Gerry] Spaulding that the Act of August, 1861 was designed to permit the Secretary to use the banks as government depositories, Chase did not choose to construe it that way."79 Congress did not decouple the U.S. from gold, however. Jane Flaherty noted that "the specie clause' instructing the government to pay for its goods in gold remain in place. In practical terms, this meant that the government could not use checks, state bank notes or other 'paper heresies' to purchase war goods or pay soldiers; disbursements by the Treasury still had to be made in specie or Treasury notes."80
Contrary to the bankers' expectations and normal practice, Chase wanted the loan proceeds delivered in specie to the Treasury rather than remaining on demand in the banks. Financial historian Theodore Julius Grayson also noted that Chase's actions were contrary to the arguments of the big banks. "There was unquestionably drastic need of some kind of currency with which to carry on business, and if large amounts of Government bonds were to be sold for coin, it was inevitable that specie would be withdrawn from business at least temporarily, and there must be some substitute to take its place. The only substitutes then existing were the notes of the state banks and the notes issued by the Government itself. The bankers requested - indeed almost demanded - that...[the government] should, so far as possible, allow the proceeds from the bond sales to remain with the various banks on deposit, and only check upon them as the occasion might arise."81
There was a stalemate between New York and Washington. Chase had to overcome his own economic conceptions about the nation's finances - whether regarding gold deposits or his insistence on selling bonds at par. Postmaster General Montgomery Blair observed that the secretary of the Treasury had "more horror of seeing Treasury notes below par than of seeing soldiers killed, and therefore, has held back too soon, I think. I don't believe at all in that style of managing the Treasury. It depends on the war, and it is better to get ready to beat the enemy by selling stocks at fifty percent discount than wait to negotiate and lose a battle."82 Chase was convinced that the government should not sell its securities below par, but there was no market for government securities at par. Chase had asked Congress meeting in special session during in July 1861 to authorize $240 million in loans. Cooke biographer Henrietta Larson wrote: "The bankers advised Chase to sell at the market, that is, for whatever the loans would bring. Cooke could understand the position of the bankers, but his deep sensitiveness to the importance of the irrational in people's make-up led further. He visualized the great possibilities of the emotional appeal, the appeal to the patriotism of the people, as an incentive toward purchasing the loans. This led directly to the idea of a wide participation by the general public in government loans."83 Financial historian Davis Rich Dewey wrote: "In his policy for the negotiation of loans, Chase kept four objects steadily in view: (1) moderate interest; (2) general distribution; (3) future controllability; (4) incidental utility." Dewey wrote:
The prejudice against the sale of bonds by the government on terms fixed by the commercial conditions of the money market early manifested itself in the financial history of the United States...It rests on the same basis as the persistent political agitation against banks from the beginning of our government, and the deepseated belief that there can be no harmony of interests between the public and the money lenders and brokers. Congressional debates during the Civil War furnish plenty of illustrations of this antagonism; banks were "sharps" and "harpies"; "out of the blood of their sinking country" banks are enabled to coin the gains of their infamy; brokers and jobbers and money changers are pitted over against the people of the United States. How far responsibility for insistence on a low rate of interest is to be distributed between Secretary Chase and other party leaders it is difficult to determine. Chase, however, did not hesitate to take great credit for this element of war financiering....
(2) General distribution. A second object of Chase was the "general distribution" of the bonds: he wished the obligations of the government to be held far and wide, and pointed with satisfaction to the results of the popular subscriptions for bonds through the agency established by Jay Cooke in 1863-1864; in a single district in Ohio there were six thousand bondholders. Although he abandoned this method in the sale of the ten-forties because of the calumnies to which he was subjected, he "had determined to return to it and disregard slander and slanderers." When [William P.] Fessenden [later] undertook his great loaning operation he re-engaged Cooke and his agents, as he believed with great advantage. The method of appeal to the public for subscriptions instead of bargaining with the banks met on the whole with popular approval, and was again in accord with the underlying hostility to the large moneyed interests of the great cities.
(3) Future controllability. Chase was strongly opposed to long loans; it was his leading purpose, he says, to introduce into the financial methods of the treasury the principle of controllability. "He could never consent that the people should be subjected to the money-lenders, but insisted that the money-lenders should rather be subjected to the people."[wrote Jacob William Schuckers in his Life and Public Services of Salmon P. Chase.] It was with reluctance that at the outbreak of the war he acquiesced in the apparent necessity of negotiating twentyyear bonds; and in the issue of five-twenties and ten-forties, and the development of a system of temporary loans as the one-year and two-year treasury notes, certificates of indebtedness payable in one year, and certificates of deposit, he soon developed a policy more in harmony with his own convictions. In this way Chase was convinced that when peace was established the government would be able to fund the debt at a moderate rate of interest and to provide for payment at such periods as then seemed most advantageous. Within limits this policy has merit, but a reservation to the government of the right to extinguish bonds after five years must be paid for by the sale of bonds to investors at a lower price. This sort of time limitation also gave the impression to foreigners who were unacquainted with novel restrictions of this kind that "the funded debt was of a vague and dubious character"...
(4) Incidental utility. In order to secure indirect advantages to business, Chase advocated the receipt of temporary loans in the form of deposits, reimbursable by the treasurer after a few days' notice, so that any stringency of the market might be alleviated. The advantage of this was seen in 1864, when during a pressure for current funds the treasury department quickly paid out over $50,000,000 of these deposits. Chase found advantage also in the wide diffusion of the debt, by which national unity and strength were secured; and finally he discovered "national good growing from the bitterness of debt" in the new basis of a national banking currency.84
Although much of the leadership for devising financial measures to cope with the Civil War came from Chase's Treasury Department, most of these changes needed the agreement of Congress and the leadership of key members of the Senate and House - including Maine's William Pitt Fessenden, Ohio's John Sherman, Pennsylvania's Thaddeus Stevens, and New York's Elbridge Gerry Spalding. These Republicans did not necessarily agree in theory or practice on what to do or how to do it. Still, wrote financial historian Heather Cox Richardson, "the Republicans agreed on a series of major innovative laws. Their shared general economic beliefs, which stemmed from the proposition that labor created value, ran much deeper than their differences. During the war, circumstances made Republicans refine their economic ideas, but their basic premises remained. Forced by the war to legislate on a wide range of economic issues, the Republicans' work reflected their general vision of universal harmony and their determination to foster economic progress."85 A key force, noted historian Marc Egna,l was John Sherman, who was chairman of the House Ways and Means Committee before he was elevated to the Senate to replace Chase in one of Ohio's seats: "Sherman helped move the Republican Party from its initial focus on nonextension [of slavery] to a broad program that emphasized the development of the Northern economy."86 Many Republicans were former Whigs who shared a willingness to use government to expand economic opportunity. Richardson noted: "Essentially optimists, Republicans followed economic theorists who emphasized the potential of society to create wealth and prosper without creating a poor or downtrodden class. Because their beliefs were founded primarily on their experience, the Republicans had little problem with contradictions in economic texts."87
The onset of the war temporarily strengthened the northern bond market. Chase wrote Lincoln in early April 1861: "The bids for the $8.000.000 loan exceed 33.000.000 -- the average advance from Mr Dix's loan is between 3% & 4%. The highest bid - [illegible] are $1000 though is par - near 3.000.000 at 94%; and I hardly think of taking any at a lower rate. I am offered 1/8% premium on $2.000.000 Treasy. notes. All this shows decided improvement in finances & will gratify you."88 Treasury official Lucius Chittenden, however, recalled Chase's emotional response to the disappointing opening of bids for government securities early in the war: "There is money enough in the loyal North and West to pay for suppressing this wicked rebellion. The people are willing to loan it to their Government. If we cannot find the way to their hearts, we should resign and give place to those who can. I am going to the people! If there is a farmer at the country cross-roads who has ten dollars which he is willing to loan to the Government, he shall be furnished with a Treasury obligation for it, without commission or other expense. When we have opened the way directly to the people and they fail to respond to the calls of their Government in the stress of civil war, we may begin to despair of the republic!" Chittenden added: "With these words ringing in our ears, the conference ended." Chase was a better political leader than he was a financial manager. The former Ohio governor was a patriot and emphasized patriotism in managing the country's finance and selling its financial instruments. Chittenden contended that Chase's "confidence in the people was absolutely supreme; it never for a moment wavered. He saw himself, and he could make others, even an assembly of bank presidents, see that their possessions were worthless unless the Treasury, a synonym in his mind for the Government, was sustained. But he addressed no such selfish arguments to the masses. They knew that it was their duty to support the Government with their lives- much more with their money. The plan of dealing with them directly was the strongest that could possibly have been devised."89
Chase needed to find the money to finance the war, and the English market for bonds was effectively foreclosed to the Union. Economist Don C. Barrett observed: "England's attitude toward the North during the early months of the war was not such as to hold out a prospect for a loan in the London market."90 Indiana banker Hugh McCulloch wrote: "The tone of the European, and especially the English press, which with a single exception was in sympathy with the South, left no room for doubt on this point. It was openly hostile to the North, and this hostility never ceased until the war was ended. When the United States notes, with which the six per cent, bonds could be obtained at par, were greatly depreciated, German capitalists purchased freely, and thereby relieved to some extent, the home market, but not a bond could be sold in either the English or French markets. Mr. Chase perceived, upon entering upon the discharge of his duties, that the home market was the only one in which the United States securities could be disposed of- that to the people of the loyal States he must look for the support of the treasury."91 The situation only worsened during 1861 - especially in November when an American war ship seized two Confederate diplomats from a British ship, the Trent. For the next two months, Anglo-American relations soured. Robert P. Sharkey wrote: "The Trent affair had destroyed any possibility that the banks might sell the 6 per cent bonds in England."92 Europeans had no confidence in the Union cause so they were unlikely to have much confidence in Union bonds. As Prime Minister Palmerston told New York financier August Belmont the previous summer: "We do not like slavery, but we want cotton and dislike very much your Morrill Tariff."93
In his report to Congress in July 1861, Chase had written: "It is beneficial to the whole people that a loan distributed among themselves should be made so advantageous to the takers as to inspire satisfaction and hopes of profit, rather than annoyance and fears of loss; and, if the rate of interest proposed be somewhat higher than that allowed in ordinary times, it will not be grudged to the subscribers when it is remembered that the interest on the loan will go into the channels of home circulation, and it is to reward those who come forward in the hour of peril to place their means at the disposal of their country."94 As Chase recorded his meetings in a letter at the time: "Congress assembled on the 4th. of the July 1861 and soon afterwards passed an act to authorize a National Loan and for other purposes. Under this act, and acts amending it, I took measures to secure the funds necessary to carry on the war.
"With this object I invited representatives from the Banking Institutions of New York, Boston and Philadelphia to meet me in New York, and they promptly responded to my invitation.
Our conferences were full and unreserved. I explained to them the situation of the country; the large, inevitable expenditure for the suppression of the rebellion; my hopes of vigorous prosecution of all measures necessary to that great end; my wishes for economy; my views of the inexpediency of high rates of interest, which might suggest a possibility of future inability to pay it. They, on their side, explained the position of the banks; their disposition to sustain the government; and their inability to take more bonds than their disposable capital allowed, without a prospect of an early sale and distribution. They thought my ideas as to interest rather too stringent; and, on some other points, they thought me rather illiberal- not sufficiently considerate, perhaps, of the interests they represented. I was obliged to be very firm, and to say,' Gentlemen, 1 am sure you wish to do all you can. I hope you will find that you can take the loans required on terms which can be admitted. If not, I must go back to Washington and issue notes for circulation; for, gentlemen, the war must go on until this rebellion is put down, if we have to put out paper until it takes a thousand dollars to buy a breakfast.'
The result of the conference was an agreement by the banks of three cities to unite as associates, and advance to the government fifty millions of dollars at once, or as wanted, on the secretary's drafts in favor of the assistant treasurers; in consideration of which, I, on my part, agreed to appeal to the people for subscriptions to a national loan, on three y'ears' notes bearing 7.30 per cent, interest, and convertible into twenty-year bonds bearing six per cent.; and to pay over the proceeds of the subscriptions to the banks, in satisfaction of their advances, so far as they would go, and to deliver to them 7.30 notes for any deficiency." Chase wrote:
This agreement was faithfully fulfilled. I opened books of subscription to the national loan in all parts of the loyal States, and the people responded with alacrity. About forty-five millions were thus subscribed and paid to the banks, and the remain[d]er was made good by the delivery of the promised seven-thirties.
This operation enabled the banks to make a second advance of fifty millions on nearly the same terms. It had become evident that the popular subscription would not continue as large and prompt as at first, and the inconveniences of its management by the department had proved to be very great. The accounts of the subscription agents were therefore closed, and the notes for the second loan were delivered directly to the bankers who distributed them, as best suited themselves. This simplified the transaction to the treasury; and the arrangement, though not quite so advantageous to the banks as the first, was every way more convenient.
By these two loans I obtained one hundred millions of dollars, paying under the immediate exigency a rate of interest only one and three-tenths per cent, higher than the ordinary rate of six per cent., and that only for three years. The sums needed beyond the amounts thus obtained, were supplied by the negotiation of notes at two years and sixty days, and by issuing United States notes as circulation.
The banks had constantly urged me to forego the farther issue of United States notes, and draw directly upon them for the sums subscribed, and placed on their books to the credit of the government. 'In what funds will my drafts be paid?' I asked. 'We in New York are entirely willing to pay in coin,' was the reply. 'But how will it be in Boston? how in Philadelphia? How, if you in New York give the draft holder a check on Cincinnati or St. Louis, will the check be paid?' 'In whatever funds the holder of the draft or check is willing to receive.' 'That is to say,' I answered, 'in coin, if the holder insists on coin, and the bank is able and willing to pay; but in bank notes if he will consent to receive bank notes. I can not consent to this, gentlemen. You ask me to borrow the credit of local banks in the form of circulation. I prefer to put the credit of the people into notes and use them as money. If you can lend me all the coin required or show me where I can borrow it elsewhere at fair rates, I will withdraw every note already issued, and pledge myself never to issue another; but if you can not, you must let me stick to United States notes, and increase the issue of them just as far as the deficiency of coin may require.' This resolution, seen to be unalterable, was followed by important consequences.95
Chase's alternatives to England were patriotism or inflation. Historian Phillip S. Paludan wrote that the Treasury secretary sought "to tap the powerful outpouring of patriotism that was sweeping the North. He asked Congress for $100 million in low-denomination Treasury notes that people could pay for in ten installments over a five-month period. To encourage their enthusiasm Chase wanted to have these notes earn interest at a penny a day on a $50 note - a higher rate than usually paid by the government. Average Northern citizens would thus link their fortunes to the success of Union arms."96 Chase biographer Albert Bushnell Hart wrote: "The most important financial measures during the first year were arrangements for new loans, and the actual borrowing of money - both matters in which the brief legislation of Congress was very significant, for there was laid the foundation for large issues of bonds, of interest-bearing notes, and of circulating notes. During the short summer session [of 1861], Chase was authorized to borrow an additional $250,000,000 in any or all the three forms, the non-interest-bearing notes not to exceed $50,000,000; and it was upon the basis of this authority that the funds necessary for the prosecution of the war during the second half of 1861 were obtained."97 Historian Allan Nevins wrote that in 1861: "The creation of a large public debt at the high interest rate of 7 per cent or more a year provoked astonishingly little debate for so portentous a measure. The sum authorized exceeded any previous total of national indebtedness. But Congress agreed with Chase that for a short war borrowing was a sound principle; and it accepted the view of financial leaders that the loan could not be floated with a lower interest return."98 The bonds would not sell themselves. Chase need the cooperation of northern banks. As Robert P. Sharkey noted: "The second phase of Civil War finance involved the government in negotiations with the banks of New York, Boston, and Philadelphia. The banks of these cities ere asked to lend their support to the Treasury in placing a loan of $150,000,000 under the terms of the legislation just enacted by Congress."99
The pressure for revenue only accelerated during the Civil War. Financial historian Albert Sidney Bolles wrote: "Hardly had Congress adjourned, when Secretary Chase started for New York to borrow money. On the evening of the 9th of August a meeting was held at the house of John J. Cisco...At this meeting were assembled, beside Mr. Chase, bankers and other prominent men of New York. Mr. Coe, the president of the American Exchange Bank, suggested the practicability of organizing the banks into an efficient and inseparable body, for the purpose of advancing the capital of the country on government bonds in large amounts, and through their clearing-house facilities and other well-known expedients to distribute them in smaller sums among the people. This suggestion was heartily received, and, by request of the secretary, was presented to the representatives of a considerable number of banks, who assembled on the following day. On that occasion a committee of ten were appointed to develop the suggestion into a plan for rendering assistance to the government. On the 15th the committee reported. Thirtynine of the New York banks were represented; the Philadelphia banks were represented by Messrs. Mercer and Patterson; and Mr. Gray, of Boston, represented those of that city. 'The report was cordially accepted and adopted by the banks in New York,' while those in Boston and Philadelphia, through their representatives, 'as zealously and cordially united in the organization.' The co-operation of the banks of the West, though greatly desired, it was found impracticable to secure.
The following plan was adopted: There should be an immediate issue by the government of $50,000,000 of treasury notes, running for three years, and bearing interest from August 15th, at 7.30 per cent. The banks of New York, Boston, and Philadelphia were to unite in taking this amount at par, with the privilege of taking $50,000,000 more on the l0th of October, and a similar amount two mouths later, unless the same should be previously subscribed as a national loan. The secretary was to negotiate no other government stocks, bonds or treasury-notes, except those payable on demand, and the Oregon war loan, which had been recently authorized, and was less than $3,000,000. Negotiations in Europe, however, were not restricted by this agreement with the banks.100
Chase later wrote: "I was obliged to be very firm, and to say, 'Gentlemen, I am sure you wish to do all you can. I hope you will find that you can take the loans required on terms which can be admitted. If not, I must go back to Washington and issue notes for circulation; for gentlemen, the war must go on until this rebellion is put down, if we have to out paper until it takes $1000 to buy a breakfast.'"101 The government's finances continued to deteriorate throughout the rest of 1861. In his memoirs, Senator John Sherman wrote: "The Secretary of the Treasury had ample and complete authority, given him by the act of July, 1861, to borrow money on the credit of the government, but he could not deal with the system of state banks then existing in the several states. He was forbidden, by the sub-treasury act of 1846, to receive notes of state banks and was required to receive into and pay from the treasury only the coin of the United States; but by the act of August 5, 1861, he was permitted to deposit to the credit of the Treasurer of the United States, in such solvent speciepaying banks, as he might select, any of the moneys obtained from loans, the moneys thus deposited to be withdrawn only for transfer to the regularly authorized depositaries, or for the payment of public dues, including certain notes payable on demand, as he might deem expedient. He had, however, no authority to receive from individuals or banks any money but coin.
The coin received from the Boston, New York, and Philadelphia banks, in payment of their subscriptions to the government loans, to the amount of nearly $150,000,000, had to be sent to every point in the United States to meet public obligations, and, when thus scattered, was not readily returned to the banks, thus exhausting their resources and their ability to loan again.
The demand notes, authorized by the act of July 17, 1861, were also paid out by the treasury; but from time to time were presented for redemption in coin or in payment of customs duties to the exclusion of coin, and thus both the banks and the government were greatly crippled, the 'banks suspending specie payments on the 30th day of December, 1861.102
Chase's problems were multifold, as biographer Jacob W. Schuckers noted: "The banks had constantly and strongly urged Mr. Chase to forego the issue of United States notes, and to draw directly upon them for the sums subscribed and placed upon their books to the credit of the Treasury. 'In what funds,' asked the Secretary, 'will my drafts be paid?' 'We in New York,' was the answer, 'are entirely willing to pay in coin.' 'But, suppose you in New York give checks to the Government creditor upon Cincinnati or St. Louis, in what kind of funds will the checks be paid at those points?' 'In whatever funds the check-holder would be willing to receive his pay. That is, in coin if the creditor insists upon coin, and the bank is able and willing to pay in coin; but, if otherwise, in bank-notes.' To this the Secretary said he could not consent. He was asked to borrow the credit of local banks in the form of circulation; but he preferred to put the credit of the people into notes, and use them as money. 'If you can lend me all the coin required to conduct the operations of the war, or show me where I can borrow it elsewhere at fair rates, I will withdraw every note already issued, and pledge myself never to issue another; but if yon cannot, you must let me stick to United States notes and increase their issue just so far as the deficiency of coin may make necessary.'"103
Each solution to the nation's financial problems created new difficulties - especially as its financial needs escalated and the ability of existing financial instruments proved inadequate. Presidential aide John Hay speculated at the end of November: "The action of the Secretary of the Treasury is anxiously awaited by capitalists. There is great contrariety of opinion in regard to the measures which it is thought he will propose. I believe the minds of leading moneyed men are about equally divided in respect to the relative expediency of continuing the present policy of Government loans, or founding a sort of National Bank system, the basis of security being United States stocks exclusively."104 Sherman biographer Winfield Scott Kerr wrote: "When the first regular session of the Thirty-seventh Congress met on the second day of December, 1861, the Treasury was in a bad way for money and many doubted if the credit of the Government would stand the tremendous strain to which it must be subjected if the war was prosecuted with that vigor and upon that scale necessary to success. When this session assembled, the bankers of the great cities were considering the question of suspending specie payments. They had requested Secretary Chase to stop the issuing of Treasury notes and rely upon loans which they agreed to negotiate or take and advance the money. But whatever may be said as to the wisdom of the Secretary in continuing to issue Treasury notes, it was clear that the associated banks upon the plan under which they had taken $150,000,000 would not be able to furnish the vast amounts which would be required, nor dispose of bonds in sufficient quantities to meet the needs of the Treasury. Under the Sub-treasury Act the Government could not receive anything but coin from banks or individuals - the operation of this regulation had drained the banks of about one half their stock of gold in supplying the $150,000,000, and to save the balance they were about to suspend specie payments. It was a very grave situation which confronted the country and Congress....If specie payments were suspended and the gold all withdrawn from circulation, as it would be, the question was, where would the money come from with which to make the exchanges and carry on the great operations of the Government? There were fifty or sixty millions of Treasury notes outstanding which were being used as money, but there was no law by which these notes could be reissued whenever they were redeemed and as a result they were certain to be paid and cancelled in a short time."105
Financial historian Irwin Unger noted that "an incredible profusion of other credit instruments were used to finance the war, from short-term treasury notes and certificates of indebtedness, many of which had quasi-monetary qualities, to securities running as long as forty years. The most important, and ultimately the most controversial, of these issues were the so-called 5-20s, tax-exempt securities bearing 6 per cent in gold which the government could 'pay' in five years, if it chose, and which it must 'redeem' in twenty. Purchasable with the new legal tenders, these bonds were sold to the public through the aggressive agents of Jay Cooke and Company."106 In his Annual Message to Congress in December 1861, President Lincoln reported:
The operations of the treasury during the period which has elapsed since your adjournment have been conducted with signal success. The patriotism of the people has placed at the disposal of the government the large means demanded by the public exigencies. Much of the national loan has been taken by citizens of the industrial classes, whose confidence in their country's faith, and zeal for their country's deliverance from present peril, have induced them to contribute to the government the whole of their limited acquisitions. This fact imposes peculiar obligations to economy in disbursement and energy in action.
The revenue from all sources, including loans, for the financial year ending on the 30th June, 1861, was eighty six million, eight hundred and thirty five thousand, nine hundred dollars, and twenty seven cents, ($86, 835,900.27,) and the expenditures for the same period, including payments on account of the public debt, were eight four million, five hundred and seventy eight thousand, eight hundred and thirty four dollars and forty seven cents, ($84,578,834.47;) leaving a balance in the treasury, on the 1st of July, of two million, two hundred and fifty seven thousand, sixty five dollars and eighty cents, ($2,257,065l.80.) For the first quarter of the financial year, ending on the 30th September, 1861, the receipts from all sources, including the balance of first of July, were $102,532,509.27, and the expenses $98,239,733.09; leaving a balance on the 1st of October, 1861, of $4,292,776.18.107
The New York Times reported on December 10: "We present this morning the Report of the Secretary of the Treasury, which has been awaited with an interest quite as great as that felt in reference to the Message of the President. No matter what may be the magnitude of the task in hand, the crushing of the rebellion, or what may be our relations with other countries, the public will clearly see its way out of all our difficulties, provided everything is sound in the department of 'ways and means.' In the predicament we are in, abundance of money is always success. So far there has been no lack, and with a vigorous and successful prosecution of the war, and a wise administration of the National finances, there need be no apprehension for the future." In the same optimistic vein, the Times continued:
The report of the secretary has many things to commend it. It is lucid and frank in its statements; and as far as it proposes any plans for the future, it is without arrogance or assumption. His suggestions are timely, as bases for discussions in Congress, where they will be considered in the same liberal and candid spirit with which they are made. Mr. CHASE's present wants are so well supplied that ample time can be taken for deliberation. The means of the country, as experience has shown, are sufficient for all the wants of the Government. We need have no fear on this score, if we only make the right use of them."108
These efforts being made by Chase were simply inadequate to the government's need. As Chase wrote in early October, "The expenditures everywhere are frightful."109 Historian Henrietta Larson wrote that Chase's "inability to understand the problems of the banks and his apparent unwillingness to adjust his demands to what was expedient from the point of view of sound finance did much to break the bankers' loyalty to the Treasury at this time."110 Chase meant well but often did not do well in his early efforts as Treasury secretary. His personal theories did not mesh with the new realities of the Civil War. Chase wanted banks to pay loans in specie rather than establish credit for the government's use. The Union was fortunate that in the first part of 1861 that food exports continued at a high level, noted Bray Hammond because they helped provide a temporary respite from Chase's problem. "During the same period, gold imports had been greater than ever before and nearly double those of the greatest year preceding. They continued at the same high rate beyond the end of the fiscal year, through July, August, September, and October of 1861." Then they dropped precipitously.111
In the final months of 1861, gold hoarding, a drop in bank reserves, military reverses, a threatened conflict with Britain, and a lack of confidence in the Union's finances undermined Chase's plans - as did a revolt by New York bankers. Economic historian Margaret G. Myers wrote that "the Treasury had begun to meet its obligations by issuing its own demand notes, which still further reduced the credit of the government. The bankers who had agreed to loan 150 millions had understood that Chase would not make such issues; Chase claimed that the bankers had discussed and approved his action. James Gallatin, son of the former Secretary of the Treasury [Albert Gallatin] and president of one of the leading banks of New York, protested in vain. He pointed out that, with the continuing drain in specie, it was only a matter of time before specie payments would have to be suspended. When his protests went unheeded, he urged the New York banks to take the step at once, before all their gold was gone. They hesitated for several weeks, but by the end of December their specie reserves had been cut in half and were declining so rapidly that they could no longer maintain the 25 percent reserve ratio against liabilities. They suspended on December 30. Banks in other cities soon followed the lead of New York. The Treasury was therefore deprived of any more income receipts in specie, and it too was obliged to suspend."112
Raising funds for military efforts was a constant struggle for the government, especially in the period before it could issue greenbacks - not even 7.3 percent interest could raise new funds under Chase's policies. Lincoln biographers Nicolay and Hay wrote: "It was apparent that the volume of currency in the country was not sufficient for the enormous requirements of the public expenditure. The banks could neither pay coin to the Government for bonds, nor dispose of them to their customers for specie. The weaker institutions were already tottering, and the stronger ones feared a crisis which would result in universal disaster. They met in convention on the 27th of December and agreed upon a suspension of specie payments, which took place the following day. The Government necessarily followed the example of the banks, and the new year began with the melancholy spectacle of all the public and private institutions of the country redeeming their broken promises with new ones."113 The crisis came to a head when these New York banks collectively stopped making specie payments at the very end of December 1861 and the Treasury followed by ceasing its own specie payments.
Chase's first proposals to address it did not go far enough to meet the immediate needs of the situation in the winter of 1861-62. Congressman Albert G. Riddle recalled: "Mr. Chase, who had in his report recommended the national-bank scheme, opposed the legal tender feature, which was the main source of contention. Mr. Chase thought his plan of national banks would afford relief. As drawn, it had sixty sections-obviously even [George B.] McClellan could hardly wait for this as a relief measure." In early January, the bankers came to Washington to visit Chase. Riddle recalled: "There was a notable gathering of bank presidents, among them a son of the great Gallatin, whom our committee met at the Treasury Department with Mr. Chase, but beyond a thorough discussion (not reported) nothing came of it, and we were left in the House to our own devices, and to the suggestions of the press." President Lincoln was meanwhile concentrating on a number of problems - including the illness and immobility of General McClellan as head of the Union army and the need to replace Simon Cameron as secretary of war.
When in early 1862 Chase worried about funding the war, President Lincoln said: "Well, Mr. Secretary, I don't know, unless you give your paper mill another turn."114 Lack of confidence from the financial community made that difficult. Treasury official Maunsell Field wrote: "The Government was again in straits to pay its interest on the public debt. There were demand notes out to the amount of sixty millions of dollars; and as these were receivable at the Custom-House the same as gold, and did not command so high a premium, duties on imports were almost exclusively paid in them, and little or no specie was received. About the same time, too, the principal of the 'Texas Indemnity Bonds' fell due, and although the amount of them was small - say two or three millions - the embarrassment was by so much increased. 'Pay both principal and interest in paper!' said the Secretary. It is easy to see what the effect of such a course would have been. It was of vital importance to continue to pay in coin both the interest and the principal of the public debt as they matured."
At this time the banks had large stores of gold in their vaults for which they had no use. Mr. CISCO proposed to borrow it from them. Mr. CHASE did not believe that they would lend it at all, or, if at all, only upon extortionate terms. Mr. CISCO succeeded in borrowing all that was wanted at the rate of four per cent. per annum, on notes payable on ten days' notice after thirty days. Mr. CHASE only consented to this arrangement on the Saturday preceding the Monday on which the bonds and the interest fell due. I remember that the Park Bank lent us a million. A few days afterward, and after the money had been used, the President of that institution became frightened, and, coming to the Treasury, asked to have his coin returned. Mr. CISCO told him to immediately send down his carts to receive it. This rather staggered him, for he had expected a flat refusal, and he then made up his mind to let the matter stand over till the morrow, when he could consult his directors. The next day he returned and said, 'I shall leave it for the present.' But he was told that he must choose between adhering to the terms of his agreement and removing his specie at once. He decided to do the former."115
Chase's policies would lead to the creation of "greenbacks" early in 1862. Financial historian Albert Bowles wrote that Chase "dragged the banks down with the treasury, and entailed a long train of evil consequences on the country, among the greatest of which was the untimely recourse to legal-tender notes, the history of which will be soon given. Their issue would certainly have been delayed had he adopted the policy recommended by the banks, and the evil effects flowing therefrom would have been far less than those which followed."116 In one area, meanwhile, Chase found an invaluable fiscal tool during this period.
Banker Jay Cooke quickly became indispensable to Chase during 1861. He had the banking knowledge that Chase lacked. Lincoln scholar Brian McGinty noted that Cooke "knew when and where money was available, what interest rates lenders would demand, and what maturities would be most readily marketable."117 The 39-year-old Cooke had been a venture capitalist before opening his firm, Jay Cooke & Co., at the beginning of 1861. In his memoirs, Cooke wrote that he "concluded to re-enter the banking business, not with any thought, however, of the vastness of the work before me, but at the suggestion of my brother-in-law, William G. Moorhead, whose son [William E. C. Moorhead] and my own son [Jay Cooke, Jr.] were rapidly reaching an age when some business plans must be made for them, and we thought to bring them up as bankers."118 Cooke opened his new business on January 1, 1861.
The first opportunity during the Civil War for Cooke to show his skill at selling bonds came in Pennsylvania. Historian Matthew Josephson wrote: "In June, 1861, the Pennsylvania State Legislature, which had called for 10,000 volunteers, sought a loan of $3,000,000. It was a moment when the credit of this commonwealth, owing to previous defaults, was at its low ebb, and Pennsylvanians a butt for the tirades of humorists such as the Englishman Sidney Smith. Now Jay Cooke, alone among the native bankers, came forward with the offer to sell the Pennsylvania 6's 'at not less than par' on the grounds of patriotism. Bestirring himself with remarkable energy, he or his agents visited every banker or every merchant in the near-by country known to have something in his stocking. Exhorted 'to strike terror into the rebels,' to send a flood of cash toward the front, the public oversubscribed what seemed then a large loan. Cooke caused this news to be advertised everywhere, especially in the South, where he made it known that 'the millions of the North would be forthcoming to suppress treason and rebellion.'"119 Cooke's subscribers invested between $50 and $50,000 in the Pennsylvania bonds. Cooke biographer Henrietta Larson wrote: "the Pennsylvania loan was a godsend to Jay Cooke & Co.."120 Naturally, Cooke also publicized his success.
After the Battle of Bull Run, Cooke helped Chase sell $50 million in government securities in New York. By the end of the war, Cooke's firm would sell over a billion dollars in government bonds. Chase biographer Frederick J. Blue wrote: "In July 1861, Cooke told Chase that he was about to open a Washington office of his firm under the direction of his brother Henry, 'with a view of making our services valuable to yourself.' If Chase would give the firm 'the management of the loans to be issued by the government' and permit 'a fair commission on them,' subject to his supervision, 'we are ready to throw ourselves in to the matter heartily.' Chase agreed to appoint Jay Cooke a 'Subscription Agent for the National Loan'; a position which, although not the monopoly the Cookes sought, might be a step in that direction. Earlier Jay Cooke had accompanied Chase on his trip to New York and assisted in negotiating a $50 million loan with bankers there."121 Fortunately, Cooke's innovative approach to financial problems was a good balance to Chase's more conservative instincts. In early August 1861, Cooke met President Lincoln and Secretary Chase. As Cooke recalled the meeting in his memoirs:
"I was a guest at Mr. Chase's house and after a midnight session we adjourned until after breakfast the next morning. We were in his library hard at work again when at about ten a.m. a servant appeared and announced that President Lincoln was at the door in a carriage with Attorney General [Edward] Bates and wished to see Mr. Chase. The Secretary very impatiently arose and went out, soon returning with the information that all the members of the cabinet with their ladies were going out to Tenallytown (some seven miles beyond Georgetown) to see General McClellan drill the Pennsylvania Reserves of 10,000 men. Mr. Chase explained to the President that I had come on from Philadelphia and that we were holding an important conference regarding a new loan. He asked therefore to be excused, but Mr. Lincoln insisted on his going, telling him to bring Mr. Cooke with him, so we finally concluded to go. Thus in this carriage we four journeyed to Tenallytown, Mr. Lincoln evidently enjoying the holiday. Seeing Mr. Bates's black hair and white whiskers and mustache I remarked to him that he reminded me very much of my father who had not a gray hair in his head, but that whenever he attempted a beard he found that it came out white, and as he did not like such evidences of old age he did not wear one nowadays. What excited my curiosity particularly was the fact that the whiskers were gray and white while the hair of the head, presumably 18 to 25 years older, remained of an almost youthful appearance. I begged for an explanation. Mr. Lincoln here remarked, with a quizzical look across to Mr. Bates:
"Oh, Mr. Cooke, that is easily accounted for. " "Ah," said I, "I shall be glad to know the reason.' " 'Well,' said Mr. Lincoln, 'it could hardly be otherwise and the cause is that he uses his jaws more than he does his brains."
We all laughed heartily at this impromptu and original joke at Mr. Bates's expense and, as I gave the substance of the above to some newspaper men the next day it was published far and wide as one of Lincoln's original sayings.
We soon reached the encampment and General McClellan and his fifty or sixty officers dressed in all the adornments of their rank gathered around the President's carriage. Thus the review began and as each division of this splendidly equipped army marched by to the music of the bands General McClellan explained their character and uses to Mr. Lincoln - cavalry, artillery, sharpshooters, skirmishers and the several divisions of the regiments. It was a grand army perfect in drill and precise in every movement. After a while McClellan remarked to the President (and I was led to very deep thought thereby) that he saw before him a larger army than that employed in the late war with Mexico in its march from Vera Cruz and its conquest of the capital city with the celebrated forts surrounding it in the very heart of that nation. This was indeed true for General [Winfield] Scott's army engaged in the conquest of Mexico consisted of less than ten thousand men. I could not but be struck with the comparison and at once saw clearly that our present contest was a fearfully underestimated one, for already at that time we had over half a million of armed men on our side alone and as many opposed to us."122
Chase understood he needed executive help in selling bonds and thus early in the Lincoln Administration sought to enlist Cooke to be assistant treasury secretary in Philadelphia. Cooke had greater financial ambitions, however. He wanted to help his country - and to help himself and his family. Cooke biographer Henrietta Larson wrote that Cooke "had a distinct advantage over others in that he had a means of approach to the Treasury through his brother, Henry D. Cooke, who was a political friend of Secretary Chase."123 "Harry" Cooke had published a Republican newspaper in Ohio whose support Chase appreciated.124 Jay's brother maintained a good political relationship with Secretary of the Treasury Salmon P. Chase; they had been political allies in Ohio. Jesse Haney observed: "In 1862 Mr. Cooke opened a branch house in Washington, D. C, in order to be nearer the U. S. treasury, thereby greatly facilitating large transactions with the government. The two establishments co-operated in popularizing the first five-twenty loan and the three series of seven-thirties. The house of Jay Cooke & Co. continued more or less intimately connected with the financial bureau of the government until the end of the war."125
Henrietta Larson wrote that Jay Cooke "was consciously using every opportunity to strengthen himself and his firms with the Treasury. 'We must all study,' wrote Jay to Henry, 'by our watchful care of the interests confided to us to justify this confidence and to show him that the Treasury is a gainer by our confidential connection with it....I want the Governor [Chase] to trust to our good management, integrity & skill & pledge myself that he will have no cause to regret his confidence.'" Larson wrote that the Cooke brothers "went directly after anything they wanted from the government. For instance, immediately after Chase's entry into the Treasury, Jay Cooke urged Henry to get a government contract for a certain engraver, with the understanding that they should receive a 15 per cent commission on the contract."126
The combination of the Cookes' financial and political skills would serve the country well in the Civil War. Biographer Henrietta Larson wrote: "Cooke...had an unusual capacity for winning supporters. His integrity, his kind and sympathetic nature, his enthusiasm, and his optimism were attractive qualities. He was not, however, without opponents; some men honestly disagreed with him, many differed because of opposing interests, and still others were jealous of his successes." Despite his democratic view of expanding the base of the government's funding among people of all incomes, Cooke's view of managing the process was autocratic. Larson wrote that Cooke "made the plans, selected the leading men, determined policies, directed advertising, and kept in close touch with the subagents. And, when his time allowed, he saw investors, large and small, personally. Indeed, he was so much in evidence that to the common man he became the personification of the loan, just as Lincoln came to symbolize the Union and freedom for the slave, and Grant, victory."127
Secretary Chase came to Philadelphia to meet with Cooke in early September. Biographer Oberholtzer wrote: "On the morning of September 4th the Secretary was introduced by his host to a large number of bankers in the parlors of the Continental Hotel....Chase felt him to be a man beyond others upon whom he could lean in a time of general doubt, suspicion and fear and of particular interest were his assurances that he could sell large loans to the people."128 Cooke was a natural publicist - which was good for Cooke and good for the government. Cooke biographer Ellis Paxon Oberholtzer wrote: "On September 5th  Mr. Cooke...began his lavish campaign with the press which so materially helped him to achieve his remarkable success.... He not only used space in the advertising columns of the newspapers, but induced the editors to publish the names of the subscribers to the loan in their news columns, except when the latter particularly desired him not to do so. Such had their contributions lumped as 'cash' receipts." Cook wrote Chase on September 7 an enthusiastic report of his activities:
This has been a hard day. I have been at it from 8 a. m. till after 5 - a continual stream, clergy, draymen, merchants, girls, boys and all kinds of men and women. Some of our citizens who came in - I mean those of mark - went out almost with tears in their eyes, so overjoyed at the patriotic scene. We gave the day almost exclusively to smaller subscribers, 106 subscribed to-day and it's no small job to explain to so many ignorant people the whys and wherefores. I am glad to say that they all went away happy and delighted and we bagged over 70,000 as the day's work.129
Cooke worked with Chase to broaden the market for government securities beyond the rich. Cooke later wrote: "Out of three million subscribers to our various public loans, over nine-tenths are of the class called the people."130 Historian John Steele Gordon wrote: "Cooke bypassed the banks and went directly to the people. He advertised heavily in newspapers and passed out handbills. He arranged for the Treasury to issue the bonds in denominations as small as $50, and allowed customers to pay on the installment plan. Thus he deliberately tried to involve the average citizen in buying government securities."131 Historian Jane Flaherty wrote that though "the literature suggest that Cooke 'invented the modern bond drive,' in fact he copied this idea from Napoleon II, who sold securities to the French public to finance the Crimean War."132 Biographer Ellis Paxon Oberholtzer wrote that "Cooke perceived the methods that must be pursued, if the loans were to be popularized and distributed, - the methods by which hundreds of millions of dollars were later obtained and forward from his office in Third Street to the Treasury of the United States. He developed his plans at this own expense." Secretary Chase severely limited the publicity funds that he would authorize.133 Historian James M. McPherson wrote; "Although this policy of financing a democratic war by democratic means got off to a slow start, Cooke eventually achieved great success in selling $400 million of 'five-twenties' - 6 percent bonds redeemable in not less than five or more than twenty years - and year $800 million of 'seven-thirties' - three-year notes at 7.30 percent. Newspapers occasionally accused Cooke of getting rich from the commissions he earned on these sales. In fact his firm did earn some $4 million for marketing these bonds. But this amounted to a commission of about three-eighths of one percent, out of which Cooke paid all expenses for agents and advertising, leaving a net profit of about $700,000. This was a cheaper and more efficient means of selling bonds to the masses than the government could have achieved in any other way."134
The Chase-Cooke relationship was symbiotic. Chase was banker to the country. Cooke was banker to Chase. Historian Richard White noted: "In rendering essential services to the republic, Jay Cooke and Salmon P. Chase also rendered essential services to each other." The self-righteous Chase struggled to make sure the services were proper and properly compensated, but White wrote: "There were inevitably complications. There always were when American politics demanded both money and the appearance of rectitude."135 While advancing his own finances and those of the country, Cooke also advanced Chase's personal and political interests. "Chase and his two daughters often visited Cooke's country mansion amid rolling wooded acres at Ogontz near Philadelphia; Cooke invested small funds of Chase where they paid handsome profits," wrote Carl Sandburg. "When Chase wanted a light one-horse coupé, he wrote to Cook about it and Cooke took a day off in Philadelphia and found a nice coupé and sent it on to Chase, who drove in it once and then sent it back to Cooke with word that it wasn't quite what he needed. In letters to Chase, Cooke would sometimes get matters of public government business and private one-horse coupés mixed up, and as Chase did not care to have such correspondence on record in the Treasury files, he wrote Cooke please to commence all letters on public matters with 'Sir,' while 'letters on private matters may be addressed dear Governor or dear friend, as you will, but let them contain nothing on public business and vice versa.'"136 Historian Doris Kearns Goodwin wrote: "As the relationship warmed, Chase borrowed money from Cooke, and eventually, Cooke took it upon himself to set up his own investment account for Chase. 'I will take great pains to lay aside occasionally some choice "tid bits" managing the investments for your and not bothering your head with them.' If all went well, Cooke hoped, the profit earned would make up 'the deficiency' between Chase's salary and his expenses, 'for it is a shame that you should go 'behind hand' working as you do.' In the smooth Philadelphia banker, the Chases had found what Mary Lincoln unsuccessfully sought - a reliable source to fund the high cost of being a leader of society in wartime Washington."137
There was a blip in the otherwise cozy Cooke-Chase relationship in the late spring of 1863. Historian Richard White wrote: "With subscriptions for the Union's bonds having yielded $12 million a week in May and with Cooke's 'monopoly' under attack by the New York World, Chase, worried about his own political vulnerability, telegrammed Cooke on June 1 that for the remaining bonds he was reducing Cooke's compensation for the five-twenties from 3/8 percent that Cooke demanded to 1/8 percent plus expenses for advertising. Cooke responded angrily; Chase soothed him and made some concessions, and the relationship continued."138 Jay himself made sure that Chase appreciated the favors he provided: "Breezy, ingenious, tenacious Jay Cooke was a phenomenon rising out of the American civilization taking shape from the war, a sign of bigger figures consolidated out of smaller ones, a token of the power of finance to control transportation and industry," wrote Lincoln biographer Carl Sandburg.139 The success of such financing depended on Union victories which in turn depended on the success of floating loans in 1861 and 1862. Historian Michael Burlingame noted that in mid-1862, "McClellan's inactivity made it difficult to raise money. Exasperated, Chase urged Jay Cooke... to inform Lincoln that the Young Napoleon must be replaced if government loans were to be taken."140 Lincoln biographer Carl Sandburg wrote:
The bond-selling campaigns of Cooke under Chase's authority satisfied Lincoln to the extent that he kept his hands off, seeing Cooke only two or three times during many months. Once was in the summer of '62, when Cooke said he believed 'thousands of influential and patriotic men' wished McClellan's removal from command of the Army of the Potomac. 'I found,' wrote Cooke, 'the subscriptions to the loans I had in charge rapidly falling off so that finally with Mr. Chase's consent and desire, I went to Washington and with my brother, Henry D. Cooke, visited Lincoln with the design of showing him the absolute necessity of placing some more active and bold warrior in McClellan's place. Mr. Lincoln was at the Soldiers' Home and my brother and I drove out there. We found a large crowd of officers and civilians there paying calls and on business and were requested by Mr. Lincoln to remain until these people had left for the evening, so it was past ten o'clock before we began our conference. Mr. Lincoln had his youngest son on his lap while we were talking. I began by reminding him that the sole charge of raising the vast sums daily required was committed to me, that I was not a politician, that I desired no office, but under God was trying to do my duty in aid of my country, and that now I came to him to plea for a change of commanders of the army...that I came direct from the people, and knew their thoughts, and especially had felt the pulse of finance, and feared with all my efforts a feeble response to my appeals, unless the gloom and doubt occasioned by McClellan's supineness and inactivity could be done away with. I impressed these views upon Mr. Lincoln earnestly and almost pleadingly, and have every reason to know that they accorded with his own; but Mr. Lincoln it is well known, had a tender heart, and he hated to remove McClellan until satisfied that the people and circumstances compelled him.' When within a week McClellan was removed from command, Jay Cooke wrote, 'I think my interview and appeal were the immediate cause of Mr. Lincoln's prompt action.141
Fortunately for Chase and the country, Cooke was a master salesman. Cooke biographer Henrietta Larson wrote: "Cooke employed rare strategy in his handling of the press. He paid newspapers generously for carrying advertisements of the loan, binding them to the cause, as he said, 'by kind and liberal treatment.' The newspapers which enjoyed the benefits of Jay Cooke's advertising were expected to carry publicity without compensation, which proved a most effective force in molding northern opinion and in establishing the prestige of Jay Cooke and the government loans."142 John Steele Gordon wrote: that Cooke mobilized newspapers to market the government's bonds. "Jay Cooke invented the bond drive, a major feature of every great war since. He also introduced hundreds of thousands of Americans to the financial world for the first time." Gordon wrote: "Before the Civil War far less than 1 percent of the population had owned any securities (such as government or corporate bonds or corporate stock). Cooke sold government bonds to about 5 percent of the Northern population. According to John Sherman, an influential senator from Ohio...Cooke made the virtues of these bonds stare 'in the face of the people in every household from Maine to California."143 The Cooke firm created broadsides to support its efforts. One, inclusively headlined "TO FARMERS, MECHANICS AND CAPITALISTS!", began:
You have a solemn duty to perform to your government and to posterity!
Our gallant army and navy must be supported by every man and woman who has any means, large or small, at their control. The United States Government, to which we owe our prosperity as a nation, security of person and property of every sort, calls on each individual to rally to its support - not with donations or gifts - though who could with hold them - BUT WITH SUBSCRIPTIONS TO HER LOANS, based on the best security in the world, the untold and scarcely yet tried resources of this mighty Continent, which were developing rapidly when the rebellion broke out, and to maintain which, AS A PRICELESS HERITAGE TO POSTERITY, this defence against rebellion is made.144
In the spring of 1862, Cooke's army really mobilized after Congress authorized the sale of so-called "five-twenties" bonds in the Legal Tender bill. The provision for greenbacks meant there was a relatively reliable national currency to use to buy the new bonds. Cooke was as much a publicist as he was a financier but he needed the financial infrastructure that Congress had established. The government's need for money was insatiable and outran Wall Street's ability to meet the government's needs. Cooke determined "to go over the heads of the bankers and reach the small investors, the masses of people who could buy a $100 bond or more, the very ranks from which the bankers go their depositors. His drive got under way in the spring of 1863 to sell $500,000,000 of five-twenties, bonds paying 6 per cent interest for twenty years or redeemable in government gold within five years," according to Carl Sandburg. "The newspaper campaign of direct advertising, informative news accounts, and editorial comment on the five-twenty bonds that Jay Cooke set going was the most far-reaching, deliberately organized affair of the sort that American had ever seen. At one time eighteen hundred daily and weekly journals were printing paid advertising. Disloyal sheets that hated the Lincoln Administration and all its works could not bring themselves to hate Jay Cooke's cash to the extent of not printing live news, which he sent them fresh from the hands of his large staff of skilled writers. One observer regarded Jay Cooke as a well-proportioned hero who 'subsidized' the press by a system, hired newspapers as Napoleon did. 'Editors and publishers to whom patriotic considerations were without appeal were touched at a more vulnerable point, and thus practically the entire newspaper press of the loyal states responded to his masterly direction on financial questions.'"145 Cooke's army of 2500 agents was so successful that they oversold the bond issue by $11 million.
Cooke took advantage of the growth in northern business and capital markets during the Civil War. John Steele Gordon wrote: "Before long the greatest expansion of business in the history of Street was under way and Wall Street quickly blossomed into the second largest securities market on earth, second only to London. Fortunes were made in the next few years." Gordon wrote "Wall Street in general prospered almost beyond calculation in the Civil War years. Although the outbreak of the war caused panic, as the sudden onset of a great war always does, it was soon clear that the business of the Street - the trading of securities would greatly increase."146 Gordon wrote: "By May 1864 Cooke was selling war bonds so successfully that he was actually raising money as fast as the War Department could spend it, no mean feat for that was about $2 million a day at this point. Altogether, the North raised fully two-thirds of its revenues by selling bonds."147 But bonds were only one tool that the Lincoln Administration needed to finance the war. By December 1861, according to Cooke biographer Ellis Paxson Oberholtzer, Union finances required new measures to finance the war:"Chase knew very definitely and practically, what Lincoln, Seward and the other government leaders realized only somewhat less clearly, that if the nation were to survive in such a war as this one had become, new and much greater sources of income must be sought and found at once. Secretary Chase in his report to Congress at its meeting in December recommended two radical new measures, the issue of a considerable amount of interest bearing paper currency and notes to be emitted through banking associations, the germ of the idea which later bore fruit in the national banking law."148
The Union's need for government resources was growing and incessant. The finances of the government continued to be tight for virtually the entire war. They were particularly tight in January 1862 after both the banks and the government cease redeeming notes in specie. A stalled army did not inspire the confidence of bankers. Historian James M. McPherson wrote that "for a time in the winter of 1861-62, fiscal problems threatened to overwhelm the Union cause."149 Lincoln complained to General Montgomery C. Meigs: "General, what shall I do? The people are impatient; Chase has no money, and he tells me he can raise no more; the General of the Army has typhoid fever. The bottom is out of the tub. What shall I do?"150
Congress was also worried. "The credit of the country is ruined," complained Massachusetts Congressman Henry Dawes in a letter to his wife that month.151 Presidential aide John Hay wrote in mid-January: "A committee of Bank Directors is here at present, in conference with Secretary Chase and the Finance Committee of the House, respecting the best means of sustaining the credit of the Government. The bank men wish to impose some new conditions upon the Government, which would ultimately give us a moneyed instead of a military despotism."152 Historian William Marvel wrote that by early 1862: "The war was costing $1.5 million per day and more; by the end of February contractors were clamoring for payment of nearly $27 million in outstanding requisitions. Soldiers, who could afford it less than most, had to bear much of the treasury deficit in the form of unconscionably tardy paymasters. Chase...estimated that the government faced about $45 million in 'floating debt' at that time, incurred mainly by the War Department."153
The Union needed money, but it also needed a uniform convertible currency - one which unlike the existing state bank notes was not easily counterfeited and whose value was reliable. Jane Flaherty noted: "In 1860, approximately $180 million in state bank notes circulated, most of this 'money' controlled by 'a relatively large number of incorporated banks operated in the interests of their owners.'" The Treasury estimated that over 7,000 various forms of legitimate bills circulated in 1860."154 Historian Allan Nevins wrote: "It seemed to many that the only feasible course was to have the government take bold control, issue its own circulating medium, and give it credit by pronouncing it legal tender for debts."155 Civil War Congressman James G. Blaine observed: "In the opinion of the majority, the one imperative duty was that the government should take control of the currency, issue its own paper as a circulating medium, and make it equal and alike to all, by declaring it to be a legal-tender in the payment of debts. It was the most momentous financial step ever taken by Congress, - as it is the one concerning which the most pronounced and even exasperating difference of opinion was manifested at the time, has since continued, and will probably never entirely subside so long as the government keeps one legal-tender note in circulation. It was admitted to be a doubtful if not dangerous exercise of power; but the law of necessity overrides all other laws, and asserts its right to govern. All doubts were decided in favor of the nation, in the belief that dangers which were remote and contingent could be more easily dealt with than those which were certain and imminent."156
No one understood the need for a functioning currency better than Chase and no one perhaps was more reluctant to resort to a fiat currency. Chase, observed economic historian Margaret G. Myers, was "a hard-money man, as suspicious of bank paper as Jackson and Benton had been, and as devoted to the principle of the Independent Treasury."157 Lincoln, preoccupied by the lack of military action, stayed aloof. Historian James M. McPherson wrote: "Lincoln, no financial expert, played little role in congressional efforts to resolve the crisis."158 Union army officer Donn Piatt, later a journalist and writer, claimed: "A history of this transaction is curiously illustrative of the two men, Lincoln and Chase, concerned therein. Of course the idea of issuing money directly by the Government to meet an emergency was as old as the governments themselves. But Amasa Walker, a distinguished financier of New England [and a soon-to-be Massachusetts congressman], had a thought that was new. He suggested that the notes thus issued directly from the Government to the people as currency should bear interest. This for the purpose not only of making the notes popular, but for the purpose of preventing inflation by inducing people to hoard the notes as an investment when the demands of trade failed to call them into circulation as a currency. This idea struck Mr. David Taylor, of Ohio, with such force that he sought Mr. Lincoln and urged him to put the project into immediate execution. The President listened patiently, and at the end said, 'That is a good idea, Taylor, but you must go to Chase. He is running that end of the machine, and has time to consider your proposition."
Taylor sought the Secretary of the Treasury, and laid before him Amasa Walker's plan. Chase heard him through in a cold, unpleasant manner, and then said, 'That is all very well, Mr. Taylor, but there is one little obstacle in the way, that makes the plan impracticable, and that is the Constitution.'
Saying this, he turned to his desk as if dismissing both Mr. Taylor and his proposition at the same moment. The poor enthusiast felt rebuked and humiliated. He returned to the President, however, and reported his defeat. Mr. Lincoln looked at the would-be financier with the expression at times so peculiar to his homely face, and that left one in doubt as to whether he was jesting or in earnest.
"Taylor,' he exclaimed, "go back to Chase and tell him not to bother himself about the Constitution. Say that I have that sacred instrument here at the White House, and I am guarding it with great care."
"Mr. David Taylor demurred to this on the ground that Mr. Chase showed by his manner that he knew all about it and didn't wish to be bored by any suggestions.
"We'll see about that,' exclaimed the President, and taking a card from the table he wrote upon it:
"The Secretary of the Treasury will please consider Mr. Taylor's proposition. We must have money, and I think this is a good way to get it. A. Lincoln"
Piatt wrote: "Armed with this, the real father of the greenbacks again sought the Secretary. He was received more politely than before, but was cut short in his advocacy of the measure by a proposition for both of them to see the President. They did so, and Mr. Chase made a long and elaborate constitutional argument against the propose measure. 'Chase,' said Mr. Lincoln after the Secretary had concluded, 'down in Illinois I was held to be a pretty good lawyer, and I believe I could answer every point you have made, but I don't feel called upon to do it. This thing reminds me of a story I read in a newspaper the other day. It was of an Italian captain, who run his vessel on a rock and knocked a hole in her bottom. He saw his men to pumping and he went to prayers before a figure of the Virgin in the bow of the ship. The leak gained on them. It looked at last if the vessel would go down with all on board. The captain, at length, in a fit of rage at not having his prayers answered, seized the figure of the Virgin and threw it overboard. Suddenly the leak stopped, the water was pumped out, and the vessel got safely into port. When docked for repairs, the statue of the Virgin Mary was found stuck head-foremost in the hole.'"
"I don't see, Mr. President, the precise application of your story,' said Mr. Chase.
"Why, Chase, I don't intend precisely to throw the Virgin Mary overboard, and by that I mean the Constitution, but I will stick in the hole if I can. These rebels are violating the Constitution to destroy the Union, I will violate the Constitution, if necessary, to save the Union, and I suspect, Chase, that our Constitution is going to have a rough time of it before we get done with this row. Now, what I want to know is whether Constitution aside, this project of issuing interest-bearing notes is a good one."
"I must say," responded Mr. Chase, "that with the exception you make, it is not only a good one, but the only way open to us to raise money. If you say so, I will do my best to put it into immediate and practical operation, and you will never hear from me any opposition on this subject."159
Some experts have doubted this story. Others doubted the necessity for greenbacks. Financial historian Wesley C. Mitchell contended that the creation of greenbacks were unnecessary and could have been avoided if Chase had decided to sell bonds below par.160 Economist Don C. Barrett argued that Congress and Chase failed to use the time they had in late 1861 and 1862 to put in place a taxation program that would have averted the need for greenbacks: "With the conditions of the case fully known for so long a period, and with the people in an attitude of praying to be taxed, it seems evident that slight excuse existed for pressing the necessity of a legal tender paper money upon the country, even with the knowledge that the treasury was almost empty."161 Financial historian William F. Hixson wrote: "Selling bonds below par would have been unwise since it would have obligated the government to repay greater principal amounts than it received."162 Financial historian Robert P. Sharkey wrote: "Although it may be allowed that there was no very good reason why the government should not have negotiated its bonds at prices considerably below par, it may well be asked if this policy in itself would have been sufficient to meet the situation."163
America's currency was deficient and chaotic. Before the Civil War, the paper currency in circulation was issued only by state banks. Chase had a strong antipathy to such currency. He favored hard currency backed by precious metals, but yielded to the necessity to issue paper money. Historian Allan Nevins observed: "A dependable currency was desperately needed to pay the soldiers, buy supplies, and keep business active. It seemed to many that the only feasible course was to have the government take bold control, issue its own circulating medium, and give it credit by pronouncing it legal tender for debts. This step would be so unprecedented, so momentous, and so full of risks that many recoiled from it. Secretary Chase, who felt great aversion to making anything but coin a legal tender, was himself reluctant."164 Historian David Brion Davis noted: "Before the Civil War...paper notes were issued by more than fifteen hundred state banks in 1860, which issued more than one thousand different kinds of currency."165 Historian Mark S. Joy noted that the currency of state banks "had no standard valuation, and in a sense was worth whatever the public thought it was worth....On the eve of the Civil War, thousands of different kinds of paper money were in circulation, some relatively sound and some totally worthless."166
Because of southern secession, Congress could act in a way that was unthinkable had southern representatives still been in Congress. Historian Leonard P. Curry wrote: "Secession, by removing most of the southern senators and representatives, had removed one of the most potent sources of sectional jealousy."167 New York Congressman Elbridge G. Spaulding, chairman of a House Ways and Means subcommittee, was the key leader in the currency reform. The Buffalo lawyer-turned-banker began work on a bank reform bill in early January 1962 but turned his attention to a currency reform measure because he believed that a bank legislation "could not be passed and made available quick enough to meet the crisis than pressing upon the Government for money to sustain the Army and Navy."168 Because the Ways and Means Committee was split on the bill's constitutionality, Spaulding asked Attorney General Edward Bates for a ruling. Bates refused to provide one, but told Spaulding that "the Constitution contains no direct verbal prohibition, and I think it contains no inferential or argumentative prohibition that can be fairly drawn from its expressed terms."169 Spaulding himself told Congress on January 21, 1862: "The army and navy now in service must be paid. They must be supplied with food, clothing, arms, ammunition, and all other material of war to render them effective in maintaining the government and putting down the rebellion."170 Spaulding was confronting both the military realities of the Civil War and the economic realities of the country's currency history. Financial historian Wesley Clair Mitchell wrote that "Spaulding and not Chase was the real financial leader in the critical months of January and February, 1862. Spaulding's position was recognized by a colleague in the House, who referred to him as "the able and distinguished Representative who has originated this measure and carried it triumphantly over the Administration and through Congress.'"171 There was little agreement in Congress about how to proceed. On January 21, journalist Noah Brooks noted: "It is now seven weeks that Congress has been in session, and nothing yet has been done to determine the financial policy of the country for the next two years. Each member of the Ways and Means Committee has had his own peculiar views and hobby to advance, and Congress has frittered away its limited time in long speeches and in the consideration of impracticable schemes, leaving the credit of the country to go steadily down to ruin, the soldiers unpaid, the war debt accumulating, and the financial world unable to predicate any actions whatever upon the action of Congress and the Treasury department."172
Northern bankers had initially opposed the greenbacks measure and sent a delegation to the nation's capitol to lobby against it.173 Negotiations, however, were unavailing and businessmen slowly acquiesced. James M. McPherson wrote: "So had Treasury Secretary Chase and Finance Committee Chairman Fessenden. 'I came with reluctance to the conclusion that the legal tender clause is a necessity,' Chase informed Congress on February 3, 1862. 'Immediate action is of great importance. The Treasury is nearly empty.' Fessenden considered the measure 'of doubtful constitutionality....It is bad faith....It shocks all my notions of political, moral, and national honor.' Nevertheless, 'to leave the government without resources in such a crisis is not to be thought of.'"174 Despite their reservations, congressional Republicans yielded to necessity. "The legal-tender Government note was almost universally regarded as a matter of necessity, and not of choice," wrote Sherman biographer Winfield Scott Kerr. Secretary Chase, a confirmed hard-money man, was indeed reluctant, but he nevertheless pushed the legislation after writing a letter to Congressman Thaddeus Stevens which seemed to question his commitment to the bill. Kerr wrote that "at almost the last moment, and as a last resort, he wrote a letter to Mr. Spaulding in which the Secretary declared, not very clearly however, his support of the bill upon constitutional as well as upon the other grounds."175 In his memoirs, Senator John Sherman discussed the legislative process that led to passage of the Legal Tender Act early in 1862:
The first bill introduced by Mr. Spaulding, on the 30th of December , met some of these difficulties. It provided for the issue of $50,000,000 treasury notes, payable on demand, the notes to be receivable for all debts and demands due to or by the United States, to be a legal tender in payment of all debts, public or private, within the United States, and exchangeable at their face value, the same as coin, at the treasury of the United States, and the offices of the assistant treasurers in New York, Boston, Philadelphia, St. Louis, and Cincinnati, for any of the coupon or registered bonds which the secretary was authorized to issue. It also contained this provision: "Such treasury notes may be reissued from time to time as the exigencies of the public service may require," the first authority ever given for the reissue of treasury notes after redemption.
On the 7th of January, 1862, Mr. Spaulding reported the bill to the House with some important changes, and it soon became the subject of a long and interesting debate. On the 22nd of January, Secretary Chase returned Mr. Spaulding's bill to him and suggested some modifications, referring to the legal tender clause as follows, being his first reference to that clause:
"Regretting exceedingly that it is found necessary to resort to the measure of making fundable notes of the United States a legal tender, but heartily desiring to cooperate with the committee in all measures to meet existing necessities in the most useful and least hurtful to the general interest, I remain," etc.176
On January 29, Secretary Chase wrote a letter to Spaulding that summarized his views on the legislation: "The condition of the treasury certainly needs immediate action on the subject of affording provision for the expenditures of the government, both expedient and necessary. The general provisions of the bill submitted to me seem to me well adapted to the end proposed. There are, however, some points which may, perhaps, be usefully amended."
The provision making United States notes a legal tender has doubtless been well considered by the committee, and their conclusion needs no support from any observation of mine. I think it my duty, however, to say, that in respect to this provision my reflections have conducted me to the same conclusions they have reached. It is not unknown to them that I have felt, nor do I wish to conceal that I now feel, a great aversion to making anything but coin a legal tender in payment of debts. It has been my anxious wish to avoid the necessity of such legislation. It is, however, at present impossible, in consequence of the large expenditures entailed by the war, and the suspension of the banks, to procure sufficient coin for disbursements; and it has, therefore, become indispensably necessary that we should resort to the issue of United States notes....Such discrimination should, if possible, be prevented; and the provision making the notes a legal tender, in a great measure at least, prevents it, by putting all citizens, in this respect, on the same level, both of rights and duties."177
Pressure was building on Chase and the Lincoln Administration. On February 5, Secretary Chase wrote Congressman Spaulding that the legislation "is very important the bill should go through to-day, and through the Senate this week. The public exigencies do not admit of delay." He included a letter from the Treasury Department's collector in New York.
Mr. [William H.] Seward said to me on yesterday that you observed to him that my hesitation in coming up to the legal tender proposition embarrassed you, and I am very sorry to observe it, for my anxious wish is to support you in all respects.
It is true that I came with reluctance to the conclusion that the legal tender clause is a necessity, but I came to it decidedly, and I support it earnestly. I do not hesitate when I have made up my mind, however much regret I may feel over the necessity of the conclusion to which I come.178
Meanwhile, on February 4, Chase wrote William Cullen Bryant, editor of the New York Post: "Your feelings of repugnance to the legal tender clause can hardly be greater than my own; but I am convinced that, as a temporary measure, it is indispensably necessary. From various motives, some honorable and some not honorable, a considerable number, though a small minority, of the business men and people are indisposed to sustain the United States notes by receiving and paying them as money. This minority, in the absence of any legal tender clause, may control the majority to all practical intents. To prevent this, which would at this time be disastrous in the extreme, I yield my general views for a particular exception. To yield does not violate any obligation to the people, for the great majority, willing now to receive and pay these notes, desire that the minority may not be allowed to reap special advantages from their refusal to do so; and our Government is not only a government of the people, but is bound in an exigency like the present, to act on the maxim, 'Salus populi suprema lex.'"
It is only, however, on condition that a tax adequate to interest, reduction of debt, and ordinary expenditures be provided, and, that a uniform banking system be authorized, founded on United States securities, and, with proper safeguards for specie payments, securing at once a uniform and convertible currency for the people, and, creating a demand for national securities, which will sustain their market value and facilitate loans; it is only on this condition, I say, that I consent to the expedient of United States notes in limited amounts being made a legal tender.179
Pennsylvania's Thaddeus Stevens was a powerful voice of support in the House, arguing at the end of debate that "this bill is a measure of necessity, not of choice. No one would willingly issue paper currency not redeemable on demand and make it a legal tender. It is never desirable to depart from that circulating medium which, by the common consent of civilized nations, forms the standard of value. But it is not a fearful measure; and when rendered necessary by exigencies, it ought to produce no alarm."180 On February 6, the legislation was passed by the House, 93-59. It moved on to the Senate where Ohio's John Sherman was its leading champion and Vermont's Jacob Collamer a leading opponent. Speaking on behalf of the "Legal Tender" legislation, Senator Sherman responded to critics such as Collamer "But allow me to repeat what is admitted by all, that very few members of this body are familiar with financial subjects; very few of us have been called upon to study such questions; and therefore it is that, when a question of this kind is before the Senate, the opinion of men who have devoted their lives to this subject ought to be fairly considered. Upon the question of the constitutionality of this measure the opinion of the Senator from Vermont and other Senators around me is worth much more than that of commercial men; but upon the question of the necessity of this measure to give your demand notes negotiability, security, value, in the money market, their opinion is worth more than that of any individual Senator."181
President Lincoln, suffering from the illness and the death of his favorite son Willie, signed the legislation on February 25. Treasury official Lucius Chittenden said that President Lincoln told him in February 1862: "Here is a committee of great financiers from the great cities who say that, by approving this act, I have wrecked the country....I say to these gentlemen, 'Go to Secretary Chase; he is managing the finances.' They persist and have argued me almost blind.....We owe a lot of money which we cannot pay; we have got to run in debt still deeper. Our creditors think we are honest and will pay in the future. They will take our notes, but they want small notes which they can use among themselves. So far, I see no objection, but I do not like to say to a creditor: You shall accept in payment of your debt something that was not money when it was contracted. That doesn't seem honest, and I do not believe the Constitution sanctions dishonesty."182 Lincoln, who had studied, thought and written extensively on bank issues in the late 1830s and 1840s, chose not to get directly involved. Historian Allan Nevins wrote that the legislation "gave wide benefits to both the Administration and the nation. No doubt stringent taxation and the maintenance of a metallic currency, had they been practicable, would have reduced the costs of war. But that nation's stock of hard money was quite inadequate to the needs of business, which the greenbacks helped revive; and heavier taxes would have excited grave popular discontent."183 Historian James M. McPherson wrote: "The U.S. notes were to be legal tender - receivable for all debts public or private except interest on government bonds and customs duties. The exemption of bond interest was intended as an alternative to selling the bonds below par, with the expectation that the payment of 6 percent interest in specie would make the bonds attractive to investors at face value. Customs duties were to be payable in specie to assure sufficient revenue to fund the interest on bonds."184
James M. McPherson wrote: "Three main factors explain the success of the Legal Tender Act: First, the underlying strength of the northern economy. Second: the fortuitous timing of the law. It went into effect during the months of Union military success in the spring of 1862, floating the greenbacks on a buoyant mood of confidence in victory. The third reason was the enactment of a comprehensive tax law on July 1, 1862, which soaked up much of the inflationary pressure produced by the greenbacks."185 In his memoirs, Senator Sherman stressed the importance of the Legal Tender Act in saving the country from defeat and division:
It would be difficult to measure the beneficial results that rapidly followed the passage of this bill. The public credit was greatly strengthened by the provision for the payment of interest in coin furnished by duties on imported goods. The legal tender clause was acquiesced in by all classes, and we had, for the first time, in circulation national paper money as the actual standard of value. It was silent as to time of its payment, but each note contained a promise of the United States to pay a specific sum, and the implied obligation was to pay in coin as soon as practicable.
On the 11th of July, 1862, a further issue of $150,000,000 United States treasury notes (or " greenbacks," as they were commonly called from their color) of the same description was authorized, and subsequent issues increased the total amount to $450,000,000, the extreme limit. By the act of March 31, 1863, fractional currency was authorized to an amount not exceeding $50,000,000, to take the place of fractional silver coins, which had entirely disappeared from circulation, and this amount was issued.
The passage of the legal tender act was the turning point of our physical and financial history. Less than a year before the government was bankrupt; our bonds bearing six per cent. interest were sold at a discount; our national expenditures exceeded our receipts; loans could only be made upon the basis of coin, and this coin was disappearing from circulation. We had to appeal to the patriotism of bankers to accept the demand notes of the United States as money, with no prospect of being able to pay them. Our regular army was practically disbanded by the disloyalty of many of its leading officers. Washington was then practically in a state of siege, forcing me, in May, 1861, to go there at the heels of the 7th regiment of New York militia, avoiding the regular channels of travel. The city of Baltimore was decked under the flag of rebellion. Through the State of Maryland, loyal citizens passed in disguise, except by a single route opened and defended by military power. The great State of Kentucky, important as well from its central position as from the known prowess and courage of its people, hung suspended in doubt between loyalty and secession. In the State of Missouri, St. Louis was the only place of unquestioned loyalty, and even there we regarded it a fortunate prize that we were able to take the public arms from a government arsenal. The whole State of Virginia, with the single exception of Fortress Monroe, was in the possession of the revolutionary force.
But from the passage of the legal tender act, by which means were provided for utilizing the wealth of the country in the suppression of the rebellion, the tide of war turned in our favor. Delaware, after a short hesitation, complied with the proclamation of the President. Maryland had, by clear and repeated votes and acts, arrayed herself on the side of the Union. Her rebellious sons who fought against the old flag could not tread in safety on a single foot of the soil of that state. Western Virginia, the eastern peninsula, and many ports on the eastern coast, were securely reclaimed. The State of Kentucky had distinctly, by the vote of her people, and by the action of all her constituted authorities, proclaimed her loyalty, and her sons were fighting side by side with the soldiers of other states to expel traitors who, in her days of doubt, had seized upon a small portion of her soil, which they still occupied. In the State of Missouri the constituted authorities, organized by a convention of the people duly elected, were sustained by physical power in nearly all the state, and the rebellion there was subsiding into bands of thieves, bridge burners, and small parties of guerrillas, who could soon be readily controlled by local militia. In nearly every rebellious state, the government had secured a foothold, and an army of half a million men, armed, organized and disciplined, impatiently awaited the word of command to advance the old banner of our country against every foe that stood in its way. Where does the history of nations present an example of greater physical weakness followed so soon by greater physical strength? When have results more wonderful been accomplished in eight months?
At the beginning of the year 1862 we were physically strong but financially weak. Therefore, I repeat, the problem of this contest was not as to whether we could muster men, but whether we could raise money. There was great wealth in the country but how could it be promptly utilized? To that question the diligent attention of Congress was applied. The banks which had aided us with money were crippled and had suspended coin payments. The Secretary of the Treasury was begging at the doors of both Houses for means to meet the most pressing demands. On the 15th of January, 1862, the London "Post," the organ of [British Prime Minister] Lord Palmerston, said:
"The monetary intelligence from America is of the most important kind. National bankruptcy is not an agreeable prospect, but it is the only one presented by the existing state of American finance. What a strange tale does not the history of the United States for the past twelve months unfold? What a striking moral does it not point? Never before was the world dazzled by a career of more reckless extravagance. Never before did a flourishing and prosperous state make such gigantic strides towards effecting its own ruin."
The legal tender act, with its provision for coin receipts to pay interest on bonds, whatever may be said to the contrary by theorists, was the only measure that could have enabled the government to carry on successfully the vast operations of the war. Our annual expenditures at that time were four times the amount of our currency; were three times the aggregate coin of the country; were greater than any ever borne by any nation in ancient or in modern times. The highest expenditure of Great Britain during her war with Napoleon, at a time when her currency was inflated, when she made the Bank of England notes a legal tender, was but 100,000,000.186
Thus, a new era in American finance was ushered in - for citizens and government. Financial historian William F. Hixson wrote: "On the presumption that the notes were to be paid in legal tender, they could be paid with themselves. In any case, the notes were not payable immediately in either gold or silver. Whether they ever would be so payable was an open question for several years." Hixson noted: "The fact that the greenbacks were declared less good than gold for the payment of custom duties and interest on government debt downgraded the issue and provided ammunition and encouragement to all its critics."187 President Lincoln himself worried about fraud that might result from the production of Union currency, telling Chase: "Don't think Mr. Chase, I could have any doubt about your integrity or that of Mr. [Francis] Spinner, but you are both known to me and the country. Others who are great factors in this money-making business are not so well known, and I can see that they have the power, if corrupt enough, to use it to bankrupt the country."188 (Spinner was a former congressman and bank president who was appointed U.S. Treasurer in March 1861. He helped bring women employees into the Treasury Department - a major innovation in an institution that hitherto had been dominated by men. It was Spinner's distinctive signature that appeared on the greenbacks: "I first practiced it while in the sheriff's office about 1835; I used it while commissioner for building the asylum at Utica, and as cashier and president of the Mohawk valley bank, and for franking while in congress. It was brought to its highest perfection when I was treasurer."189)
By early 1863, there was again increased pressure for more money for the war effort. Historian William Marvel wrote that "the government already owed about $60 million in back pay to the army and navy, while barely one-fifth of that amount could be raised against the obligation. Congressmen introduced a resolution calling for prompt payment of the troops, acknowledging that their country owed it to them, but they proposed to cover the debt with $50 million in worthless currency, printed without specie or revenue to sustain it."190 In January 1863 Civil War journalist Noah Brooks wrote that: "Monday morning, bright and early, Congress was greeted with a message informing that honorable body that the President had signed the joint resolution authorizing the issuance of $100,000,000 of legal tender notes for the payment of the army and navy, and at the same time he gave his views on the financial question at some length. It must be confessed that the message partook somewhat of the character of a lecture, but the turmoil, buzzing, and fretting of Congress was unnecessary and undignified. To the astonishment of the congressmen, who have been wrangling and spouting for weeks over the Revenue bill, the President is actually found to have an opinion and a mind of his own."191 Lincoln wrote Congress:
While giving this approval, however, I think it my duty to express my sincere regret that it has been found necessary to authorize so large an additional issue of United States notes, when this circulation, and that of the suspended banks together have become already so redundant as to increase prices beyond real values, thereby augmenting the cost of living to the injury of labor, and the cost of supplies to the injury of the whole country.
It seems very plain that continued issues of United States notes, without any check to the issues of suspended banks, and without adequate provision for the raising of money by loans, and for founding the issues so as to keep them within due limits, must soon produce disastrous consequences. And this matter appears to me so important that I feel bound to avail myself of this occasion to ask the special attention of Congress to it.
That Congress has power to regulate the currency of the country, can hardly admit of doubt; and that a judicious measure to prevent the deterioration of this currency, by a reasonable taxation of bank circulation or otherwise is needed, seems equally clear. Independently of this general consideration, it would be unjust to the people at large, to exempt banks, enjoying the special privilege of circulation, from their just proportion of the public burdens.
In order to raise money by way of loans most easily and cheaply, it is clearly necessary to give every possible support to the public credit. To that end, a uniform currency, in which taxes, subscriptions to loans, and all other ordinary public dues, as well as all private dues may be paid, is almost, if not quite indispensable. Such a currency can be furnished by banking associations, organized under a general act of Congress, as suggested in my message at the beginning of the present session. The securing of this circulation, by the pledge of United States bonds, as therein suggested, would still further facilitate loans, by increasing the present and causing a future demand for such bonds.
In view of the actual financial embarrassments of the government, and of the greater embarrassments sure to come, if the necessary means of relief be not afforded, I feel that I should not perform my duty by a simple announcement of my approval of the Joint Resolution which proposes relief only by increasing circulation, without expressing my earnest desire that measures, such in substances as those I have just referred to, may receive the early sanction of Congress.
By such measures, in my opinion, will payment be most certainly secured, not only to the army and navy, but to all honest creditors of the government, and satisfactory provision made for future demands on the treasury.192
Meanwhile in early 1863, Secretary Chase decided to send former Secretary of the Treasury Robert Walker to England as a sort of financial ambassador for the United States. "It is thought by many whose judgment is entitled to great consideration, that much good may flow from clear and frank statements in Europe in relation to American Affairs, made by persons whose social position, public estimation and intimate acquaintance with the resources and development of this country, will command respect and confidence," wrote Chase to Walker.193 Whatever his qualms about the desirability of greenbacks, Chase has no qualms about using them for his political benefit. Brian McGinty wrote: "Those who knew the secretary to be a vain main were not surprised when he had his own portrait placed in the upper left corner of the one-dollar notes because he knew that those notes would have the widest circulation. He later explained: 'I had some handsome pictures put on them; and as I like to be among the people...and as the engravers thought me rather good looking, I told them they might put me on the end of the one-dollar bills."194
The government issued greenbacks in July 1862 and March 1863, both times for $150 million. Historian Walter A. McDougall wrote: "The Union war effort as a whole seemed an improvised potlatch. But the Treasury's issue of unbacked greenbacks to the ultimate sum of $431 million was a gamble that paid off because 'funny money' covered just 16.5 percent of the Union budget compared with 61.7 percent of the Confederate budget."195 John Steele Gordon wrote that the greenbacks issued constituted "a vast sum by the standards of the time, but it amounted to only about 11 percent of federal spending in those years. And while there was inevitably, a surge of inflation, it was a manageable 75 percent or so."196 Historian James M. McPherson wrote: "This act...provided the Treasury with resources to pay its bills, it restored investor confidence to make possible the sale at par of the $500 million of new 6 percent bonds authorized at the same time, and unlocked the funds that had gone into hoarding during the financial crisis of December. All these good things came to pass without the ruinous inflation predicted by opponents."197 But there was inflation and a decline in real wage rates. Mark Thornton and Robert B. Ekelund, Jr. wrote: "Even though nominal wages were rising, the evidence...shows that rising prices meant that the real purchasing power of those wages was declining."198
As expected, inflation did result from passage of the greenback legislation - but it was only one among several causes of inflation during the Civil War. It was also less than had been predicted by the bill's opponents. Financial historians William Schultz, and M. R. Caine wrote that "the greenbacks failed to maintain the face value. Almost immediately they went to two percent discount. Before the close of 1862, their value had fallen by one-fourth. On July 1, 1864, when an act to close the gold exchange raised distrust of the government's policies to fever pitch, greenbacks sold off to thirty-five cents on the dollar."199 To some extent that inflation was expected. "The natural result of the swift creation of greenbacks and the growth of government spending was inflation," wrote John Kenneth Galbraith. "Prices in paper money rose until they were, at their peak in 1864, a little more than double what they were in 1860." Galbraith added: "This gave workers a hard time; wages during the war went up but by less than half as much as prices. But farmers rejoiced in two-dollar wheat... stimulated by the rising prices and wartime needs, industrial capacity and output increased wonderfully."200 Paul Studenski and Herman Edward Krooss explained: "The basic causes of the depreciation of paper money were the great increase in demand induced by the government's war spending and the consequent expansion of currency, credit, and income." Studenski and Krooss wrote: "Greenbacks began to depreciate in terms of specie almost immediately after they were first issued in the spring of 1862. Speculators and those who needed specie in their business transactions bought it at a premium with greenbacks in the New York gold market, while its possessors tended to hoard it. Consequently, its price in paper increased until in time $1 in gold was worth $2.85 in paper or, conversely, $1 in paper was worth only 35 cents in gold. At the same time greenbacks (and other paper currency) depreciated in terms of goods; that is, prices of commodities, which were all being purchased in paper money (inasmuch as gold was being hoarded), rose steadily. Price inflation hit the laboring classes most severely, for they were paid in paper money and their wages lagged far behind prices."201 John Ashworth wrote: "Although the war effort should have made labor comparatively scarce, this effect was offset by the arrival of some 800,000 immigrants. Wages actually rose by perhaps 50 percent during the war but failed to keep pace with prices. In the first two years of the war wages rose 20 percent but prices rose by 50 percent. The following year prices rose even faster and the result was the organization of unions and the outbreak of strikes in the winter of 1863-64. By the end of war prices were perhaps more than two-thirds higher than on the even of conflict."202
A number of factors contributed to inflation. Economic historian Margaret G. Myers wrote: "When the greenbacks went into circulation in April 1862, gold coins were already at a premium and wholesale prices had risen about 10 percent...The peak in the wholesale price index was reached early in 1865 when it stood at more than double the level of 1860." She noted that "the greenbacks alone cannot be held responsible for the war inflation. The total issues, 450 million were only one-sixth the amount of the increase in the federal debt, and their impact was concentrated in the first two years of the war."203 Financial historian Irwin Unger wrote: "The very first notes, when they appeared in April 1862, passed at a discount in gold. Thereafter the rapidly rising gold premium, reaching 185 in 1864, registered every additional issue and every military setback. More significant was the greenbacks' decline in terms of rents, commodities, and services." Unger wrote: "The second greenback problem was the question of their redemption. Although soon after the fighting had ceased the attempt to tie the legal tenders to specie would become controversial, the greenback issue at first was generally considered a loan without interest."204 Inflation was not, however, as high as might have been. "For the war as a whole the Union experienced inflation of only 80 percent (contrasted with 9,000 percent for the Confederacy), which compares favorably to the 84 percent of World War I (1917-20) and 70 percent in World War II (1941-49, including the postwar years after the lifting of wartime price controls)," wrote James M. McPherson.205 Historian Matthew Josephson noted: "The very collapse of the government credit, the menace of defeat, bringing debasement of the currency, was a good, since there soon developed a cycle of inflation with its pleasing picture of soaring prices for goods of all kinds; while the great mass of citizens were quickly engrossed in all the multifarious industrial activities evoked by the immense destroying and consuming of a modern war."206
In his Annual Message to Congress on December 8, 1863, President Lincoln wrote: "The operations of the treasury during the last year have been successfully conducted. The enactment of Congress of a national banking law has proved a valuable support of the public credit; and the general legislation in relation to loans has fully answered the expectations of its favorers. Some amendments may be required to perfect existing laws; but no change in their principles or general scope is believed to be needed.
Since these measures have been in operation, all demands on the treasury, including the pay of the army and navy, have been promptly met and fully satisfied. No considerable body of troops, it is believed, were ever more amply provided, and more liberally and punctually paid; and it may be added that by no people were the burdens incident to a great war ever more cheerfully borne.
The receipts during the year from all sources, including loans and the balance in the treasury at its commencement, were $901,125,674.86, and the aggregate disbursements $895,796,630.65, leaving a balance on the 1st. July, 1863, of $5,329,044.21. Of the reason to hope that it may become entirely so, with the increase of trade which will ensue when ensue whenever peace is restored.207
At the outset of the Civil War, Republicans were reluctant to raise taxes to finance military operations. Historian John Niven noted: "Contemporaries like...Maunsell B. Field, and his successors in the Treasury, Hugh McCulloch and George Boutwell, have criticized Chase for relying, in part on fiat currency...instead of insisting on higher levels of taxation to finance the war effort. Chase himself was uncomfortable with the inflation that resulted from his easy money policy, but he made the argument of necessity."208 Historian Robert P. Sharkey wrote: "The failure of Secretary Chase to recommend and of Congress to provide for an adequate and comprehensive program of taxation at the outset of the war was a major blunder."209 Historically, most federal revenue had been raised by the tariff; politicians were unwilling to break that tradition. Treasury official Maunsell B. Field maintained: "The same mistake was made by Mr. Chase and by Congress as that which Mr. Pitt confessed he had made in the Napoleonic wars. Heavy taxes should have been imposed at the outset. The people were ready for taxation, but their agents were timid. We resorted to all sorts of expedients, bringing ruin upon our credit; and then had at last to come to the same amount of taxation which, if laid in the beginning, would have kept our credit always high."210
Historian Allan Nevins added that in 1861: "A direct tax of $20,000,000 a year was levied in fixed proportions on the States and territories, ranging from $2,604,000 for New York to $3,240 for Dakota Territory. Congress also imposed a few new tariff duties for revenue, notably on sugar, tea, and coffee; and voted an income tax which was not to be effective for ten months."211 This legislation was hardly enough to meet the government's revenue needs. Taxes were needed not only to finance the war effort but to reassure bond holders that the federal government could and would pay off their bonds. Historian Albert Sidney Bolles wrote: "A revenue bill embodying the secretary's views was also introduced. This provided for increasing the duty on sugar, for taxing coffee five cents per pound; black teas ten cents, and green teas fifteen cents a pound; and the duties on many articles were considerably increased, especially on brandy, distilled spirits and wines, and on silks. The bill provided for a direct tax of $20,000,000, and an income tax of three per cent on incomes exceeding $800. This general provision of the law was modified in several respects. Income derived from securities of the United States was taxed only one and one-half per cent; but from the income of stocks, securities and other property existing in the country owned by American citizens residing abroad, a tax of five per cent was laid. They were favored, however, like persons living here on incomes derived from national securities.
This measure occasioned a warm debate. The sentiment was intensely in favor of doing everything necessary to sustain the Union, yet the proposed expansion of the taxing power was enormous. Three distinct things were put into this law-an increase of the duties on imports, the collection of a direct tax, and of another from incomes. It was contended that the condition of commerce had so changed that the duties on some articles unless modified would prohibit their importation and consequently impair the revenue. No rates, however, were reduced, but many articles on the free list were subjected to taxation. There was more opposition to the imposition of the tax on coffee than on any other article. The secretary proposed five cents a pound; some members were very strenuous for a reduction to three. Finally a compromise was made, and the rate was fixed at four cents. From these changes it was expected that a large revenue would flow into the treasury. The law provided that goods could remain in bond no longer than three months without paying new duties.
The collection of a direct tax, while regarded necessary, was a grave expedient. All the members felt the full import of this legislation. The amount was fixed at $20,000,000, and apportioned among the States.
The objections to an income tax were not so great. If honestly collected, this tax is considered by many who have well studied the subject one of the fairest that can be assessed; but as the desire to evade it is strong and general, and the facility for doing so great, the tax, in truth, is very objectionable. The law for collecting it went into effect on the 1st of January, 1862.
Another revenue Act was passed this session, which provided for obtaining the property of those who should aid, abet or promote the "insurrection or resistance to the laws, or any person or persons engaged therein." The additional legislation necessary for collecting national revenues in the insurrectionary States was enacted early in the session.212
Work on this legislation consumed Congress throughout most of the spring of 1862. Maine's William Pitt Fessenden took the lead in the Senate and Pennsylvania's Thaddeus Stevens took the lead in the House. It was hard work - Fessenden called it "odious."213 Economist Don C. Barrett agreed that Congress and Chase delayed far too long in putting a taxation program into effect. Passage came "on July 1, 1862 - a twelvemonth after plans for this end should rightfully have taken shape in the hands of the secretary of the treasury."214 Theodore Julius Grayson also argued that Chase delayed too long in implementing a tax program; "Undoubtedly Chase acted as he did because he thought that the war would soon be won, and he feared to impose taxes upon the people because he was afraid that such taxes would be resented by the electorate, would be difficult to repeal when once imposed, and would react most unfavorably to the Republican Party at the next presidential election."215 The blame for the delay, however, must be shared. Treasury official Maunsell B. Field recalled: "Until the winter of 1861-2, Congress could not be induced to take up the subject of internal taxes. For the first year, the war was conducted without a revenue; for the import duties had fallen to a sum scarcely adequate to peace expenditures. When the committees of Congress went to work, Mr. Chase determined to prepare also, on his part, a scheme of internal taxation. To assist him, at the suggestion of Mr. Cisco, he invited to Washington the Hon. John D. Van Buren, a distinguished citizen of New York, of opposite politics to his own. Mr. Van Buren remained two months at the capital, as a volunteer unpaid attache of the Treasury Department, in daily consultation with the Secretary. Some time before the Committee of Ways and Means had its Bill ready to report, Mr. Van Buren completed one for Mr. Chase, levying taxes which, it was estimated, would yield over two hundred millions of dollars per annum. No income tax was included, Mr. Van Buren, after examining the decisions, coming to the conclusion that it was a direct tax, and therefore unconstitutional unless levied upon each state in proportion to population; in which view Mr. Chase at that time acquiesced. This Bill was examined and, in some details, corrected by Mr. Chase, and sent by him to the Committee of Ways and Means; but his note, accompanying it, was not so worded as to make it absolutely his own measure. The Committee had already made progress in, but had not completed, a scheme of its own. The advance sheets of its Bill, furnished to the Treasury Department, shewed that it proceeded upon the theory of taxing every thing under the sun. The Bill submitted by Mr. Chase had only ten or fifteen separate subjects of taxation. Under it the number of officials and the expense of collection would have been much less than under that of the Committee."216
Inevitably, there was a struggle for supremacy between Congress and the executive branch. Maunsell Field recalled: "The Committee of Congress had become attached to its own scheme, and adhered to it. It was manifestly anxious to make the taxes light, and hoped to do so by scattering them upon all things. Some of its members, in conversation, laughed at the tax of fifty cents a gallon on whisky, proposed in the Bill submitted by Mr. Chase, as being absurdly heavy; their own Bill levying only about one fourth as much. Yet, in a year or two, Congress went to the other extreme, and put the tax at two dollars a gallon, giving rise, by excessive temptation, to an organized system of whisky frauds. The Committee expected that its Bill would yield a revenue of nearly two hundred millions of dollars; the most moderate estimate among the members was one hundred and sixty millions of dollars. Mr. Van Buren was urged by some of them to estimate its results, and he put them down as not exceeding sixty millions of dollars net. The returns for the year showed, I believe, about seventy millions of dollars gross."217
The national government lacked even the most rudimentary financial tools in the secession winter of 1860-61 when it lacked cash, a tax system, a banking system and a functioning currency. Everything to finance the war had to be set up from scratch. The pressure was unrelenting. Secretary Chase wrote in September 1862 shortly before the Battle of Antietam and after the disastrous Second Battle of Bull Run in late August: "Expenses are enormous, increasing instead of diminishing; and the ill successes in the field have so affected Government Stocks that it is impossible to obtain money except on temporary deposit, and these deposits very little exceed. We are forced, therefore, to rely on the increased issue of U. S. Notes, which hurts almost as much as it helps; for the omission of Congress to take any measures to restrict bank-note circulation, makes the issue of these notes a stimulant to its increase so that the augmentation of the currency proceeds by a double action and prices rise proportionably. It is a bad state of things; neither the President, his counselors, nor his commanding generals seem to care. They rush on from expense to expense and from defeat to defeat, heedless of the abyss of bankruptcy and ruin which yawns before us - so easily shunned yet seemingly so sure to engulf us. May God open the eyes of those who control, before it is too late!."218
Such taxes were important expansion of federal taxing power. Historian Jane Flaherty noted that "in erecting this new revenue system for the nation, the Republicans did not impose a regressive internal revenue system on citizens. Instead, the duties on manufacturers emerged as the primary source of wartime internal taxes. Because manufacturers bore the initial burden of these taxes, they successfully lobbied Congress for increased protection from foreign competition."219 Historian Allan Nevins noted that "every manufacturing interest, every branch of commerce, and every profession save the ministry felt the weight of the new enactment. Liquor and tobacco were of course taxed; so were such luxuries as carriages, billiard tables, yachts, gold and silver plant, and confectionery."220 Historian John Steele Gordon wrote: "The federal government...raised fully 21 percent of its total revenues by taxation during the war, netting about $750 million by this means. Obviously the old tax system that had relied on the tariff for revenue would not suffice."221 Increased taxes made an important contribution to the war effort. Historian James M. McPherson wrote: "While the South ultimately obtained only 5 or 6 percent of its funds by actual taxation, the northern government raised 21 percent in this manner." McPherson wrote that the income tax "grew from a need to assure the financial community that sufficient revenue would be raised to pay interest on bonds."222 Historian Marc Egnal wrote: "Few measures expanded the power of the central government more than the Revenue Act of 1861. Washington now had the right to inquire into every person's earnings."223 Historian Leonard Curry noted: "The bill...filled more than seventeen triple-column pages of exceedingly fine print. It contained 119 sections laying excise taxes, stamp taxes, manufacturing taxes (both specific and ad valorem, income taxes...inheritance taxes, gross receipts taxes, and license taxes on practically every occupation, commodity, or service in the country."
The tax legislation was signed by President Lincoln on July 1, 1862. Under the 1862 law, federal employees received salaries over $600 per year had taxes withheld from their paychecks. Historian Walter A. McDougall wrote that the Revenue Act provided "for an income tax and excise taxes on virtually every productive activity. In 1775, Americans had taken up arms to resist a few shillings in taxes imposed from abroad. Now they were asked to swallow theoretically limitless taxes for the purpose of taking up arms against one another. The bill, whose 20,000 words made it the longest to date, itemized imposts on everyone from locomotive manufacturers to circus barkers. It sparked a month of lively debate until Thaddeus Stevens struck the perfect false note. The taxes would so augment Union forces that the South would quit within ninety days, whereupon it would be right and proper 'in accordance with the practice of nation, the dictates of wisdom and of justice, to make the property of the rebels pay the expense of the war which they have so wantonly caused.' Well, that made it an easy vote after all."224
Massachusetts Republican George Boutwell was appointed as the commissioner of internal revenue in July 1862. "I was assigned to a small room on the first floor of the Treasury building, on the right of the lower door fronting on Pennsylvania Avenue. First, I read the statute and formed for myself an idea of the process by which the machine was to be set in motion. The statute was a remarkable exhibition of legislative wisdom under the circumstances, but it was incomplete in parts rather than imperfect in plan. In the course of two or three days Mr. Chase assigned to me three clerks from other offices in the Treasury, and all of them very competent assistants - Mr. Estes, Mr. George Parnell, and Mr. A. B. Johnson." Boutwell wrote:
We first considered what blanks would be needed to enable assessors and collectors to perform their duties and make proper records and returns. Then we devised the books for the local offices, and for the offices in Washington. There was but one error as tested by experience in the preparation of the blanks and books, and the forms were followed in the department, except so far as changes in the law required alteration. Thus far there has never been a fraud or defalcation that was attributable to inadequate checks in the system. While I was at the head of the office, Mr. Chase never required me to retain a clerk who was incompetent or untrustworthy. There were times, however, when he looked to appointments with reference to Presidential preferences, and he always considered himself in the line of succession.225
The new revenue system offered many new patronage opportunities for Lincoln and Chase to fill. Financial historian Harry Edwin Smith noted: "The President was authorized to divide the States and Territories into convenient collection districts, and, with the consent of the Senate, to appoint an assessor and a collector for each district. In most cases these collection districts corresponded to the congressional districts. The assessors were authorized to divide their districts into a convenient number of assessment districts and to appoint an assistant assessor for each."226 Soon after the disastrous Union defeat at the Second Battle of Bull Run in nearby Virginia in late August 1862, Boutwell went to the White House to gain presidential approval on a long list of proposed tax assessors. Boutwell wrote that President Lincoln "canvassed the papers and considered the merits of the candidates with as much coolness and care apparently, as he would have exhibited in a condition of profound peace."227 The new patronage positions would contribute greatly to Secretary Chase's political network around the country and would fuel his quest to replace Lincoln in the White House. Historian Mark E. Neely, Jr., wrote of the vast increase in the size of the Treasury Department: "Clerks in the department increased from 383 to over 2000 in number, which forced Chase to allow women to be clerks. Hundreds of appointive offices were at his command in the many customs houses, treasury offices, and internal revenue offices throughout the country. Before the war's end the New York Customs House alone employed more than 1000 persons."228
A key component of the legislation was an unprecedented income tax. Curry wrote: "The adoption of an income tax by Congress was an acknowledgment, either conscious or unconscious, of changes that had taken place in the American economy. Purely financial operations were playing an increasingly important role in American economic life, and a considerable portion of the nation's wealth now existed in the form of liquid and rapidly revolving capital which could be reached most adequately by tax on income. The heavy reliance on manufacturing taxes was an additional acknowledgment of national economic changes."229 The income tax rate was set in 1861 at 3 percent for anyone earning more that $800 per year. Before it went into effect in 1862, the rate on income over $10,000 was raised to 5 percent with lower incomes pegged at 3 percent. Rates went up again in 1864 - this time to 10 percent for those earning more than $10,000, 7.5 percent for those earning between $5,000 and $10,000 and 5 percent for the lowest group earning between $600 and $5,000. Historian James M. McPherson wrote: "The Internal Revenue Act...withheld the tax from the salaries of government employees and from dividends paid by corporations. It expanded the progressive aspects of the earlier income tax by exempting the first $600, levying 3 percent on incomes between $600 and $10,000, and 5 percent on incomes over $10,000. The first $1,000 of any legacy was exempt from the inheritance tax."230 President Lincoln was exempt from the income tax under Article 11, Section 1 of the Constitution, but he had his wages dunned for the income tax nevertheless. However, noted legal scholar H. LeRoy Jackson, "After his death, his administrator applied for a refund and received payment of $3,555.94. All of the [court] justices received refunds after an opinion of the attorney general in 1869."231 The administrator of Lincoln's estate, Supreme Court Justice David Davis, also stood to benefit from this ruling.
The new tariff and the demands for war production stimulated American manufacturing despite the new taxes. John Steele Gordon wrote: "During the Civil War, the industrialization of the American economy, already well under way, expanded exponentially. The unprecedented demands of what became the largest army in the world and a navy second only to Britain's naturally greatly fueled the increased production. So did the tariff, which was raised to previously unseen levels to help pay for the war. As a result, American industry, still often less efficient than Britain's, was able to take away markets, and imports dropped sharply. In 1860 American imports had been valued at $354 million. Two years later they were only $189, despite the quickly expanding economy."232
Hugh McCullough, Lincoln's third secretary of the Treasury, recalled that "the people were patient under very burdensome taxes, taxes to which they were entirely unaccustomed, taxes direct and indirect, taxes upon almost everything that they consumed, taxes which before the war it would have been considered impossible to collect; and to the still more extraordinary fact that the public credit steadily improved, notwithstanding the rapid increase of the public debt, and was higher when it reached the enormous sum of $2,757,803,6586, as it did in August, 1865, than it was when the Government did not owe a dollar."233 John Steele Gordon wrote that in addition to the income tax: "Virtually everything else was taxed as well. Stamp taxes were imposed on legal documents and licenses, excise taxes on most commodities. The tax on liquor reached $2.50 a gallon, when the price, untaxed, would have been about 20 cents." The gross receipts of railroads, ferries, steamboats, and toll bridges were taxed."234
Having dealt with the nation's bonds, currency, and taxes, the Administration and Congress finally confronted the need to reform the banking system in 1863. Phillip Shaw Paludan wrote: "Chase's 1861 proposal had linked the national banking system with a national currency, and that idea promised a more secure currency. But late 1862 these needs and promises along with the success of prior national economic measures, led to a push by the administration for a national banking system."235 Lincoln himself got involved, first by a recommendation made in his December 1862 Annual Message to Congress. In his Annual Message, Lincoln had observed:
The condition of the finances will claim your most diligent consideration. The vast expenditures incident to the military and naval operations required for the suppression of the rebellion, have hitherto been met with a promptitude, and certainty, unusual in similar circumstances, and the public credit has been fully maintained. The continuance of the war, however, and the increased disbursements made necessary by the augmented forces now in the field, demand your best reflections as to the best modes of providing the necessary revenue, without injury to business and with the least possible burdens upon labor.
The suspension of specie payments by the banks, soon after the commencement of your last session, made large issues of United States notes unavoidable. In no other way could the payment of the troops, and the satisfaction of other just demands, be so economically, or so well provided for. The judicious legislation of Congress, securing the receivability of these notes for loans and internal duties, and making them a legal tender for other debts, has made them an universal currency, and has satisfied, partially, at least and for the time, the long felt want of an uniform circulating medium, saving thereby to the people, immense sums in discounts and exchanges.
A return to the specie payments, however, at the earliest period compatible with due regard to all interests concerned, should ever be kept in view. Fluctuations in the value of currency are always injurious, and, to reduce these fluctuations to the lowest possible point will always be a leading purpose in wise legislation. Convertibility -- prompt and certain convertibility into coin - is generally acknowledged to be the best and surest safeguard against them; and it is extremely doubtful whether a circulation of United States notes payable in coin and sufficiently large for the wants of the people can be permanently, usefully and safely maintained.
Is there, then, any other mode in which the necessary provision for the public wants can be made, and the great advantage of a safe and uniform currency secured?
I know of none which promises so certain results, and is, at the same time, so unobjectionable, as the organization of banking associations, under a general act of Congress, well guarded in its provisions. To such associations the government might furnish circulating notes, on the security of United States bonds deposited in the treasury. These notes, prepared under the supervision of proper officers, being uniform in appearance and security, and convertible always into coin, would at once protect labor against the evils of a vicious currency, and facilitate commerce by cheap and safe exchanges.
A moderate reservation from the interest on the bonds would compensate the United States for the preparation and distribution of the notes and a general supervision of the system, and would lighten the burden of that part of the public debt employed as securities. The public credit, moreover, would be greatly improved, and the negotiation of new loans greatly facilitated by the steady market demand for government bonds which the adoption of the proposed system would create.
It is an additional recommendation of the measure, of considerable weight, in my judgment, that it would reconcile, as far as possible, all existing interests, by the opportunity offered to existing institutions to reorganize under the act, substituting only the secured uniform national circulation for the local and various circulation, secured and unsecured, now issued by them.236
The legislation was ground-breaking in several ways. Historians Mark Thornton and Robert B. Ekelund, Jr. noted: "With some noteworthy exceptions, such as the First and Second Banks of the United States, the federal government was not involved in the banking business and most states only loosely regulated banking, especially between 1837 and the Civil War, a period now known as the Free Banking era."237 Historian Mark S. Joy noted that "the first National Banking Act represented one of the few times that Lincoln did much political arm-twisting on legislation. Lincoln apparently intervened with key Republican Congress members who opposed the bill, and they eventually fell into line."238 John Hay and John G. Nicolay recalled: "The troubles of the time, which had reduced the treasury of the United States to a condition of impoverishment, had exercised, as was natural, exactly the contrary effect upon the banks of New York. The timidity of capital had accumulated a great surplus of money in these institutions, with a far smaller number of loans and discounts than usual. The deposits amounted at the end of 1861 to $146,000,000. At the suggestion of John J. Cisco, the Assistant Treasurer in New York, the Secretary of the Treasury adopted a system of temporary loans which was sanctioned by Congress in a clause of the legal-tender law, and the authority thus given was increased by successive acts until the limit was fixed at $150,000,000. These loans were not only of great advantage to the Government as well as to the lenders, but they also served as a useful balance to the money market. In times of severe pressure the reimbursement of large sums was often the means of temporary relief. Another expedient, authorized by Congress on the 1st of March, 1862, was the issuing of certificates of indebtedness to such creditors of the United States as chose to receive them in payment of audited accounts. They were payable one year from date, with interest at six per cent. The power to issue them was unlimited, and their extensive issue led at last to their serious depreciation. Another important clause of the legal-tender act, in addition to those we have mentioned, was that which authorized the Secretary of the Treasury to issue coupon or registered bonds to an amount not exceeding $500,000,000, redeemable at the pleasure of the United States after five years and payable twenty years from date, and bearing interest at the rate of six per cent per annum, payable semi-annually. They were to be exempt from taxation by State authority, and the coin from duties on imports was to be set aside as a special fund for the payment of interest on the bonds and notes of the United States and for other specified purposes. These were the famous 'fivetwenty' bonds, which, issued at first at a slight discount below par in paper, justified the faith and the sagacity of their earliest purchasers by a steady rise during all the years of their existence, and were all paid in gold, or converted into other securities, long before the time fixed for their redemption."239
The chief advocate for the banking bill was Senator John Sherman, a strong fiscal conservative who long had believed in limiting government expenditure. In a Senate speech on the banking bill, the Ohio senator said: "At present there is a great diversity of interests. The local banks have one interest and the Government has another. They are brought into conflict. But...by the passage of this bill you will harmonize their interests; so that every stockholder, every mechanic, every laborer who holds one of these notes will be interested in the government - not in a local bank, but in the Government of the United States - whose credit he will be anxious to uphold. If this system had been spread all over this country, and these banks had been established as agencies upon the basis of national credit. I believe they would have done very much to maintain the Federal Government and to prevent the great crime of secession."240 Sherman, brother of General William T. Sherman, saw the banking legislation as vital to the preservation of the Union, telling the Senate: "The establishment of a national currency, and of this system, as the best that has been yet devised, appears to me all important. It is more important than the loss of a battle. In comparison with this, the fate of three million negroes held as slaves in the southern States is utterly insignificant."241
In January 1863, Chase wrote Maine Senator William Pitt Fessenden: "In my first report (July 1861) I suggested a tax on bank notes as well as other internal taxes: but at that session no internal duties at all were imposed. We all hoped that the increased customs duties & the direct tax might suffice. In my second report - just before the Suspension - I proposed a National Banking System and a tax on Circulation.... It is my well considered judgment that had these views been adopted at the last session...there would have been comparatively little financial embarrassment at this time. But Congress thought otherwise. The system of conversion was adopted, and the Banking Association Bill was only ordered...for public information & consideration."242 Historian Jane Flaherty wrote: "Chase convinced lawmakers that a system of national banks would increase demand for bonds, which would keep their value stable. A consistent currency would also help Cooke's campaign; before the introduction of the national currency, his agents had to accept whatever 'lawful money' bond subscribers gave them, including the various local currencies that lost value once the bond salesmen sent them outside the region."243 Eric Foner wrote: "Negotiated, in effect, between the Lincoln administration and leading Eastern bankers, a series of laws provided for the granting of federal charters, including the right to issue currency, to banks holding specified amounts of bonds. A tax of 10 cents on each dollar effectively ended the printing of money by state-chartered banks....The system both promoted the consolidation of a national capital market essential to future investment in industry and commerce and placed its control firmly in the hands of Wall Street."244 Foner wrote that "most bonds were held by wealthy individuals and financial institutions, who reaped the windfall from interest paid in gold at a time when depreciating paper money was employed for all other transactions (except customs duties).
The act was designed to shrink and eventually to eliminate the hodge-podge of state banks. Historian David Brion Davis wrote "As finally adopted by Congress, the National Banking Act of 1863 chartered national banks that met certain requirements, made the notes of national banks legal tender for all public and private debts, and levied a tax of 2 percent on state bank notes, which rate gradually increased over time. By imposing a tax on state bank notes, the federal government forced state banks to join the federal system. By 1865 national banks had 83 percent of all bank assets in the United States."245 Bray Hammond wrote: "The new act was a free-banking measure, derived from the original free-banking law enacted in New York in 1838 but modified by the variations thereof in other states. Its virtues were encompassed in its main purpose - to make banking a federal responsibility - and did not extend far into its specific provisions, which, as in the states, permitted good banking in favorable circumstances but did not require or insure it. The expectation was that existing banks would surrender their state charterd and re-incorporate under the terms of the new law with national charters."246
Historian Woodrow Wilson wrote: "The immediate purpose of this legislation was to create a market for the bonds of the government. It helped the government very much while the war lasted, and it proved the foundation of an admirable financial system. It created a new Treasury bureau, under a "Comptroller of the Currency," whom it "authorized to permit the establishment, for a term not exceeding twenty years, of banking associations consisting of not less than five persons, with a minimum capital, except in small places, of one hundred thousand dollars. Such associations were required to deposit with the Treasury Department United States bonds to the extent of at least one-third their capital, for which there should be issued to them circulating notes in amount equal to ninety per cent of the market value of their bonds, but not beyond ninety per cent of the par value of such bonds. The issue of currency made in this manner was not to exceed three hundred millions, 'that amount to be apportioned among the States according to population and banking capital.' It was intended that state banks should take advantage of these Acts to obtain national issues; but very few of them did so until after the passage of the Act of March 3, 1865, which put a tax of ten per cent on their circulation. After that, hundreds of state banks were at once converted into national banks, and national bank notes superseded all others."247
Banks generally opposed the national banklegislation. Even Indiana banking executive Hugh McCulloch, a future Lincoln Treasury secretary, came to Washington to lobby against it. Economic historian Bray Hammond wrote that "banks objected to the new federal law on four grounds: they believed it would foster banks of circulation only: they feared the federal government might lose the war; they feared Congress; and they were unwilling to give up the names they had and take a number as a national bank."248 McCulloch came to Washington in 1862 "to oppose the passage of the bill to establish a national banking system, which, if it passed, might be greatly prejudicial to the State banks, of one of the largest of which I was president."249 Historian Walter A. McDougall noted that "fierce opposition from Wall Street, state banking interests, and old Jacksonians delayed passage until February 1863, when Senator John Sherman offered bribes under the guise of a compromise. One amendment killed proportional distribution of the Treasury's largesse in favor of the large eastern banks, and another ensured 100 percent redemption of federal notes only at national banks based in New York, Philadelphia, and Boston. The financial community, theretofore surly, found patriotism plus 5 percent more to its liking. All those initiatives were grist for the mills of hustlers and frauds. But the extraordinary Republican package made the partnership between the public and private sectors more than a motto."250
In his Annual Message to Congress of December 1863, President Lincoln wrote: "The enactment by Congress of a national banking law has proved a valuable support of the public credit, and the general legislation in relation to loans has fully answered the expectations of its favorers. Some amendments may be required to perfect existing laws, but no change in their principles or general scope is believed to be needed."251 A year later in December 1864, Lincoln reported: "Changes from State systems to the national system are rapidly taking place, and it is hoped that very soon there will be in the United States no banks of issue not authorized by Congress, and no bank-note circulation not secured by the Government."252
A national banking system and a national currency went hand in hand. Financial historian Davis Rich Dewey wrote: "The advantage of a currency uniform throughout the country speedily converted many who at first disapproved of the national banking system. Among these was Fessenden, who frankly acknowledged his change of mind and declared that the plan was based upon sound principles, and that its full benefit could not be realized 'as long as any system at war with the great objects sought to be attained continued to exist unchecked and uncontrolled'; he consequently recommended in December, 1864, that discriminating legislation be enacted at the earliest possible moment to induce the withdrawal of all local circulation. Congress agreed, and in the act of March 3, 1865, ordered the taxation of State bank issues 10 per cent. annually, beginning with July 1, 1866. This forced local notes into retirement."
The founding of a banking currency upon national government securities had many advantages; first of all, it not only created a special demand for bonds, but enlisted a strong and active financial interest in the general welfare of the government's credit. In the second place, by driving State bank issues out of existence through heavy taxation, it tended to create a demand for United States legal tenders and other treasury issues for meeting the ordinary operations of trade and exchange. Lastly, the assistance of the national banks in floating the loans of the government was of the greatest importance. A more remote effect of this legislation was its influence in shaping both popular discussions and congressional action upon government paper currency as a rival system to bank paper. The full measure of these results, however, was not felt while the war was actually in progress. The banks which were chartered during this period had already, as State institutions, invested their funds largely in government bonds, being attracted by the high rate of interest as measured in paper money; and too much weight must not be given to the new banking system as an instrument of war finance. It was not until the war was over, when the State bank issues felt the heavy hand of taxation, that the national system took complete possession of the field.253
The new banking structure was designed to further expand the monetary supply. Financial historian William F. Hixson wrote: "A provision in the National Banking Act that particularly appealed to Secretary Chase and other government officials required the newly chartered national banks to use government bonds as security for the creation of the national currency banknotes. This provision was made a part of the act in order to make it easier to sell government securities by requiring banks to buy them. The act would thus provide assistance to the government in the continued financing and refinancing of its debt." Hixson "emphasized...that the legal tender greenbacks created by the government became an important source of increased reserves for private banks which enabled them to increase the amount of money they created. In other words, the government not only permitted private banks to create money, the government in effect facilitated the process."254
The new national banking system did not really taken complete form during the war. State banks were slow to convert to national ones. A two percent tax on the notes of state banks was authorized in 1864 and help spur conversion but only the increase to ten percent in 1865 effectively made state notes fiscally impractical.255 Historian John Steele Gordon noted that few state banks immediately converted to national charters. "So in March 1865 Congress narrowly passed a bill laying a 20 percent tax on the face value of banknotes issued by state-chartered banks. This had the effect of both driving the state banks to take national charters (there were only two hundred state banks remaining in 1866) and finally ending wildcat banking and a money supply consisting of thousands of different issues. By the end of the Civil War there were only two forms of paper money in the country, national banknotes, backed by bank reserves and greenbacks."256 Economic historian Margaret G. Myers wrote that the new law "provided a uniform paper currency and made possible the elimination of the motley array of state bank paper which had so long plagued the economy. This was eliminated gradually, not by the Act, but by taxation."257 The banking bill was the beginning of needed bank reform to create a truly national system. Historian Marc Egnal argued: "For Sherman passage of the banking act was only the first step; completing this reform required that state bank notes be eliminated. He argued that two systems of circulating notes could not coexist. 'I think the national banking system has been a grand and great success,' he remarked, 'and I would stake my reputation upon it; but it cannot undergo this system in competition with State banks that are now increasing their issue." Through Sherman's efforts, a prohibitive tax on state notes was finally enacted in March 1865, thus effectively nationalizing the American currency.258
The Union's financial success depended on military success. As presidential aide John Hay wrote in an anonymous newspaper article in January 1862 when any movement by the Union Army was stalled: "The Secretary of Finance has displayed wonderful zeal and ability in filling a bankrupt treasury and supplying the sinews of war. In this respect, Mr. Chase has accomplished a herculean task, but all his plans and efforts will end in ruin unless followed by wholesome legislative enactments and decided military movements. Already the treasury notes have commenced to depreciate, and a few months of Congressional and military inaction, they will sink to a level with the old Continental Scrip or the assignats of the French Revolution."259 The price of gold was very fluid. Reuben A. Kessel and Armen A. Alchian wrote: "Abandonment of the gold standard, while the major trading countries of the world remained on this standard, made the price of foreign exchange a function of the price of gold, or, to use the language of the times, the premium on gold. Inconvertible fiat money, referred to popularly as 'greenbacks' and officially as 'United States notes,' were issued as a means of war finance and became the currency of the times (except in California and Oregon). As a result, the price of gold as measure in greenbacks determined the cost of foreign exchanged. The free-exchanged rate eliminated the development of foreign-exchange 'shortages,' and the magnitude of the foreign-exchange problem of the North was largely unrecognized both then and now."260
The price of gold during the Civil War reflected the Union's military success or lack of it. Historian William F. Hixson wrote that "the hoarding of gold began even before Lincoln's inauguration and before the outbreak of war. The demands by hoarders on banks for the banks' gold reserves mounted relentlessly thereafter."261 Passage of the Legal Tender Acts in early 1862 increased the speculation in gold. "The gold exchange had been established shortly after the depreciation of legal tenders had set in, and dealing in gold, a necessity for the merchant and importer after the currency no longer commanded its face value in gold, soon attracted speculators," wrote Henrieta Larson.262 A decade after the Civil War ended, James K. Medbery described the gold room's operations: "The gloom or the gladness over success or defeat of the national flag mingled with individual passions. Men leaped upon chairs, waved their hands, or clenched their fists; shrieked, shouted; the bulls whistled 'Dixie,' and the bears sung 'John Brown'; the crowd swayed feverishly from door to door, and, as the fury mounted to white heat, and the tide of gold fluctuated up and down in rapid sequence, brokers seemed animated with the impulses of demons, hand-to-hand combats took place, and bystanders, peering through the smoke and dust, could liken the wild turmoil only to the revels of maniacs." Medbery wrote: "When the banks of the Union refused to honor their own bills by payment in coin for the full face value, gold tremulously vibrated in small percentages for months before it began that succession of immense leaps which grew out of the first reverses of the war. On Saturday, April 18,1862, it was at 101; July 1 it was 108; July 21 it stood at 120. The disastrous campaign of the Peninsula had borne fruit! The houses in foreign trade who had bills for one hundred thousand dollars maturing found that it would require twenty thousand more to make their contracts good. It was their first contact face to face with the luxury of rebellion. New York, neither in its commerce nor its speculation, looked kindly upon the appreciation of bullion. At the Stock Exchange the bears were in scores and the bulls in half-dozens. It was the gentlemanly thing to sell gold, and the stock operators chose to be gentlemen.263 In his Annual Treasury Report at the end of 1862, Secretary Chase wrote:
It is true that gold commands a premium in notes; in other words, that to purchase a given amount of gold a greater amount in notes is required. But it is also true that, on the suspension of specie payments and the substitution for coin of United States notes, convertible into six per cent specie bonds as the legal standard of value, gold became an article of merchandise, subject to the ordinary fluctuations of supply and demand, and to the extraordinary fluctuations or mere speculation. The ignorant fears of foreign investers [sic] in national and State bonds and other American securities, and the timid alarms of numerous nervous individuals in our country, prompted large sacrifices upon evidences of public and corporate indebtedness in our markets, and large purchases of coin for remittance abroad or hoarding at home. Taking advantage of these and other circumstances tending to an advance of gold, speculators employed all the arts of the market to stimulate that tendency and carry it to the highest point. This point was reached on the 15th day of October. Gold sold in the market at a premium of 37 5/8 percent.264
Both greed and subversion were at work. Historian Allan Nevins noted that "gold gambling became a favorite occupation of some Peace Democrats and quasi-traitors. Letters of Confederate agent intercepted in 1863 revealed that Southern leaders were nearly as well pleased when their Copperhead friends forced the price of gold up as when their generals threw [William] Rosecrans or [George] Meade back. One Senator who accepted the treasonable character of speculators declared: 'Gold gamblers as a class are disloyal men in sympathy with the South.' Most of them were probably only in sympathy with their pocket nerves."265 Cooke biographer Henrieta Larson noted that "Jay Cooke regarded the gold speculator as a rebel and used all the force of his publicity to discredit him."266 In his memoirs, Cooke observed: ""The city of New York, whilst containing, during war times, many noble and patriotic citizens and institutions, was undeniably the centre and very hotbed of Southern sentiment and scheming. Being filled with foreigners and the great place of rendezvous of the secret emissaries of the South and disloyal politicians, it became the centre of speculation in gold and every species of material and produce which could be turned into gold by trans-shipment abroad. This speculation and the rise in the price of specie were so persistent and continuous that even many good citizens thoughtlessly entered the trade and thus contributed to the depreciation of our bonds and currency, and to the increase of the cost of living of our soldiers and their families. The editors I employed were instructed to make constant warfare upon this speculative disposition and to portray the want of patriotism of those engaged in it. Articles were constantly written and published revealing the effect of such speculation, and calling upon all good citizens to refrain from engaging therein. The result of these efforts was of course important and in consequence of the articles many refrained from indulgence in so tempting a field of speculation."267 Financial historians William Schultz, and M. R. Caine wrote: "While the Union Treasury was well aware of the dangerous powers exercised by the New York speculators, it hesitated to thwart them openly. Overt action upon its part might be distorted and interpreted as a confession of weakness...On occasions when the two [Chase and Cooke] believed that the hostile speculators had pushed their attack on the dollar too far, Cooke and his associates would raid, reinforced by the release of gold from the Union Treasury."268
The price of gold remained unstable through 1864. Paul Studenski and Herman Edward Krooss explained that "the price of gold was affected by the news from the military front, the ebb and flow of imports payable in gold, and the government's gold payment of interest on its bonds. Bad news caused gold to be hoarded and its price in terms of paper to rise, while good news caused gold to be thrown on the market and its price to drop."269 Wall Street naturally hedged its bets. Greenbacks helped stabilize the banking system and the economy. In the wake of the Legal Tender Act, noted Allan Nevins, "inflation brought about in part by the use of greenbacks was generally applauded by financial interests. The activity which money encourages is the secret of our prosperity,' observed the American Railroad Journal."270 John Steele Gordon wrote: "The creation of a second form of money...set off a wild speculative bubble in Wall Street as the value of the greenback in terms of gold gyrated in response to Union victories and defeats. In July, 1863, just before Gettysburg it took fully 287 greenback dollars to buy 100 gold ones. The speculators were called 'General Lee's left wing in Wall Street' in the newspapers, and Lincoln publicly wished that 'every one of them had his devilish head shot off.' But the opprobrium affected their speculations not a bit."271
Congressional efforts to stymie gold speculation were themselves stymied. Historian John Steele Gordon wrote: "While the federal government required that greenbacks trade at par with gold, that simply didn't comport with economic reality, and the law was ignored. The New York Stock and Exchange Board quickly began trading gold. But because, not surprisingly, the price of gold, as measured in greenbacks, tended to fluctuate inversely with the fortunes of the Union Army, the exchange banned the trading the next year as unpatriotic."272 Gordon wrote: "The curb brokers, who traded stocks out on Broad Street, then organized a place called Gilpin's News Room (although it is not quite clear who Gilpin was) in which to trade gold. Anyone willing to pay an annual $25 fee was welcome to trade there." Respectable merchants who needed gold for business purposes or to hedge against fluctuations in the price of greenbacks used Gilpin's, as did the hundreds of pure speculators hoping to make a fortune out of the vicissitudes of a war being fought for their country's very existence."273 Historian Allan Nevins wrote: "Gold fluctuations and speculation thereon were irrepressible once the country left a specie basis, and no more censurable in themselves than the fluctuations of the grain and livestock markets. But they aroused indignation when gold gambling became a favorite occupation of some Peace Democrats and quasi-traitors."274 Assistant presidential secretary William O. Stoddard, who speculated often and recklessly in gold and stocks, reminisced: "Does the President take any interest in Wall Street gambling operations? Of course he does, for the currency is the life of his policy. He was talking about it at the dinner-table yesterday, when we were there. We must go right over now, and hand him that paper.
There is a peculiarly humorous expression on his face, as he looks up.
"What is the price of gold this morning? Is it going up or down?
"Up, Mr. Lincoln. The Street is wild."
Well, now, they don't know everything. If I were a bear on Wall Street, and if I were short of gold, I'd keep short. It's a good time to sell."
He never gives any explanations, but he adds something bitter about bulls that may be tossed themselves, and we will go back to work.
Is that not one of the most remarkable looking men you ever saw? The tall hawk-eyed man, who cannot stand still, but keeps on walking, walking, up and down the room. He is saying something to himself aloud:
"I'll stop, right where I am ! If it goes on up, it'll break me!"
"What's the matter, Dr. [Thomas] Durant?"
"Short of gold! Sold my head off! And now it's just booming. Time for me to take in, I guess, and stand my losses just as they are."
"Now, Dr. Durant, they don't know everything. If I were a bear on Wall Street, and if I were short of gold, I'd keep short. It's a good time to sell."
"Is that so? Can you send a telegram from here, for me? Give me a blank!"
Telegram after telegram is dashed off rapidly by the relieved bear, and a messenger carries them out after him. It is to be hoped that the price of gold will drop heavily, for he needs all his money and credit. He is undertaking to build the Pacific Railroad, and to save the Pacific slope to the Union. As to the President's unintentional suggestion, no other such instance has occurred or probably ever will. Nothing done in or about the White House has anything to do with the course of things on Wall Street. The results of battles are known in New York even before they are in Washington, only that the reports received there never tally with those received by the War Office. The President and the Secretary of War would be ruined if they should attempt to play bulls and bears upon the strength of any dispatches sent them by the generals.275
Stoddard's own gold speculations embarrassed the White House. He had an illicit relation with Clinton Rice, a Wall Streeter who benefitted from the advance political information he obtained from Stoddard in order to gauge their possible impact on financial instruments. Stoddard later admitted: "Stock and gold gambling was the mania of the day, and for a time I had it very badly, but I made no concealment of it, for I thought [it] no evil."276 Stoddard's speculative behavior annoyed fellow presidential aide John Hay who noted in October 1864, that Stoddard had sent him "a more than usually asinine letter...pretending he is working for the election" when he was really "in New York stock jobbing."277
Financing the Union war effort required the government to maintain public confidence in its currency and solvency. "On the first of January, 1863, an old debt of the government, contracted in 1842, for $8,000,000 became due, and Secretary Chase paid it in gold. The House of Representatives had previously asked him by resolution (December 16) in what kind of money he intended to pay it. He postponed the answer until he had actually paid it. He then said (January 5) that he had paid it in coin in order to keep the government's credit good," wrote contemporary journalist Horace White. "It was disclosed later that the country had narrowly escaped a great danger. The Treasury had no gold at that time, or not sufficient to meet the claim, and some persons talked of paying it with legal-tender notes. At the last moment Mr. John J. Cisco, the assistant treasurer of the United States in New York, obtained $8,000,000 gold from the banks in exchange for legal-tender notes, on his personal pledge to redeem the notes with the first gold that came into his hands from customs duties. With the gold so obtained Mr. Chase paid the debt."278
"In February, 1863, Congress attempted to put a curb upon the gold gamblers. It was made penal to offer loans on bullion above par. Other fribbling difficulties' were thrown in the way of traffic in coin; but the quotations were in no wise seriously affected. Gold fell and rose between 172 and 145 until July. The capture of Fort Wagner, and the strong belief that Charleston would fall into the hands of the Union, were the first vital blows to the Washington clique and their New York coadjutors. The precious metal reached 122 before it rebounded."279 Financial Historian Henry Crosby Emery wrote: "Only one attempt has been made by Congress to suppress speculation. As soon as the paper currency of the Civil War became depreciated, speculation in gold became active, and the ups and downs in the price of gold, in other words the fluctuations in the amount of discount on the greenbacks, were regarded with the same indignation with which European governments had in former years viewed the fluctuations in the value of the public stock. In both cases the evil was attributed solely to the machinations of the speculator. In 1863 an act was passed which placed a tax of one-half per cent, on all sales of gold for delivery after a period exceeding three days; and provided that any loan of currency against gold coin in excess of the amount of coin should be void."280
The key factor in gold market movements was information about the war. Washingtonians vied to get early information about military successes or failures. Contemporary James K. Medbery wrote: "The gambling instinct penetrated to the national capital, and soon made that the point d'apus for all operations. The Washington Party, as it was styled, held the keys to the gold citadel. Members of both Houses, and of all political creeds, resident bankers, the lobby agents, clerks, and secretaries haunted the War Department for the latest news from the seat of war. The daily registry of the Gold Room [in New York] was a quicker messenger of the successes or defeats than the tardier telegrams of the Associated Press."281 Speculation, however, carried with it a tint of disloyalty. Historian Heather Cox Richardson wrote: "Speculation...had political repercussions, actively hurting the war effort by depreciating greenbacks and Union bonds, thus weakening Union credit. This political aspect of gold trading tainted speculators with disloyalty to the government. It could only hurt their reputation that the Gold Room, the center of New York gold trading, received heavy 'bull' orders from Washington, Baltimore, and Louisville, Kentucky, all of which were close to the South and associated with strongly secessionist operators. One veteran of the Gold Room remembered that Southerners frequented the exchange. Having watched Confederate currency plummet, they had come North to cash in when greenbacks did the same. Union victories sent gold down, Confederate victories did the opposite, and news from the battlefields could turn the Gold Room into 'a den of wild beasts.'"282
President Lincoln hated gold speculation. Artist Francis B. Carpenter recalled a conversation with President Abraham Lincoln and Pennsylvania Governor Andrew Curtin: "The bill empowering the secretary of the Treasury to sell the surplus gold had recently passed, and Mr. Chase was then in New York, giving his attention personally to the experiment. Governor Curtin referred to this, saying, 'I see by the quotations that Chase's movement has already knocked gold down several per cent.' This gave occasion for the strongest expression I ever heard fall from the lips of Mr. Lincoln. Knotting his face in the intensity of his feeling, he said, 'Curtin, what do you think of those fellows in Wall Street, who are gambling in gold at such a time as this?' 'They are a set of sharks,' returned Curtin. 'For my part,' continued the President, bringing his clinched hand down upon the table, 'I wish every one of them had his devilish head shot off!'" Carpenter wrote: "When Mr. Lincoln handed to his friend Gilbert his appointment as assessor in the Wall Street district, New York, he said: 'Gilbert, from what I can learn, I judge that you are going upon good 'missionary' ground. Preach God and Liberty to the 'bulls' and 'bears,' and get all the money you can for the government."283
Nicolay and Hay wrote: "Gold, having been driven from circulation by the legal-tender notes, became at once the favorite commodity for speculation in Wall street, and while the premium upon it rose to a certain extent in proportion to the increase of the volume of paper money, and was subject to violent fluctuations in consequence of military successes or disasters, there was no such method in the course of its quotations as to render them explicable by either of these influences. It had become, so to speak, a fancy stock, and there was no more reason for its wilder fluctuations than for those of other securities which rise and fall in obedience to the currents of Wall street and without reference to intrinsic values. Just before the passage of the legal-tender bill the premium upon gold was 4 3/8 per cent., and shortly after it became a law the premium fell to 1; but it gradually rose until in the middle of July it was 17, in the middle of October 32, and at the end of the year 34. On the 25th of February, 1863, after the legal-tender law had been in operation for a year, the premium on gold had risen to 72; the brilliant successes of the National cause at Gettysburg and Vicksburg reduced it to 23; it rose again in October to 56 3/8, and rose no higher than that until the following spring, when on the 14th of April, 1864, it was quoted at 88, and on the 22d of June, as the consequence of an ill-advised bill passed by Congress to prevent speculation in gold, the premium climbed at once to the frightful altitude of 130, falling the day afterwards to 115. On the 1st of July it jumped to 185, on the 2d it fell back to 130, and on the 6th the unfortunate law, born of a short-sighted patriotism, was repealed."284
In the first half of 1864 Chase tried to use his personal influence to calm the market. John Niven wrote: "By early 1864 greenback currency has depreciated significantly in terms of gold and speculation in precious metals was rampant. Chase saw clearly that the precipitous decline in value of greenback dollars was due to uncertainties in the financial communities about the fate of the Union and consequently its public credit. Something approaching parity between the fiat currency and gold could be achieved only through Union victories that made peace certain and an adequate program of taxation to meet the costs of the war."285 Despite his own accurate appraisal, Chase intervened in the gold market in early 1864 to curb speculation and stabilize greenback currency." After visiting New York in April, Chase observed: 'I have just come from New York where my arrival was most opportune. Had I stayed away, gold would certainly have gone to $200 and over, and we should have had a had a terrific panic. A little judicious use of the exchange I so fortunately had in London and other points has made the speculators look glum, and had not the disaster at Fort Pillow provoked discouraging forebodings and disloyal misrepresentations, gold would have gone down today to only $165. As it is, the change is very favorable."286 Navy Secretary Gideon Welles, another hard money man, wrote in his diary on April 15, 1864: "The gold panic has subsided, or rather abated. Chase is in New York. It is curious to see the speculator's conjectures and remarks on the expedients and subterfuges that are resorted to. Gold is truth. Its paper substitute is a fiction, sustained by a public confidence in part because there is a belief that it will ultimately bring gold, but it has no intrinsic value and the great increase in quantity is undermining confidence."287 The next day, Welles wrote:
There is still much excitement and uneasy feeling on the gold and currency question. Not a day but that I am spoken to on the subject. It is unpleasant, because my views are wholly dissimilar from the policy of the Treasury Department, and Chase is sensitive and tender - touchy, I may say - if others do not agree with him and adopt his expedients. Mr. Chase is now in New York. He has directed the payment of the May interest, anticipating that throwing out so much gold will affect the market favorably. It will likely to have that effect for a few days but is no cure for the evil. The volume of irredeemable paper must be reduced before there can be permanent relief. He attributes to speculators the rise in gold. As well charge the manufacturers with affecting the depth of water in the rivers, because they erect dams across the tributaries! Yet one cannot reason with our great financier on the subject. He will consider it a reflection on himself personally and claims he cannot get along successfully if opposed.288
For a brief period in 1864, Congress prohibited the buying and selling of gold outside of brokers, but the price of gold as measured in greenbacks jumped. John Steele Gordon wrote that in1864, "several members of the Wall Street establishment...established the New York Gold Exchange. The trading floor featured a large clocklike dial with a single hand that indicated the current price of gold. While it had higher standards and better enforced rules than Gilpin's (which quickly shut down), the New York Gold Exchange was still no place for the fainthearted."289 Financial Historian Henry Crosby Emery noted: The Anti-Gold Act of 1864, was passed June 17. It was entitled 'An Act to prohibit certain Sales of Gold and Foreign Exchange.' It forbade all contracts for the sale or purchase of gold coin or bullion for delivery on any day subsequent to the day of the contract, also all contracts for the sale of gold which was not actually in the possession of the seller at the time of contract. Contracts in violation of these provisions were declared void; and such violation was made a misdemeanor with a penalty of fine or imprisonment. The act also forbade all sales not made at the ordinary place of business of one of the contracting parties. This provision was in order to close up the Gold Room where this trading was done. The expectation of Secretary Chase and of Congress, that this act would abolish the premium on gold, was not fulfilled. Gold jumped from 198 to 250." On July 2d, two weeks after its enactment, the statute was repealed."290 Allan Nevins wrote: "This enactment proved totally abortive. After a wild market dance and general rise, it was shamefacedly repeated. Then the Union victories in late summer helped to place the quotations on a downward trend, and public uneasiness abated."291 Historian James Ford Rhodes noted that on June 17, 1864:
the President approved an act of Congress which aimed to prevent speculative sales of gold and proved about as effectual as human efforts to stay the flood. After this enactment the speculation became wilder than before and, owing to the military failures and Chase's resignation as Secretary of the Treasury, gold touched on the last day of June 250. On July 2 the act intended to prevent speculation in gold was repealed. On July 11, when Early was before Washington and communication with that city had been cut, gold fetched 285, its highest price during the war; next day, the day of the skirmish near Fort Stevens and of the rumor in Philadelphia that the capital had fallen, it sold at 282. Such prices meant that the paper money in circulation was worth less than forty cents on the dollar. As the Government bonds were sold for this money, the United States were paying, with gold at 250 (at which price or higher it sold during the greater part of July and August), fifteen per cent on their loans. Nevertheless money could be had....Business, though feverish, was good; and many fortunes of our day had their origin in these excited business years of 1863 and 1864; when sales were easily made, most transactions were for cash, and nearly everyone engaged in trade or manufactures seemed to be getting rich. There must have been still considerable financial strength in reserve and, as the value of property depended largely on a stable government, ample funds for its maintenance would have been forthcoming in a supreme crisis. Even now, an element of confidence was to be seen in the large and constant purchases of our bonds by the Germans.292
During the presidential campaign in the autumn of 1864, bluff and cantankerous General Benjamin F. Butler ruled New York City to insure that there was no violence. Just before the election, Butler wrote Secretary of War Edwin M. Stanton that conspirators "propose to raise the price of gold so as to affect the necessaries of life, and raise discontent and disturbance during the winter, declare then that they are cheated in the election by military interference and fraudulent ballots, and then inaugurate McClellan." Butler wrote that is was "certain...that the gold business is in the hands of a half dozen firms who are all foreigners or secessionists, and whose names and descriptions I will give you." The general, who had a tendency to see conspiracies and villains wherever he was posted, wrote:
"You are probably aware that the Government has sold ten (10) or twelve millions (12,000,000 of gold) within the past twenty (20) days. The Secretary of the Treasury will tell you how much, it is none of my business to know - but one firm, H. J. Lyons & Co., have bought and actually received in coin by confession to me more than ten millions (10,000,000) within the past fortnight, and his firm is now carrying some three millions (3,000,000) of gold. I felt bound to look up the case of Gentlemen H. J. Lyons and Co. I sent for Lyons, although I suppose I had no right to do so, wanting territorial jurisdiction, set him down before me and examined him. His story is, as I made him correct it by appealing to my own investigations, as follows: His firm consists of himself, his brother, and the President of the Jeffersonville Railroad, Indiana. He is from Louisville, left there when Governor Morehead was arrested, went to Nashville, left there just before the city was taken by the Union troops. Went to New Orleans, left there just before the city was taken, went to Liverpool, left there, went to Montreal, and went into business; stayed in Montreal until last December, came here with his brother younger than himself, and set up the brokers' business. He claims to have had a capital in greenbacks of eighty thousand (80,000) dollars, thirty thousand (30,000) put in by himself, ten thousand (10,000) by his brother, and forty thousand (40,000) by the other partner. This in greenbacks equal now at two forty-five (2-45) to about thirty thousand (30,000) dollars in gold. On this capital he was enabled to buy and pay for, not as balances but actually in currency, almost twelve million (12,000,000) of dollars in gold within the last fortnight, and now is carrying about three millions (3,000,000). This shows that there is something behind him.
He confessed that he left Louisville afraid of being arrested for his political offences. During the cross examination he confessed he was agent for the Peoples' Bank of Kentucky, a secession concern which is doubtless an agent for Jeff Davis. Having no territorial jurisdiction, all I could do was to set before him the enormity of his crime, the danger he stood of having forfeited his life by rebellion to the Government, and to say to him that I should be sorry if gold went up any today because as he was so large an operator I should have cause to believe that he was operating for some political purpose, but that this was a free country and I had no right to control him. Does the Secretary of War suppose that if I had an actual and not an emasculated command in the City of New York, such a rascal would have left my office without my knowing where to find him? He said, indeed, when he went out, that he thought he should not buy gold any more, and sell today all he has. It has got noised around a little that we are looking after the gold speculators, and gold has not risen any today up to five (5) o'clock, the time which I am now writing, although Mr. Belmont's bet is that it would be at three hundred (300) before election, and the Treasury is not selling.293
On November 9, the day after the election, Secretary Stanton requested that President Lincoln come to the War Department. "They are to consult on some suggestions of Butler's who wants to grab and incarcerate some gold gamblers. The President doesn't like to sully victory with any harshness."294 Stanton replied to Butler: "Your communication of day before yesterday has been submitted to the President who has directed the Secretary of the Treasury to be conferred with on that part which relates to the gold conspirators. Your views have been explained to the Secretary of the Treasury and when his opinion is received instructions will be sent to you by telegraph."295
While the war waged in the East, Californians mined gold in the West. General Ulysses S. Grant observed "I do not know what we would do in this great national emergency were it not for the gold sent from California."296 One of the crises that President Lincoln had to handle was the legal fight over ownership of Almaden gold mine in northern California. Lincoln sent his close friend and political ally Leonard Swett to California to resolve the situation. Instead, Swett managed to make the situation worse. On the night he was assassinated, Lincoln said goodbye to House Speaker Schuyler Colfax, who was departing on a trip to California. Lincoln said "that now the rebellion is overthrown, and we know pretty nearly the amount of our national debt, the more gold and silver we mine makes the payment of that debt so much easier."297
The secretary of the Treasury yearned to replace Lincoln as president, but in February 1864 Chase's campaign fell apart precipitously. In embarrassment, the secretary offered his resignation to the president. Lincoln rejected it as he had before. (After his first resignation in December 1862, Chase had written: "I have neither love nor taste for the position I occupy, and have only two great regrets connected with it - one that I ever took it; the other that having resigned it I yielded to the counsels of those who said I must resume it."298) Historian Nevins wrote: "Among the men whose jealous ambition impaired party harmony, the able, self-righteous Salmon P. Chase held a conspicuous place. Although he maintained with Chadband rhetoric that he never used the Treasury to build a personal machine, its staff supplied active workers on his behalf. Friendly with all Radicals, he had given them energetic assistance in the State elections of 1862 in the hope of winning their support. In his financial labors he had taken pains to conciliate such leaders of industry and banking as Erastus Corning, George S. Coe, W. M. Vermilye, and George Opdyke, at the same time wooing principal Republican editors and officers of the Union League."299 John Niven wrote: "Chase sought to build a political machine through his extensive Treasury patronage. Chase always denied vehemently that his network of some fifteen thousand Treasury employees had political implications. But his pose as a disinterested public servant fooled few and certainly not Lincoln.300 Chase, however, lacked the political skills that Lincoln had in abundance. Without complaint Lincoln watched Chase use Treasury department agents for political purposes. Lincoln put together a better Republican operation that triumphed even in Chase's home state of Ohio. Lincoln turned a blind eye to Chase's presidential ambitions and manipulations: "I am entirely indifferent as to his success or failure in these schemes, so long as he does his duty as head of the Treasury Department." Historian Michael Burlingame wrote: "But when [David] Davis described how Treasury Department employees were being forced to contribute to Chase's campaign fund, and how those who resisted were threatened with dismissal, Lincoln said with a grin that if such threats were carried out, 'the head I guess would have to go with the tail.'"301
Chase's ambitions peaked and self-destructed in February when a circular letter prepared by his supporters boomeranged. Chase biographer Donnal V. Smith wrote: "Believing that his political prospects were constantly improving, Chase made his increased criticisms of the Administration and the conduct of the war more pointed than ever before. His constant refrain was that there was no real administration in the true sense of the word; it was recklessly, negligently extravagant; the jealousy of certain members in it prompted them to do all they could to defeat the plans of the Treasury Department, and even to make personal attacks. All this was charged to the ineptitude of the President. On the other hand, with the management of the Treasury, Chase expressed his complete satisfaction: "So far I think I have I have made few mistakes. Indeed, on looking back over the whole ground,...I am not able to see where, if I had to do my work all over again, I should in any manner do materially otherwise than I have,' he wrote."302
Historian David H. Donald wrote that in early 1864 when Chase's presidential ambitions were dissolving, he also "met with [fiscal] reverses during these months. Despite his insistence, Congress failed to levy taxes adequate to meet the minimal Treasury needs. Political pressure did not permit the reappointment of Jay Cooke as general agent, and Chase had great difficulties in promoting his new bond issue. Meanwhile, as the currency depreciated, the premium on gold skyrocketed."303 Navy Secretary Welles was critical of Chase's administration: "Honest contracts are not fairly treated by the Treasury. Men are kept out of their money, after due, wrongfully. I had the material, and began the preparation, for a pretty strong statement to Mr. Chase at the time he resigned."304 Chase wrote: "I preside over the funnel - everybody else & especially the Secretaries of War & the Navy, over the spigots - and keep them well opened, too."305 Chase's ego and criticism of Lincoln had prompted a major Cabinet crisis in December 1862 which Lincoln deftly handled. It was one of several occasions during which Chase offered his resignation to the president. Chase's problems with President Lincoln were not over policies, but politics. Chase came into repeated conflict over patronage with President Lincoln and showed a distinct reluctance to compromise. There was a May 1863 crisis on the appointment of Victor Smith (to whom Chase owed money) as collector of Puget Sound. Lincoln removed Smith after charges of corruption erupted. "For the charges there seems to have been no sufficient ground, but Lincoln notified Chase that his mind was made up to remove Smith on the ground that 'the degree of dissatisfaction with him there is too great for him to be retained.' Finally, in Chase's absence the President did remove him, whereupon Chase wrote a solemn letter claiming the right to be consulted must be on the appointment of persons 'for whose action I must be largely responsible.' He protested against the appointment of the successor of Smith, and ended with saying: 'If you find anything in my views to which your own sense of duty will not permit you to assent, I will unhesitatingly relieve you from all embarrassment, so far as I am concerned, by tendering you my resignation.' The President felt the matter to be so serious that he went himself to Chase's house; as he told a friend afterwards: 'I went directly up to him with the resignation in my hand, and, putting my arm around his neck, said to him, 'Chase, here is a paper with which I wish to have nothing to do; take it back and be reasonable.' I told him that I couldn't replace the person whom I had removed - that was impossible - but that I would appoint any one else whom he should select for the place. It was difficult to bring him to terms; I had to plead with him a long time, but I finally succeeded, and heard nothing more of that resignation." Smith took the matter better than did his superior, and accepted his removal with good nature; but the continued strain of these differences between the President and secretary was beginning to tell upon the good humor of both, and the question of the nomination of 1864 now came in to sow still greater dissensions."306
Speculation in gold was one of the elements of Chase's frustrations in the spring of 1864. On April 18, Secretary Welles wrote: "Stocks have had a heavy fall to-day in New York and there are reported failures. It is a temporary check, I apprehend, a reaction or pause resulting from some action of Mr. Chase in New York. He has doubtless effected a loan with the banks, and they have closed on some of their customers. Money, or investments, are tending to government securities, rather than railroad and other like investments, for the moment."307 Three weeks later, Welles wrote: "Secretary Chase sends me a letter that the Treasury is unwilling to pay bills drawn abroad in coin, and wishes the Department to buy coin and pay the bills independent of the Treasury. In other words, the Treasury Department declines to meet government obligations as heretofore. It is incapable of discharging its fiscal duties, is no longer to be a fiscal but a brokerage establishment for borrowing money and issuing a baseless, fictitious paper currency. These are the inglorious results of the schemes and speculations of our financier, and the end is not yet. There will be a general breakdown under this management."308
Meanwhile, Chase had serious patronage differences with Lincoln over the replacement to outgoing Assistant Secretary John Cisco. Chase backed a candidate unacceptable to leading New York Republicans like Senator Edwin Morgan. Despite these difficulties, Chase continued to focus on his job, writing on June 24: "Another anxious day. What will be the result of the summer campaign? Can we keep Grant and Sherman so furnished with men and means that they can inflict decisive blows on the rebellion?
My part is to supply, if possible, the means; and where am I to find them? The currency is depreciated less-though much-by surcharge than by the distrust which seems to be gradually pervading the public mind, especially the mind of that class whose conclusions-half instinctive, half reasoned-determine the degree of confidence in governments and institutions.
Under these circumstances, to increase the circulation will merely aggravate our greatest financial evil-that of disordered commerce and prices unnaturally high. It should be diminished rather than increased. Can this be done? Not without large taxes or large loans.
A committee from New York, introduced by Senator Morgan, called this morning to urge modification or repeal of the Gold Act. Their arguments should, I said, be addressed to Congress rather than to me; but I was glad to hear their views. Some, especially Mr. James Brown, of Brown Brothers & Co., Mr. Hoffman, of Colegate & Hoffman, Mr. Ward, of Ward, Campbell & Co., argued for repeal; if repeal impossible, for modification. Their arguments were substantially these: (1.) Absolute freedom of trade secures lowest prices. True, in certain conditions of market, individuals or combinations may monopolize whole supply and exact their own prices from those who must have the article monopolized, as gold, for example, but this evil less than restrictive regulation. (2.) Convenience to merchants of public sales over those of gold-gambling rooms as giving a standard of price. The complaints of practical inconvenience were principally of the supposed necessity to pay notes in hand for gold bought, when check would be much more convenient; and of the supposed prohibition against buying exchange for gold. I could not see that license to gambling was essential to freedom of trade; and said that under the act, as 1 understood it, there could bo no objection to public sales; or to the use of checks on actual deposits, and paid during the day, to direct purchasers of exchange for gold. One gentleman suggested that Congress should expressly authorize loans of gold to be repaid in gold; and sales, not of exchange only, but of all merchandize, for gold. I saw no objections to loans of gold for gold; but sales such as proposed would repeal the legal tender law. The conversation was good-tempered on both sides, and to me instructive.
The Internal Revenue Bill remains with the Committee of Conference, but it is expected that they will report to-morrow. It is apprehended that the bill will not impose taxes enough to bring the residue of expenses within the reach of loans. Mr. Orton came to-night from New York at my request; and will devote himself to careful examination of the bill and amendments, and estimate the probable revenue as nearly as possible.309
Chase's clashes with Lincoln over patronage in New York meanwhile came to a head. An exchange of notes on June 28 and June 29 concluded with Chase's resignation. Lincoln accepted the resignation on June 30. That day, Chase wrote: "On going to the Department I found that Mr. Fessenden had been there & left word that he desired to see me at the Capitol. So after signing a letter to the President, commending to his attention my letter to the Committee of Ways & Means & the Statements & estimates of Mr. Orton, I went to the Capitol. Fessenden had not yet returned; but I had read on my way a letter he had left for my perusal from a Mr. Dole urging the repeal of the gold bill. When he came in we talked on this subject, & he desired my views. I told him that I never expected great benefits from such legislation; but that I thought it hardly wise to yield to the clamor of the opponents of this particular act; that the rise of gold did not in my judgment come from this law as a permanent cause, though doubtless its tendency in the particular condition of the market was to cause a rise; & that as there was no prohibition of sales in it nothing but simple restrictions upon gambling & restraint of operation to legitimate channels, I thought it best to let it alone at this session; but should be entirely satisfied whatever the Committees and Congress might do."310 When Treasury official Lucius Chittenden protested to Lincoln that the impact of Chase's departure might prove "worse than another Bull Run defeat," Lincoln responded that Chase had two bad habits - a feeling of indispensability and a mania for the presidency. Lincoln told Chittenden that Chase "is, as you say, an able financier....Ordinarily he discharges a public trust, the duties of a public office, with great ability -- with greater ability than any man I know. Mind, I say ordinarily, for these bad habits seem to have spoiled him. They have made him irritable, uncomfortable, so that he is never perfectly happy unless he is throughly miserable and able to make everybody else just as uncomfortable as he is himself."311 Two Pennsylvania congressmen also tried to get the president to reverse his decision. "They had attempted to induce him to send for me with a view to my return to the Department; but he would not consent to this. He thought we could not agree and it was without use; and in this he was I think right," reported Chase in his Diary on July 1.312
Although Lincoln had turned down three previous resignations from Chase, he accepted this one. The President first considered former Ohio Governor David Tod as a replacement, but fortunately for Lincoln, Tod fortuitously declined because of ill health. Lincoln then quickly decided that Maine Senator William Pitt Fessenden would be the perfect replacement. Lincoln recalled: "Thinking over the matter two or three points occurred to me. First he knows the ropes thoroughly: as Chairman of the Senate Committee on Finance he knows as much of this special subject as Mr. Chase. 2nd he is a man possessing a national reputation and the confidence of the country. 3d. He is a radical."313 Meanwhile, Fessenden went to the White House to recommend the appointment of Hugh McCulloch of Indiana to the post. Frances Fessenden wrote: "Mr. Fessenden felt the deepest anxiety that a successor should be appointed to Mr. Chase who would command the confidence of the financial world. As chairman of the finance committee and as the friend of Mr. Chase, he was more familiar with the national finances than anybody except Mr. Chase, and he called upon the President to recommend the appointment of Mr. Hugh McCulloch. This was on the morning of July 1, 1864. The President had just prepared Mr. Fessenden's nomination as Secretary of the Treasury, and upon delivering it to his secretary, the latter said that Mr. Fessenden was in the anteroom waiting to see him. The incident is thus related by President Lincoln's biographers: "The President answered, 'Start at once for the Senate and then let Fessenden come in.' The senator began immediately to discuss the question of the vacant place in the Treasury, suggesting the name of Mr. McCulloch. The President listened to him for a moment with a smile of amusement, and then told him that he had already sent his nomination to the Senate. Mr. Fessenden sprang to his feet, exclaiming: 'You must withdraw it, I cannot accept.' 'If you decline it,' said the President, 'you must do it in open day, for I shall not recall the nomination.' 'We talked about it for some time,' said the President, 'and he went away less decided in his refusal.'"314
The Fessenden appointment was a test of wills - which President Lincoln won. Fessenden sought to decline the nomination, but President Lincoln outmaneuveured him. Lincoln aide John Hay recalled the reaction in Congress: "Going to the Senate as usual early this afternoon I saw several who seemed very well pleased. At the House it was still better. [Illinois Congresman Elihu B.] Washburne said, 'This appointment of Fessenden is received with great eclat. The only fear is that he will not accept. The general feeling in Congress is in favor of Boutwell in case Fessenden declines. If the President cares for any expression from Congress a very strong one could be sent up for Boutwell. Coe of New York was here about the Gold Bill which was repealed today He visited the President & was by him set upon Fessenden to aid in insisting on his accepting the place. The President said so to Howe also & to Diven & to Ashmun and others. A strong delegation of Congress waited upon Fessenden today to add their request that he would accept."315 Fessenden himself went to see Chase at home on the evening of July 1. "He expressed an extreme aversion to acceptance - fears of inability to carry on the Department - and especially strong apprehensions that his health would give way. He had he said begun a note declining, but had been prevented from finishing it by constant interruptions - and had received so many and such urgent appeals to accept that he was greatly embarrassed and wanted my advice. I told [him] I thought he ought to accept - that all the great work of the Department was now fairly blocked out and in progress - that the organization was planned, in many parts complete, and in all in a state which admitted completion."316
Journalist Noah Brooks reported: "This morning, bright and early, Senator Fessenden, of Maine, Chairman of the Finance Committee, was named by the President as Secretary of the Treasury, and was immediately confirmed without the formality of sending his name to the Finance Committee. Everybody was pleased, and the only ones who had aught unpleasant to say were the Chase impracticables, who were bound not to be pleased. They said that gold was up in New York on the report - keeping out of sight that gold had gone up on the report that Hooper, of Massachusetts, the author of the Gold Bill, had gone into Chase's place, and also forgetting, apparently, that gold had gone down and Government stocks up when Chase's resignation was positively known, the money interest persisting in believing that any change would be for the better, or that things could be no worse. But we all suffered a relapse by three o'clock in the afternoon, when it was announced that Fessenden had declined the place also, believing his physical ability was unequal to the task. He is one of your narrow-chested, thin men, who have not much vitality nor physical endurance, and he did a prudent thing for himself to resign; but he would make a better Secretary than Chase, beyond a doubt; and so at this present writing matters stand in statu quo."317 Inevitably, Fessenden accepted and took Chase's place. Fessenden wrote: "I became convinced that I could not decline but at the risk of danger to the country. From my position as chairman of the finance committee it was believed that I knew more than most men of our financial condition. The money market was excited and feverish. We had had no successes in the field, public confidence was wavering, and if I refused to accept the Treasury it would be imputed to anything but the true cause. Everybody apprehended a financial crash as the consequence of my refusal, and such an event would be most disastrous. Under these circumstances, I did not dare to hesitate longer, whatever might be the consequences. Foreseeing nothing but entire prostration of my physical powers, and feeling that to take the Treasury in its then exhausted condition would probably result in destroying what little reputation I had, it was still my duty to hazard both life and reputation if by so doing I could avert a crisis so imminent. I consented, therefore, to make the sacrifice, having, however, a clear understanding with the President that I might retire when I could do so without public injury, and openly declaring that I hoped to return to the Senate when the public exigency which called upon me to leave it no longer existed."318
Lincoln gave Fessenden a free hand on appointments but said "he hoped Mr. Fessenden would not, without a real necessity, remove any friends of Governor Chase." Chase recalled in his diary:
The day was given to writing letters and to conversation with others who called. In the evening Fessenden came in immediately after dinner, or rather just before finishing dinner. Nobody but Senator Sprague and myself were at the table and he introduced the subject of his nomination. He expressed an extreme aversion to acceptance - fears of inability to carry on the Department - and especially strong apprehensions that his health would give way. He had he said begun a note declining, but had been prevented from finishing it by constant interruptions--and had received so many and such urgent appeals to accept that he was greatly embarrassed and wanted my advice. I told [him] I thought he ought to accept - that all the great work of the Department was now fairly blocked out and in progress - that the organization was planned, in many parts complete, and in all in a state which admitted completion - that is so far as completeness could be said of any thing needing constant supervision and allowing constant development and improvement. His most difficult task would be to provide money. He would now see, I thought, how important sufficient taxation was and that the Department ought to have been helped by some legislation, asked but denied. But he would have some advantages which I had not. I had been obliged to inaugurate the National Banking System and to claim the circulation for the whole country through their Association and had necessarily encountered the ill will of those whose prejudices or interests bound them to the support of the old System. And I had necessarily also given offence to many whose counsels I had not been able to follow or whose wishes I had not been able to satisfy. These persons would have no cause of ill will against him; and would very probably come to his support with zeal increased by their ill will to me. So my damage would be his advantage, especially with a certain class of capitalists and Bankers; and I thought nothing more probable than that he would be able to obtain loans easier than I could. At any rate this would be his chief and so far as I could see the only real difficulty in his administration. He expressed great apprehension lest his health might give way and said that if he took the place to which he was much urged in Congress and by callers and telegrams from various parts of the country, he should look to me for counsel and all the help I could give. I told him that I thought he would want very little of either; but that all I could give was at his service. He referred to the longstanding relations of confidence and friendship and affection would continue the same as ever. Judge Spaulding came in--and we all three rode to the Capitol together. Fessenden stopped at the Senate Wing, but Spalding and I rode a few minutes longer together, talking of the resignation[,] of Todds [sic] appointment and declension &c when I left him also at the Capitol and returned home."319
As chairman of the Senate Finance Committee, Fessenden was one of the hardest-working leaders of Congress. "An able lawyer and lawmaker, handsome and always impeccably dressed, Fessenden rose steadily in the world, serving as state assemblyman, congress, and senator. Early in his career Fessenden decided that the best government was one that promoted economic growth and checked the slave power," wrote historian Marc Egnal. "Widely respected, Fessenden chaired the Senate Finance Committee and worked long hours to fund the war."320 Egnal noted that in 1863, Fessenden wrote: "With all its faults and errors, this has been a great and self-sacrificing Congress. If the rebellion should be crushed, Congress will have crushed it. We have assumed terrible responsibilities, placed powers in the hands of the government possessed by none other on earth short of a despotism, borne contumely and reproach, taken the sins of others upon ourselves and forborne deserved punishment of flagrant offenses for the public good, and suffered abuse for our forbearance. Well, future times will comprehend our motives and all we have done and suffered."321
Fessenden took office in the midst of a Union political campaign when the Union military campaign seemed stalled. Fessenden's daughter and biographer wrote: "It is difficult to understand the embarrassments and perplexities which surrounded the Treasury when Mr. Fessenden became secretary in July, 1864. The war was still going on. The public debt was over $1,740,000,000. The country was suffering from an inflated currency. In addition to $600,000,000 of irredeemable paper money, the Treasury had issued $161,000,000 of certificates of indebtedness, which were at a discount, thus lowering the value of all government bonds. There were $91,000,000 of suspended requisitions and $17,000,000 in the Treasury to meet them. A loan of $32,000,000 offered by Secretary Chase in June had been withdrawn, as the bids were too low to be accepted. The daily requirements were $3,000,000. The army and navy had not been paid for months. Gold was at 225. The armies of Grant and Sherman were stopped before Richmond and Atlanta for want of money. Mr. George Harrington, the assistant secretary of the department, declared that the condition of the Treasury in July, 1864, was a thousand times worse than under Hamilton or Chase."
After Chase had been replaced by Fessenden, Secretary, Welles wrote on July 26: "Fessenden has got out an advertisement for a new loan and an address to the people in its behalf. Am not certain that the latter is judicious. Capitalists will not as a general thing loan or invest for patriotism, but for good returns. The advertisement gives high interest, but accompanied by the appeal will excite doubt, rather than inspire confidence among the money-lenders. I am inclined to think he will get funds, for his plan is sensible and much wiser than anything of his predecessor. The idea with Chase seemed to be to pay low interest in money but high prices in irredeemable paper, a scheme that might have temporary success in getting friends and popularity with speculators but is ruinous to the country. The errors of Chase in this respect Mr. Fessenden seems inclined to correct, but other measures are wanted and I trust we shall have them."322 Financial as well as military and foreign policy considerations were at stake in the Trent Crisis. International calm was necessary for the financial markets. Historian David P. Crooke wrote: "Throughout 1861 there had been jangled nerves on the northern money market over any rumor of Anglo-American discord. Such rumors threatened to sabotage efforts to raise the huge loans required for the war. [Lord] Lyons for one believed that Wall Street constraints lay behind Seward's trek from a policy of bluster to comparative moderation" during the Trent crisis.323
Later in 1864, President Lincoln appointed Chase as chief justice of U.S. Supreme Court in part to assure that his Administration's policies were upheld - especially in regard to two great questions. "In the appointment of Mr. Chase, all holders of government securities in America and Europe felt assured that the financial policy of the government would be sustained by its highest judicial tribunal. In sustaining that policy Judge Chase would only be sustaining himself, for he was the author of it," reported the Baltimore American and Commercial Advertiser in December.324 Lincoln was wrong. Chase did not sustain himself and indeed reversed himself in the Legal Tender cases.
In his last message to Congress in December 1864, President Lincoln wrote: "The financial affairs of the government have been successfully administered during the last year. The legislation of the last session of Congress has not yet elapsed to experience the full effect of several of the provisions of the acts of Congress imposing increased taxation."
The receipts during the year, from all sources, upon the basis of warrants signed by the Secretary of the Treasury, including loans and the balance in the treasury on the first day of July, 1863, were $1,394,796,007 62; and the aggregate disbursements, upon the same basis, were $1,298,056,101 89, leaving a balance in the treasury, as shown by warrants of $98,739,905 73.
Deduct from these amounts the amount of the principal of the public debt redeemed, and the amount of issues in substitution therefor, and the actual cash operations of the treasury were: receipts, $884,076,646 57; disbursements $865,234,087 86; which leaves a cash balance in the treasury of $18,842,558 71.
Of the receipts, there were derived from customs, $102,316,162 99 from lands, $588,333 29; from direct taxes, $475,648 96; from internal revenue, $109,741,134 10; from miscellaneous sources, $47,511,488 10; and from loans applied to actual expenditures, including former balance, $623442,929 13.
There were disbursed, for the civil service, $27,505,599 46; for pensions and Indians, $7,517,930 97; for the War Department $690,791,842 97; for the Navy Department $85,733,292 77; for interest of the public debt $53,686,421 69;- making an aggregate of $865,234,087.86, and leaving a balance in the treasury of $18,842,558.71 as before stated.
For the actual receipts and disbursements for the first quarter, and the estimated receipts and disbursements for the three remaining quarters of the current fiscal year, and the general operations of the treasury in detail, I refer you to the report of the Secretary of the Treasury. I concur with him in the opinion that the proportion of moneys required to meet the expenses consequent upon the war derived from taxation should be still further increased; and I earnestly invite your attention to this subject, to the end that there may be such additional legislation as shall be required to meet the just expectations of the Secretary.
The public debt on the first day of July last, as appears by the books of the treasury, amounted to $1,740,690 489 49. Probably, should the war continue for another year, that amount may be increased by not far from five hundred millions. Held as it is, for the most part, by our own people, it has become a substantial branch of national, though private, property. For obvious reasons, the more nearly this property can be distributed among all the people the better. To favor such general distribution, great inducements to become owners might, perhaps, with good effect, and without injury, be presented to persons of limited means. With this view, I suggest whether it might not be both competent and expedient for Congress to provide that a limited amount of some future issue of public securities might be held by any bona fide purchaser exempt from taxation, and from seizure for debt, under such restrictions and limitations as might be necessary to guard against abuse of so important a privilege. This would enable every prudent person to set aside a small annuity against a possible day of want.
Privileges like these would render the possession of such securities, to the amount limited, most desirable to every person of small means who might be able to save enough for the purpose. The great advantage of citizens being creditors as well as debtors, with relation to the public debt, is obvious. Men readily perceive that they cannot be much oppressed by a debt which they owe to themselves.
The national banking system is proving to be acceptable to capitalists and to the people. On the twenty-fifth day of November five hundred and eighty-four national banks had been organized, a considerable number of which were conversions from State banks. Changes from State systems to the national system are rapidly taking place, and it is hoped that, very soon, there will be in the United States, no banks of issue not authorized by Congress, and no bank-note circulation not secured by the government. That the government and the people will derive great benefit from this change in the banking systems of the country can hardly be questioned. The national system will create a reliable and permanent influence in support of the national credit, and protect the people against losses in the use of paper money. Whether or not any further legislation is advisable for the suppression of State bank issues, it will be for Congress to determine. It seems quite clear that the treasury cannot be satisfactorily conducted unless the government can exercise a restraining power over the bank-note circulation of the country.325
The Civil War challenged the Lincoln Administration on a number of fronts that required rethinking and reversing long-standing federal policies. The Union government was effectively broke even before the Civil War began. The government faced a continuing liquidity crisis that Congress struggled to confront. The financial system itself could not cope with the demands of Civil War expenditures. The Civil War placed the country in much greater debt, but expanded the country's ability to fund those debts. Mistakes made by the Treasury Department further undermined an already fragile system. Historian Jane Flaherty noted that the disastrous fiscal condition of the government at the beginning of the war forced the Lincoln administration and Congress to adopt a series of controversial measures to finance the war:"Because the Treasury began the war in a weak position, and the costs of the war escalated more precipitously than anyone predicted, the Republicans had to modify the system they inherited. Two difficulties in particular challenged the new administration: the Independent Treasury and the chaotic system of currency that existed at the outbreak of the war."326 Bond sales alone would not prove sufficient to meet the financial needs of the government. Cooke biographer Henrietta Larson wrote that "the Secretary chafed at the idea of submitting the United States to the indignity of selling its bonds at less than their face value."327 Chase and Congress turned to a quick fix for the nation's fiscal problems. Along with two subsequent "Legal Tender" acts, Congress authorized $450 million in paper currency. Flaherty noted: "Preserving the nation placed insurmountable strains on the antebellum organization of the government resulting in a fundamental restructuring of the American financial system."328 The realization that the war could not quickly be concluded by either side changed the Union game plan. In general, Civil War economics were a triumph of necessity and pragmatism over ideology and tradition. Mark Thornton and Robert B. Ekelund, Jr. wrote: "The Civil War caused a sea change in the institutions of money and banking."329 The Civil War was also highly disruptive to the American economy. Historians Reuben A. Kessel and Armen A. Alchian wrote: "The outbreak of the Civil War almost completely destroyed the triangular trade relationship between the North, the South, and England. Before the war the North had an export surplus on current account in its trade with the South and a deficit with England, while the South had a surplus with England. Hostilities and the ensuing blockade forced all three parties into what must be presumed inferior trade relations with a consequent loss in real income for all. In particular, the North was left with inferior sources for many commodities such as cotton and turpentine formerly imported from the South."330
Furthermore, the Civil War was disruptive to existing governmental procedures and authority. Economic historians have noted that the Civil War resulted in a fundamental shift in the relationship between the state and federal governments. "The consequence of Secretary Chase's effort to shift monetary authority from the individual states to the federal Union which the states comprised was not at all a clear concentration of that authority but a division of it between the states on the one hand and the federal government on the other," argued Bray Hammond.331 The relationship with the South was most impacted. Jane Flaherty contended: "In addition to steps to revamp the country's fiscal and monetary systems and to encourage economic development, the Lincoln Administration and Congress took steps to crush the South economically - including the blockade of its ports and the imposition of the First and Second Confiscation Acts. But perhaps the most striking economic act of the war was the emancipation of the southern slaves - effectively wiping out the South's most important economic "asset."
Both war and fiscal policies tended to be implemented on a develop-as-you-go basis. By the winter of 1860-61, the dire financial condition of the national government was no longer in doubt. Lincoln was right, noted historian John Steele Gordon: "The fact that the North, with a far larger economy and a government fiscal system already in place, was better able to meet these demands played no small part in the war's eventual outcome."332 But it would require a long war to demonstrate the degree of the North's economic advantages. Bray Hammond noted the North needed a long war - and the use of its financial advantages - to overcome the South. "The advantages of the North were all lasting. She had the population, the wealth, the resources, the commerce, the equipment, the diversified productivity, and the diversified skills. If the war were prolonged, she was bound to win. But the condition of the government was such when Mr Lincoln became President that she could win only if it were prolonged."333 Historian Philip Shaw Paludan wrote: "The war itself demonstrated the awesome wealth and power of the Northern economy. The Union could send almost two million workers away to war and still increase its productivity in practically every area of national wealth."334 President Lincoln maintained his concern over the nation's finances until his death. "We must look to you, Mr. Secretary, for the money to pay off the soldiers," the President told Treasury Secretary McCulloch on April 14, 1865, the day he was assassinated.335
When he resigned, Secretary Chase had no regrets about his performance - writing in his diary on July 1, 1864: "So my official closes. I have laid broad foundations. Nothing but wise legislation - and especially bold yet judicious provision of taxes - with fair economy in Admn. and energetic yet prudent military action (the last of which seems to be evidenced by the position of Grant at the head [of] our armies - oh may he have troops and supplies enough!) seems necessary to ensure complete success."336 When Hugh McCulloch was appointed Lincoln's third and last secretary of the Treasury in March 1865, he responded: "Thank you, Mr. President, heartily for this mark of your confidence, and I should be glad to comply with your wishes if I did not distrust my ability to do what will be required of the Secretary of the Treasury in the existing financial condition of the Government." The president replied: "I will be responsible for that." McCullough admired Chase's work: "That Mr. Chase made some mistakes, is admitted by his warmest friends-if he had not, he would have been more than mortal. He was called upon to perform duties of the highest importance to his country-duties to which he was entirely unaccustomed, and for the performance of which he had no opportunity for preparation. His work was gigantic, and even the most critical were compelled to acknowledge that on the whole it was done well. Two mistakes he admitted - one, in consenting that the United States notes should be made a legal tender; the other, in advising the repeal of the clause in the first Legal Tender act, which made the notes convertible into bonds. His friends were forced to admit that he made two mistakes of a different character-one in permitting his name to be used as a candidate for the Presidency while he was a member of Mr. Lincoln's Cabinet; the other, in resigning when his services as Secretary of the Treasury were greatly needed. The acknowledged cause of his resignation was a disagreement between the President and himself in regard to the appointment of a successor to Mr. Cisco in the office of Assistant Treasurer at New York. The real cause was the interruption of their pleasant relations by political rivalry. Mr. Chase's resignation was promptly accepted-I think to his surprise, I am sure to his lasting regret. His place in public estimation would have been higher, and he would have been a much happier man, if, instead of desiring to be President, and permitting his name to be used in opposition to that of his chief, he had been content to remain at the head of the Treasury Department until the work which he had undertaken amid great discouragements, and had prosecuted with so much vigor and boldness, had been completed."337 McCullough wrote:
Prior to becoming Secretary of the Treasury, Mr. Chase had had no financial experience. He was not a financier, but he had the qualities that were needed in the head of the Treasury Department at that particular time. He was clearheaded, self-possessed, self-confident, patriotic, hopeful, bold, and he succeeded when trained financiers, who are usually conservative and cautious, would have failed. Nor was he lacking in executive ability. The Treasury Department in 1861 was not larger in working force than one of its present bureaus. It became in less than four years the largest financial department in the world. Its clerical force during that period was increased ten-fold, and consequently a large part of its important work was performed by inexperienced hands, and yet there was no confusion, and no irregularities that were not speedily corrected. I do not exaggerate when I say that there was really more hard and difficult work done in a single year in a single bureau-the Bureau of Internal Revenue (for the admirable organization of which the country is indebted to George S. Boutwell)-than was done in the whole Department from the establishment of the Government up to 1861.338
Treasury Secretary McCulloch wrote: "The movements of the armies, the great battles that were fought with varying success on both sides, so absorbed the public attention that comparatively little interest was felt in the measures that were adopted to provide the means to meet the enormous and daily increasing demands upon the treasury. It was the successful general who was the recipient of public honors, not the man by whose agency the sinews of war were supplied; and yet but for the successful administration of the Treasury Department during the war, the Union would have been riven asunder. If I were asked to designate the man whose services, next to Mr. Lincoln's, were of the greatest value to the country, from March, 1861, to July, 1864, I should unhesitatingly name Salmon P. Chase. "When Mr. Chase was appointed Secretary, the public credit was lower than that of any other great nation. The treasury was empty. The annual expenditures had for some years exceeded the revenues. To meet the deficiencies, shifts were resorted to which, while they gave present relief to the treasury, increased its embarrassment."339
Lincoln biographer Doris Kearns Goodwin wrote: "Though irritated by Chase's haughty yet fundamentally insecure nation, Lincoln recognized the superlative accomplishments of his treasury secretary."340 President Lincoln deferred to Chase and Chase deferred to Congress.341 Bray Hammond wrote: "The legal tender and revenue acts of February and June 1862, and the national currency act of February 1863 had already pushed the exercise of federal power beyond precedent in any field."342 Reacting to necessity, congressional Republicans undertook many far-reaching economic development measures - from the Homestead Act to the Transcontinental Railroad - that might have been unthinkable in less stressful times. Congressional leaders like Pennsylvania's Thaddeus Stevens were in the forefront of such efforts. Stevens was "an economic nationalist," noted historian Marc Egnal. "His ownership of several ironworks contributed to his expansive outlook. He began investing in the iron industry in the 1820s and built successively larger furnaces in 1831 and 1837....Stevens's involvement with the iron industry helped make him an advocate of railroad construction, higher tariffs, and an expanded currency." Egnal noted that "by 1865 Republicans had adopted a wide-ranging series of economic measures that reflected their commitment to a 'nationalism' that catered to the North. With higher tariffs, a system of national banks, two national currencies, an income tax, the homestead act, land-grant colleges, and a transcontinental railroad, they laid the foundation for a new era of growth."343
Most important to the outcome of the war, the Union financing of the Civil War was far better and far more diversified than that of the Confederacy. Historian Allan Nevins wrote that the actions taken in support of the economy - "the issuance of bonds, the National Banking Act, the Morrill tariff, the greenbacks issue, and such new revenue measures as the income tax" acted as "weapons of war." Jay Cooke biographer E. P. Oberholtzer noted that Cooke's success in marketing an $830 million bond issue in 1865 led on Confederate official to say: "The Yankees did not whip us in the field. We were whipped in the Treasury Department."344 After the Civil War, Chase wrote Horace Greeley about three goals of his work as secretary of the Treasury.
1. To establish satisfactory relations between the public credit and the productive industry of the country - in other words to obtain supplies. The suspension of the banks put an end to the first and most obvious resort - loans of gold,- and made new methods indispensable. Then I resorted to Legal Tender Notes, made them a currency and borrowed them as cash. The patriotism of the people came in aid of the labors of the Treasury and the Legislation of Congress, and the first great object was made secure.
2. To provide against disastrous results on a return of peace. This could only be done by providing a National Currency. There were about 1500 State Banks in existence who wanted to make their own paper the currency of the country. This I resisted, and confined my loans to greenbacks; but I could not drive out their currency, nor indeed did I think it exactly honest to do deprive them of it without giving an equivalent. To neutralize their opposition to a National currency and make them allies as far as possible instead of enemies in my endeavors to secure one, I proposed the National Banking system: and before I left the Department its success was assured. The National Banks were certain to be useful in many ways, but my main object was the establishment of a National currency. This saved us from panic and revulsion at the end of the war, and is of inestimable value to men of labor and men of business; indeed to every class.
3. The third division of my labor was to provide a funding system. It was unavoidable during the rebellion that every means of credit should be used. I borrowed money every way I could at reasonable rates. The form that suited one lender did not suit another; and the Army and Navy needed every dollar that could be raised in every form. Hence, temporary loans, certificates of deposit, certificates of indebtedness, 7:30 notes, compound interest notes, Treasury notes payable after one and two years, etc.345
The Union emerged from the Civil War more vigorous than it had entered the war although economists and historians have debated whether or not the Civil War accelerated or decelerated economic growth. Historian Allan Nevins noted that "Lincoln....summed up the position of the North when he wrote that the axe had enlarged the borders of settlement, and the mines had yielded more abundantly than before." Nevins wrote: "From a world view, the most remarkable feature of the war period was the steadily maintained rise in production of great primary commodities, grain, meats, minerals, and lumber. Exports of grain in years of European drought were of the first importance economically, even thought their political potency was much less than some later students conjectured."346 Indeed, the labor shortage on farms caused by the Civil War may have resulted in much more substantive change in the agricultural sector than in the manufacturing sector. Agriculture historian Wayne D. Rasmussen wrote: "High prices, whether measured in currency or gold, encouraged farmers to invest in farm machinery and other aids to production." He that several actions taken during the Civil War encouraged post-war farm development: creation of the department of Agriculture, passage of the Homestead Act, passage of the Pacific Railway Act and passage of the Morrill Land Grant College Act."347 Economic historians Lee A. Craig and Thomas Weis had a different view. They argued that other factors included increased hours and work by women helped stimulate production; "The focus of past analysis has been on industrialization and how that might have been stimulated in the long run by certain forces set in motion by the War, or at least during the decade of the War. The transformation we have uncovered is a different sort of influence, one that freed up labor for industry but without bringing about extensive mechanization of agriculture."348
The Civil War tied together the North, which proved much more resilient in dealing with the economics of war than did the South.349 In his Thanksgiving Day proclamation of 1863 - shortly issued six weeks before the Gettysburg Address, President Lincoln said: "Needful diversions of wealth and of strength from the fields of peaceful industry to the national defence, have not arrested the plough, the shuttle or the ship; the axe has enlarged the borders of our settlements, and the mines, as well of iron and coal as of the precious metals, have yielded even more abundantly than heretofore. Population has steadily increased, notwithstanding the waste that has been made in the camp, the siege and the battle-field; and the country, rejoicing in the consciousness of augmented strength and vigor, is permitted to expect continuance of years with large increase of freedom. No human counsel hath devised nor hath any mortal hand worked out these great things. They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy. It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and one voice by the whole American People."350
For Further Reference
- Harry Edwin Smith, The United States Federal Internal Tax History from 1861 to 1871, p. 6 (Harper's Weekly, November 10, 1860).
- Richard Hofstadter, "The Tariff Issue on the Eve of the Civil War" American Historical Review, October 1938, p. 54.
- Philip S. Foner, Business & Slavery: The New York Merchants of the Irrepressible Conflict, p. 201
- Edward K. Spann, Gotham at War: New York City, 1860-1865, p. 5
- Philip S. Foner, Business & Slavery: The New York Merchants of the Irrepressible Conflict, p. 238
- Philip S. Foner, Business & Slavery: The New York Merchants of the Irrepressible Conflict, p. 239.
- Philip S. Foner, Business & Slavery: The New York Merchants of the Irrepressible Conflict, p. 282-283.
- Jane Flaherty, The Revenue Imperative, p. 44.
- Bray Hammond, Banks and Politics in America: From the Revolution to the Civil War, p. 718.
- Allan Nevins, The War for the Union, War Becomes Revolution, 1862-1863, p. 485.
- Waller R. Newell, The Soul of a Leader, Character, Conviction, and Ten Lessons in Political Greatness, p. 167.
- Margaret G. Myers, A Financial History of the United States, p. 148.
- Russell McClintock, Lincoln and the Decision for War: The Northern Response to Secession, p. 22.
- Jane Flaherty, The Revenue Imperative; Union Financial Policy During the Civil War, p. 35.
- James L. Sellers, "An Interpretation of Civil War Finance, American Historical Review, January 1925, p. 294.
- Russell McClintock, Lincoln and the Decision for War: The Northern Response to Secession, pp. 23-24.
- Mark Thornton and Robert B. Ekelund, Jr., Tariffs, Blockades, and Inflation: The Economics of the Civil War, p. 32, 47.
- Mark Thornton and Robert B. Ekelund, Jr., Tariffs, Blockades, and Inflation: The Economics of the Civil War, p. 62.
- Paul Studenski and Herman Edward Krooss. Financial History of the United States, pp. 137-138.
- Phillip Saw Paludan, "The People's Contest," p. 108.
- Bray Hammond, Banks and Politics in America: From the Revolution to the Civil War, p. 722.
- John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, p. 192.
- Jane Flaherty, "'The Exhausted Condition of the Treasury' on the Eve of the Civil War," Civil War History, June 2009, p. 264.
- Harry Edwin Smith, The United States Federal Internal Tax History from 1861 to 1871, p. 5.
- Jane Flaherty, "'The Exhausted Condition of the Treasury' on the Eve of the Civil War, Civil War History, Volume 66, No. 2, June 2009, p. 252.
- Albert Sidney Bowles, Financial History of the United States: from 1774 to 1789, p. 4.
- Jane Flaherty, "'The Exhausted Condition of the Treasury' on the Eve of the Civil War, Civil War History, June 2009, p. 258.
- Lucius Chittenden, Personal Reminiscences, 1840-1890, p. 90.
- Hugh McCulloch, Men and Measures of Half a Century, pp. 182-183.
- Maunsell R. Field, Memories of Many Men and of Some Women, p. 250.
- Morgan Dix, editor, Memoirs of John Adams Dix, Volume I, p. 377.
- Jane Flaherty, "'The Exhausted Condition of the Treasury' on the Eve of the Civil War, Civil War History, June 2009, pp. 244-245.
- Bray Hammond, Sovereignty and an Empty Purse: Banks and Politics in the Civil War, p. 30.
- Jane Flaherty, "'The Exhausted Condition of the Treasury' on the Eve of the Civil War, Civil War History, June 2009, pp. 256-257.
- Mark Thornton and Robert B. Ekelund, Jr., Tariffs, Blockades, and Inflation: The Economics of the Civil War, pp. 12-13.
- Harry Edwin Smith, The United States Federal Internal Tax History from 1861 to 1871, p. 3.
- Mark Thornton and Robert B. Ekelund, Jr., Tariffs, Blockades, and Inflation: The Economics of the Civil War, p. 30.
- James M. McPherson, Battle Cry of Freedom, p. 442.
- Paul Studenski and Herman Edward Krooss. Financial History of the United States, p. 137.
- Jane Flaherty, "'The Exhausted Condition of the Treasury' on the Eve of the Civil War, Civil War History, Volume 66, No. 2, June 2009, pp. 245-246.
- James M. McPherson, Battle Cry of Freedom, p. 442.
- Charles R. Geisst, Wall Street: A History: From its Beginnings to the Fall of Enron, p. 51.
- Bray Hammond, Banks & Politics in America, p. 718.
- Jane Flaherty, "'The Exhausted Condition of the Treasury' on the Eve of the Civil War, Civil War History, Volume 66, No. 2, June 2009, p. 269.
- Russell McClintock, Lincoln and the Decision for War: The Northern Response to Secession, p. 22.
- Margaret G. Myers, A Financial History of the United States, p. 149.
- Paul Studenski and Herman Edward Krooss. Financial History of the United States, p. 139.
- Allan Nevins, The War for the Union: The Improvised War, 1861-1862, p. 45.
- Albert Bushnell Hart, Salmon P. Chase, p. 235.
- Harry J. Carman and Reinhard H. Luthin, Lincoln Forms His Cabinet, pp. 57-58.
- Jane Flaherty, The Revenue Imperative, p. 52.
- Gabor S. Boritt, Lincoln and the Economics of the American Dream, p. 204.
- Larry Schweikart and Michael Allen, A Patriot's History of the United States, p. 325
- John Nixon, "Lincoln and Chase: A Reappraisal," Journal of the Abraham Lincoln Association, 1991, p. 11.
- Joseph Hartwell Barrett, Abraham Lincoln and His Presidency, Volume II, p. 231.
- Albert Bushnell Hart, Salmon P. Chase, p. 299.
- George S. Boutwell, Sixty Years in Public Affairs, p. 304.
- Albert Bushnell Hart, Salmon P. Chase, p. 289.
- Maunsell R. Field, Memories of Many Men and of Some Women, pp. 254-255.
- Robert P. Sharkey, Money, Class and Party: An Economic Study of Civil War and Reconstruction, pp. 16-17.
- Theodore Julius Grayson, Leaders and Periods of American Finance, p. 237.
- James M. McPherson, Battle Cry of Freedom, p. 442.
- John Niven, "Lincoln and Chase, a Reappraisal," Journal of the Abraham Lincoln Association, 1991, p. 1.
- Wesley Clair Mitchell, A History of Greenbacks, pp. 10-11.
- Michael Burlingame and John R. Turner Ettlinger, editors, Inside Lincoln's White House: The Complete Civil War Diary of John Hay, p. 6 (April 21, 1861).
- Roy P. Basler, editor, The Collected Works of Abraham Lincoln (CWAL), Volume V, p. 241-242 (Message to Congress, May 26, 1862).
- William Schultz, and M. R. Caine. Financial Development of the United States, p. 313
- Thomas M. Clark, Reminiscences, p. 141.
- John G. Nicolay and John Hay, Abraham Lincoln: A History, Volume VI, p. 226.
- Michael Burlingame, editor, Lincoln's Journalist: John Hay's Anonymous Writings for the Press, 1860-1864, p. 72 (July 9, 1861).
- John G. Nicolay and John Hay, Abraham Lincoln: A History, Volume VI, p. 247.
- Carl Sandburg, Abraham Lincoln: The War Years, Volume II, p. 600.
- Don E. And Virginia Fehrenbacher, editors, The Recollected Words of Abraham Lincoln, pp. 222-223.
- John G. Nicolay and John Hay, Abraham Lincoln: A History, Volume VI, pp. 225-226.
- Irwin Unger, The Greenback Era, pp. 13-14.
- Wesley Clair Mitchell, A History of Greenbacks, pp. 25-26.
- Robert P. Sharkey, Money, Class and Party: An Economic Study of Civil War and Reconstruction, p. 25.
- Don C. Barrett, The Greenbacks and Resumption of Specie Payments, 1862-1879, p. 51.
- Robert P. Sharkey, Money, Class and Party: An Economic Study of Civil War and Reconstruction, p. 22.
- Jane Flaherty, The Revenue Imperative, p. 56.
- Theodore Julius Grayson, Leaders and Periods of American Finance, pp. 243-244.
- Allan Nevins, The War for the Union, War Becomes Revolution, 1862-1863, p. 485.
- Henrieta Larson, Jay Cooke, Private Banker, p. 105.
- David Rich Dewey, Financial History of the United States, pp. 317-320.
- Heather Cox Richardson, The Greatest Nation on Earth, p. 30.
- Marc Egnal, Clash of Extremes, p. 247.
- Heather Cox Richardson, The Greatest Nation on Earth, p. 18.
- (Letter from Salmon P. Chase to Abraham Lincoln, Tuesday, April 2, 1861).
- Lucius Chittenden, Personal Reminiscences, 1840-1890, pp. 93-94.
- Don C. Barrett, The Greenbacks and Resumption of Specie Payments, 1862-1879, p. 41.
- Hugh McCulloch, Men and Measures of Half of a Century, pp. 183-184.
- Robert P. Sharkey, Money, Class and Party, p. 26.
- Jay Sexton, Debtor Diplomacy: Finance and American Foreign Relations in the Civil War, p. 92.
- Albert Sidney Bolles, The Financial History of the United States, from 1861 to 1885, p. 13.
- John Niven, Correspondence, April 1863-1864, Volume 5 By Salmon Portland Chase, p. 347-350.
- Phillip S. Paludan, "A People's Contest," p. 109.
- Albert Bushnell Hart, Salmon Portland Chase, p. 221.
- Allan Nevins, The War for Union: The Improved War, 1861-1862, Volume I, p. 196.
- Robert P. Sharkey, Money, Class and Party: An Economic Study of Civil War and Reconstruction, p. 21.
- Albert Sidney Bolles, The Financial History of the United States, from 1861 to 1885, pp. 20-21.
- John Niven, editor, The Salmon P. Chase Papers: Correspondence, April 1863-1864, Volume 5, p. 348.
- John Sherman, Recollections of Forty Years in the House, Senate and Cabinet, pp. 216-217.
- Jacob W. Schuckers, The Life and Public Services of Salmon Portland Chase: United States Senator and Governor of Ohio; Secretary of the Treasury and Chief-justice of the United States, p. 230.
- Michael Burlingame, editor, Lincoln's Journalist: John Hay's Anonymous Writings for the Press, 1860-1864, p. 151(November 29, 1861).
- Winfield Scott Kerr, John Sherman: His Life and Public Services, Volume 1, pp. 148-149.
- Irwin Unger, The Greenback Era: A Social and Political History of American Finance 1865-1897, pp. 16-17.
- Roy P. Basler, editor, Collected Works of Abraham Lincoln (CWAL, Volume V, p. 39 (Annual Message to Congress, December 3, 1861).
- "Financial Condition of the country," New York Times, December 10, 1861.
- Bray Hammond, Sovereignty and an Empty Purse: Banks and Politics in the Civil War, p. 125.
- Henrieta Larson, Jay Cooke, Private Banker, p. 112.
- Bray Hammond, Sovereignty and an Empty Purse: Banks and Politics in the Civil War, p. 118-119.
- Margaret G. Myers, A Financial History of the United States, p. 152.
- John G. Nicolay and John Hay, Abraham Lincoln: A History, Volume VI, p. 230.
- Don E. and Virginia E. Fehrenbacher, editors, Recollected Words of Abraham Lincoln, p. 346.
- Maunsell R. Field, Memories of Many Men and of Some Women, pp. 257-258.
- Albert S. Bowles, The Financial History of the United States, from 1861 to 1885, pp. 36-37.
- Brian McGinty, Lincoln and The Court, p. 223.
- Ellis Paxon Oberholtzer, Jay Cooke, Financier of the Civil War, Volume I, p. 101.
- Matthew Josephson, The Robber Barons: The Great American Capitalist, 1861-1901, pp. 54-55.
- Henrieta Larson, Jay Cooke, Private Banker, p. 107.
- Frederick J. Blue, Salmon P. Chase: A Life in Politics, pp. 153-154.
- Ellis Paxson Oberholtzer, Jay Cooke: Financier of the Civil War, Volume I, p. 156.
- Henrieta Larson, Jay Cooke, Private Banker, p. 101.
- Richard White, Railroaded, p. 10.
- Jesse Haney, The Rich Men of the World, and How They Gained Their Wealth, p. 29.
- Henrieta Larson, Jay Cooke, Private Banker, p. 114, 103
- Henrieta Larson, Jay Cooke, Private Banker, pp. 122-123.
- Ellis Paxon Oberholtzer, Jay Cooke, Financier of the Civil War, Volume I, p. 158.
- Ellis Paxon Oberholtzer, Jay Cooke, Financier of the Civil War, Volume I, p. 159.
- Ellis Paxon Oberholtzer, Jay Cooke, Financier of the Civil War, Volume II, p. 47.
- John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, p. 193.
- Jane Flaherty, "'The Exhausted Condition of the Treasury' on the Eve of the Civil War, Civil War History, Volume 66, No. 2, June 2009, p. 273.
- Ellis Paxon Oberholtzer, Jay Cooke, Financier of the Civil War, Volume I, p. 162.
- James M. McPherson, Battle Cry of Freedom, p. 443.
- Richard White, Railroaded, pp. 12-13.
- Carl Sandburg, Abraham Lincoln: The War Years, Volume II, p. 601
- Doris Kearns Goodwin, Team of Rivals, p. 403.
- Richard White, Railroaded, p. 13.
- Carl Sandburg, Abraham Lincoln: The War Years, Volume II, p. 603.
- Michael Burlingame, Abraham Lincoln: A Life, Volume II, p. 429.
- Carl Sandburg, Abraham Lincoln, The War Years, Volume II, p. 602.
- Henrieta Larson, Jay Cooke, Private Banker, p. 127.
- John Steele Gordon, Hamilton's Blessing: The Extraordinary Life and Times of our National Debt, p. 78.
- Henrieta Larson, Jay Cooke, Private Banker, pp. 129-130.
- Carl Sandburg, Abraham Lincoln: The War Years, Volume II, p. 606.
- John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, p. 199.
- John Steele Gordon, Hamilton's Blessing: The Extraordinary Life and Times of our National Debt, p. 79.
- Ellis Paxson, Oberholtzer, Jay Cooke: Financier of the Civil War, Volume I, p. 169.
- James M. McPherson, Battle Cry of Freedom, p. 442.
- Don E. and Virginia Fehrenbacher, editor, The Recollected Words of Abraham Lincoln, p. 328.
- Benjamin P. Thomas and Harold M. Hyman, Stanton: The Life and Times of Lincoln's Secretary of War, p. 135.
- Michael Burlingame, editor, Lincoln's Journalist: John Hay's Anonymous Writings for the Press, 1860-1864, p. 195 (January 14, 1862).
- William Marvel, Lincoln's Darkest Year: The War in 1862, p. 27.
- Jane Flaherty, The Revenue Imperative, p. 58.
- Allan Nevins, The War for the Union, 1861-1862, p. 212.
- James G. Blaine, Twenty Years of Congress, p. 407.
- Margaret G. Myers, A Financial History of the United States, p. 150.
- James M. McPherson, Battle Cry of Freedom, p. 444
- Donn Piatt, Men Who Saved the Union, pp. 106-109. Lincoln historian Thomas Schwartz discounts the authenticity of a frequently cited letter that President Lincoln supposedly wrote to Taylor in December 1864: "I have long determined to make public the origins of the greenback and tell the world that it is one of Dick Taylor's creations. You had always been friendly to me, and when troublous times fell on us, and my shoulders, though broad and willing, were weak, and myself surrounded by such circumstances and such people that I knew not whom to trust, then I said in my extremity, 'I will send for Col. Taylor; he will know what to do.' I think it was in January 1862, on or about the 16th, that I did so. You came, and I said to you, 'What can we do?' Said you, 'Why, issue Treasury notes bearing no interest, printed on the best banking paper. Issue enough to pay off the Army expenses, and declare it legal tender.' Chase thought it a hazardous thing, but we finally accomplished it, and gave to the people of this Republic the greatest blessing they ever had-their own paper to pay their own debts, and I take great pleasure in making it known. How many times have I laughed at you telling me plainly that I was too lazy to be anything but a lawyer." Charles Wallace French, The Words of Abraham Lincoln, p. 54-55.
- Wesley C. Mitchell, History of the Greenbacks, pp. 49-50.
- Don C. Barrett, The Greenbacks and Resumption of Specie Payments, 1862-1879, p. 39.
- William F. Hixson, The Triumph of the Bankers, p. 132.
- Robert P. Sharkey, Money, Class and Party, p. 33.
- Allan Nevins, The War for the Union: War Becomes Revolution, 1862-1863, p. 212.
- David Brion Davis
- Paul Finkelman and Martin J. Hershock, editors, The Political Lincoln: An Encyclopedia, p. 45 (Mark S. Joy, "Banking and Monetary Policy").
- Leonard P. Curry, Blueprint for Modern America: Non-military Legislation of the First Civil War Congress, p. 116.
- Robert P. Sharkey, Money, Class and Party: An Economic Study of Civil War and Reconstruction, p. 29.
- Elbridge G. Spaulding, History of the Legal-Tender Paper Money, pp. 15-16.
- Albert G. Riddle, Recollections of War Times: Reminiscences of Men and Events, p. 104.
- Wesley Clair Mitchell, History of the Legal-Tender Acts, pp. 70-71.
- P. J. Staudenraus, editor, Mr. Lincoln's Washington: Selections from the Writings of Noah brooks Civil War Correspondent, pp. 73-74 (January 21, 1863).
- Robert P. Sharkey, Money, Class and Party: An Economic Study of Civil War and Reconstruction, p. 3.
- James M. McPherson, Battle Cry of Freedom, pp. 446-447.
- Winfield Scott Kerr, John Sherman: His Life and Public Services, pp. 154-155.
- John Sherman, Recollections of Forty Years in the House, Senate and Cabinet, Volume I, pp. 272-273.
- (Letter from Salmon P. Chase to Edward Spaulding, January 29, 1862).
- (Letter from Salmon P. Chase to Edward Spaulding, February 3, 1862).
- Robert Warden, An Account of the Private Life and Public Services of Salmon P. Chase, p. 409 (Letter from Salmon P. Chase to William Cullen Bryant, February 4, 1862).
- Albert Gallatin Riddle, Recollections of War Times: Reminiscences of Men and Events in Washington, p. 121.
- Herman Kroos, editor, Documentary History of Banking and Currency in the United States, Volume II, p. 1313.
- Lucius E. Chittenden, Recollections of President Lincoln and His Administration, pp. 307-308.
- Allan Nevins, The War for the Union, 1861-1862, p. 213.
- James M. McPherson, Battle Cry of Freedom, p. 445.
- James M. McPherson, Battle Cry of Freedom, p. 447.
- John Sherman, Recollections of Forty Years in the House, Senate and Cabinet, Volume 1, pp. 332-335.
- William F. Hixson, The Triumph of the Bankers, p. 135.
- Don E. and Virginia Fehrenbacher, editors, The Recollected Words of Abraham Lincoln, p. 284.
- Isaac S. Hartley, "General Francis E. Spinner the Financier," Magazine of American History, 191, p. 200.
- William Marvel, Lincoln's Darkest Year: The War in 1862, pp. 320-321.
- P. J. Staudenraus, editor, Mr. Lincoln's Washington: Selections from the Writings of Noah Brooks Civil War Correspondent, pp. 72-73 (January 21, 1863).
- CWAL, Volume VI, p. 60-61 (Message to the Senate and House of Representatives, January 17, 1863).
- Amos E. Taylor, "The Role of Washington in the National Economy during the Civil War," Records of the Columbia Historical Society, 1953-1956, p. 148.
- Brian McGinty, Lincoln and the Court, p. 22.
- Walter A. McDougall, Throes of Democracy: The American Civil War Era, 1829-1877, p. 456.
- John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, p. 196.
- James M. McPherson, Battle Cry of Freedom, p. 447.
- Mark Thornton and Robert B. Ekelund, Jr., Tariffs, Blockades, and Inflation: The Economics of the Civil War, p. 71.
- William Schultz, and M. R. Caine. Financial Development of the United States, p. 324
- John Kenneth Galbraith, Money: Whence It Came, pp. 114-115.
- Paul Studenski and Herman Edward Krooss. Financial History of the United States, p. 147.
- Susan-Mary Grant, editor, Themes of the American Civil War, pp. 173-174.
- Margaret G. Myers, A Financial History of the United States, p. 171.
- Irwin Unger, The Greenback Era: A Social and Political History of American Finance 1865-1897, pp. 15-16.
- James M. McPherson, Battle Cry of Freedom, p. 447.
- Matthew Josephson, The Robber Barons: The Great American Capitalist, 1861-1901, p. 51.
- CWAL, Volume VII, p. 42-43 Annual Message, December 8, 1863).
- John Niven, "Lincoln and Chase: A Reappraisal," Journal of Abraham Lincoln Association, 1991, p. 11.
- Robert P. Sharkey, Money, Class, and Party: An Economic Study of Civil War and Reconstruction, p. 19.
- Maunsell Field, Memories of Many Men and Some Women, p. 278.
- Allan Nevins, The War for Union,: The Improved War, 1861-1862, Volume I, p. 195.
- Albert Sidney Bowles, The Financial History of the United States, from 1861 to 1885, pp. 17-18.
- William Pitt Fessenden, The Revenue Imperative, p. 96.
- Don C. Barrett, The Greenbacks and Resumption of Specie Payments, 1862-1879, p. 40.
- Theodore Julius Grayson, Leaders and Periods of American Finance, p. 241
- Maunsell Field, Memories of Many Men and Some Women, pp. 275-276.
- Maunsell Field, Memories of Many Men and Some Women, p. 278.
- George Stanton Denison, editor, Diary and correspondence of Salmon P. Chase By Salmon Portland Chase, p. 74 (September 12, 1862).
- Jane Flaherty, The Revenue Imperative: Union Financial Policy During the Civil War, p. 2.
- Allan Nevins, The War for the Union, 1861-1862, p. 213.
- John Steele Gordon, Hamilton's Blessing: The Extraordinary Life and Times of our National Debt, p. 79.
- James M. McPherson, Battle Cry of Freedom, p. 443.
- Marc Egnal, Leader of the Second American Revolution, Ohio History, Volume 14, 2007, p. 111.
- Walter A. McDougall, Throes of Democracy: The American Civil War Era, 1829-1877, p. 433.
- George C. Boutwell, Reminiscences of Sixty Years in Public Affairs, pp. 303-304.
- Harry Edwin Smith, The United States Federal Internal Tax History from 1861 to 1871, p. 273.
- George C. Boutwell, Reminiscences of Sixty Years in Public Affairs, p. 310.
- Mark E. Neely, Jr., The Abraham Lincoln Encyclopedia, p. 54.
- Leonard P. Curry, Blueprint for Modern America, pp. 179-180.
- James M. McPherson, Battle Cry of Freedom, p. 448.
- H. LeRoy Jackson, "Concerning the Financial Affairs of Abraham Lincoln, Esquire," Connecticut Lawyer, February 2008, p. 18.
- John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, p. 200.
- Hugh McCulloch, Men and Measures of Half a Century, p. 184.
- John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, p. 195.
- Phillip Shaw Paludan, "A People's Contest," The Union and Civil War, 1861-1865, p. 122.
- CWAL, Volume V, p. 523 (Annual Message to Congress, December 1, 1862).
- Mark Thornton and Robert B. Ekelund, Jr., Tariffs, Blockades, and Inflation: The Economics of the Civil War, p. 61.
- Paul Finkelman and Martin J. Hershock, editors, The Political Lincoln: An Encyclopedia, p. 46 (Mark S. Joy, "Banking and Monetary Policy").
- John G. Nicolay and John Hay, Abraham Lincoln: A History, Volume VI, pp. 240-241.
- Phillip Shaw Paludan, "A People's Contest," The Union and Civil War, 1861-1865, p. 123.
- Marc Egnal, Leader of the Second American Revolution, Ohio History, Volume 14, 2007, p. 108.
- (Letter from Salmon P. Chase to William Pitt Fessenden, January 27, 1863).
- Jane Flaherty, "'The Exhausted Condition of the Treasury' on the Eve of the Civil War, Civil War History, Volume 66, No. 2, June 2009, p. 275.
- Eric Foner, Reconstruction: America's Unfinished Revolution, 1863-1877, p. 22.
- David Brion Davis, The Boisterous Sea of Liberty, p. 527.
- Bray Hammond, Banks and Politics in America: From the Revolution to the Civil War, p. 718.
- Woodrow Wilson and Edward Samuel Corwin, Division and Reunion, pp. 232-233.
- Bray Hammond, Banks and Politics in America: From the Revolution to the Civil War, p. 728.
- Hugh McCulloch, Men and Measures of Half a Century, p. 163.
- Walter A. McDougall, Throes of Democracy: The American Civil War Era, 1829-1877, p. 434.
- CWAL, Volume VII, p. 41 (Annual Message to Congress, December 1863).
- CWAL, Volume VIII, pp. 143-144 (Annual Message to Congress, December 1864).
- Davis Rich Dewey, Financial History of the United States, pp. 327-328.
- William F. Hixson, The Triumph of the Bankers, p. 143, 137.
- Paul Studenski and Herman Edward Krooss. Financial History of the United States, p. 155.
- John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, p. 197.
- Margaret G. Myers, A Financial History of the United States, p. 163.
- Marc Egnal, Leader of the Second American Revolution, Ohio History, Volume 14, 2007, p. 113.
- Michael Burlingame, editor, Lincoln's Journalist: John Hay's Anonymous Writings for the Press, 1860-1864, p. 193(January 14, 1862).
- Ralph L. Andreano, The Economic Impact of the American Civil War, pp. 15-16 (Reuben A. Kessel and Armen A. Alchian, "Real Wages in the North During the Civil War: Mitchell's Data Reinterpreted").
- William F. Hixson, The Triumph of the Bankers, p. 130.
- Henrieta Larson,. Jay Cooke, Private Banker, p. 133.
- James K. Medbery, Men and Mysteries of Wall Street, p. 241, 244.
- Herman Kroos, editor, Documentary History of Banking and Currency in the United States, Volume II, p. 1346.
- Allan Nevins, The War for the Union, 1863-1864, p. 262.
- Henrieta Larson, Jay Cooke, Private Banker, p. 134.
- Ellis Paxson Oberholtzer, Jay Cooke: Financier of the Civil War, Volume 1, p. 396.
- William Schultz, and M. R. Caine. Financial Development of the United States, p. 326.
- Paul Studenski and Herman Edward Krooss. Financial History of the United States, p. 147.
- Allan Nevins, The War for the Union: The Organized War, 1863-1864, p. 257.
- John Steele Gordon, Hamilton's Blessing: The Extraordinary Life and Times of our National Debt, p. 73.
- John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, p. 197.
- John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, pp. 197-198.
- Allan Nevins, The War for the Union, The Organized War, 1863-1864, p. 262.
- William O. Stoddard, Inside the White House in War Times, pp. 69-70.
- Michael Burlingame, Editor, Inside the White House in War Times: Memoirs and Reports of Lincoln's Secretary, p. xvi.
- Michael Burlingame, editor, Inside Lincoln's White House: The Complete Civil War Diary of John Hay, p. 105.
- Horace White, Money and Banking: Illustrated by American History, p. 118.
- James K. Medbery, Men and Mysteries of Wall Street, p. 246.
- Allan Nevins, The War for the Union, 1863-1864, p. 262.
- James K. Medbery, Men and Mysteries of Wall Street, p. 245.
- Heather Cox Richardson, Republican Economic Policies During the Civil War, p. 96.
- Francis B. Carpenter, The Inner Life of Abraham Lincoln: Six Months at the White House, p. 84, 255.
- John Hay and John G. Nicolay, Abraham Lincoln: A History, Volume VI, p. 238-239.
- John Nevin, The Salmon P. Chase Papers, Volume I, p. xli.
- Allan Nevins, The War for the Union, 1863-1864, p. 262 (Letter from Salmon P. Chase to George Harrington, April 16, 1864).
- Gideon Welles, Diary of Gideon Welles, Volume II, p. 12 (April 15, 1864).
- Gideon Welles, Diary of Gideon Welles, Volume II, p. 13 (April 16, 1864).
- John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, p. 198.
- Henry Crosby Emery, Speculation on the Stock and Produce Exchange of the United States, pp. 194-195.
- Allan Nevins, The War for the Union, 1863-1864, p. 262.
- James Ford Rhodes, History of the Civil War, 1861-1865, pp. 330-331.
- Jessie Ames Marshall, editor, Private and Official Correspondence of Benjamin F. Butler, Volume V, pp. 327-328 (Letter from Benjamin F. Butler to Edwin M. Stanton, November 7, 2009).
- Jessie Ames Marshall, editor, Private and Official Correspondence of Benjamin F. Butler, Volume V, pp. 327-328 (Letter from Benjamin F. Butler to Edwin M. Stanton, November 9, 2009).
- Jessie Ames Marshall, editor, Private and Official Correspondence of Benjamin F. Butler, Volume V, p. 328 (Letter from Edwin M. Stanton to Benjamin F. Butler, November 9, 2009).
- Leonel L. Richards, California Gold Rush and the Coming of the Civil War, p. 230.
- Michael Burlingame, Abraham Lincoln: A Life, Volume II, p. 809.
- Doris Kearns Goodwin, Team of Rivals, p. 509.
- Allan Nevins, The War for the Union: The Organized War to Victory, 1864-1865, pp. 66-67.
- John Niven, Lincoln and Chase, a Reappraisal, Journal of the Abraham Lincoln Association, 1991, p. 14.
- Michael Burlingame, Abraham Lincoln: A Life, Volume II, pp. 612-613.
- Donnal V. Smith, Chase and Civil War Politics, p. 102 (Letter from Salmon P. Chase to J. W. Hartwell, February 2, 1864).
- David H. Donald, editor, Inside Lincoln's Cabinet: the Civil War Diaries of Salmon P. Chase, p. 212.
- Gideon Welles, Diary of Gideon Welles, Volume II, p. 69 (July 7, 1864).
- Michael Burlingame, Abraham Lincoln: A Life, Volume II, p. 612 (Letter from Chase to Joshua Leavitt, 1863).
- Albert Bushnell Hart, Salmon P. Chase, pp. 306-307.
- Gideon Welles, Diary of Gideon Welles, Volume II, pp. 14-15 (April 18, 1864).
- Gideon Welles, Diary of Gideon Welles, Volume II, p. 29 (May 19, 1864)
- Robert Bruce Warden, An Account of the Private Life and Public Services of Salmon P. Chase, Volume II, pp. 607-608.
- John Niven, editor, The Salmon P. Chase Papers, p. 469-470 (Diary, June 30, 1864).
- Lucius Chittenden, Personal Reminiscences, 1840-1890, p. 379.
- David Donald, editor, Inside Lincoln's Cabinet: the Civil War Diaries of Salmon P. Chase, p. 226 (July 1, 1864).
- Michael Burlingame and Turner Ettlinger, editors, Inside Lincoln's White House: The Complete Civil War Diary of John Hay, p. 216 (July 1, 1864).
- Francis Fessenden, Life and Public Services of William Pitt Fessenden: United States Senator, pp. 315-316.
- Michael Burlingame and John R. Turner Ettlinger, editors, Inside Lincoln's White House: The Complete Civil War Diary of John Hay, pp. 215-216 (July 1, 1864).
- David Donald, editor, Inside Lincoln's Cabinet: the Civil War Diaries of Salmon P. Chase, p. 227 (July 1, 1864).
- Noah Brooks, Lincoln Observed, pp. 118-120.
- Frances Fessenden, Life and Public Services of William Pitt Fessenden: United States Senator, p. 318.
- David H. Donald, editor, Inside Lincoln's Cabinet, pp. 226-228 (July 1, 1864).
- Marc Egnal, Clash of Extremes: The Economic Origins of the Civil War, p. 309.
- Francis Fessenden, Life and Public Services of William Pitt Fessenden: United States Senator, p. 254.
- Gideon Welles, Diary of Gideon Welles, Volume II, p. 86 (July 16, 1864).
- David P. Crook, The North, the South and the Powers, p. 155.
- Don E. and Virginia Fehrenbacher, editors, Recollected Words of Abraham Lincoln, p. 15 (Baltimore American and Commercial Advertiser, December 9, 1864).
- CWAL, Volume VIII, pp. 142-144 (Annual Message to Congress, December 6, 1864).
- Jane Flaherty, "'The Exhausted Condition of the Treasury' on the Eve of the Civil War, Civil War History, Volume 66, No. 2, June 2009, pp. 266.
- Henrieta Larson, Jay Cooke, Private Banker, p. 110.
- Jane Flaherty, The Revenue Imperative, p. 1.
- Mark Thornton and Robert B. Ekelund, Jr., Tariffs, Blockades, and Inflation: The Economics of the Civil War, p. 76.
- Ralph L. Andreano, The Economic Impact of the American Civil War, p. 14 (Reuben A. Kessel and Armen A. Alchian, "Real Wages in the North During the Civil War: Mitchell's Data Reinterpreted").
- Bray Hammond, Sovereignty and an Empty Purse: Banks and Politics in the Civil War, p. 348.
- John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, pp. 191-192.
- Bray Hammond, Banks and Politics in America: From the Revolution to the Civil War, p. 720.
- Philip Shaw Paludan, A People's Contest, the Union and Civil War, 1861-1865, p. 149.
- Hugh McCulloch, Men and Measures of Half a Century, p. 222.
- David H. Donald, editor, Inside Lincoln's Cabinet: The Civil War Diaries of Salmon P. Chase, p. 225 (July 1, 1864).
- Hugh McCulloch, Men and Measures of Half a Century, pp. 193, 186.
- Hugh McCulloch, Men and Measures of Half a Century, pp. 185.
- Hugh McCulloch, Men and Measures of Half a Century: Sketches and Comments, p. 182.
- Doris Kearns Goodwin, Team of Rivals, p. 518.
- Jane Flaherty, The Revenue Imperative, pp. 65-66.
- Bray Hammond, Sovereignty and an Empty Purse: Banks and Politics in the Civil War, p. 359.
- Marc Egnal, Clash of Extremes, pp. 314, 325.
- E. P. Oberholtzer, Jay Cooke: Financier of the Civil War, Volume I, p. 574.
- Allan Nevins, The War for the Union: The Organized War, 1863-1864, p. 245.
- Ralph L. Andreano, The Economic Impact of the American Civil War, pp. 78-79 (Wayne D. Rasmussen, "The Civil War: A Catalyst of Agricultural Revolution").
- Lee A. Craig and Thomas Weis, "Agricultural Productivity Growth During the Decade of the Civil War," The Journal of Economic History, September, 1993, p. 545.
- Allan Nevins, The War for the Union: The Organized War, 1863-1864, pp. 213-215.
- CWAL, Volume VI, p. 496-496 (Proclamation of Thanksgiving, October 3, 1863).